##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549




---

FORM 10-Q

|           |  |                                                                                          
|---------- |  | -----------------------------------------------------------------------------------------
|          
|          
|          
|          
|(Mark One) |  |                                                                                          
|x          |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR
	15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
|           |  | For the quarterly period ended June 30,
	2001                                            
|OR        
|o          |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR
	15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|           |  | For the transition period
	from                to                                        

Commission File Number: 0-20646



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Caraustar Industries, Inc.

(Exact name of registrant as specified in its
charter)


|                                                                |  |                                         
|--------------------------------------------------------------- |  | ----------------------------------------
|                                                               
|                                                               
|                                                               
|                                                               
|North Carolina                                                  |  | 58-1388387                              
|(State or other jurisdiction of
	incorporation or organization) |  | (I.R.S. Employer Identification
	Number)
|                                                               
|                                                               
|                                                               
|                                                               
|                                                               
|3100 Joe Jerkins Blvd., Austell,
	Georgia                       |  | 30106                                   
|(Address of principal executive offices)                        |  | (Zip Code)                              

(770) 948-3101

(Registrants telephone number, including
area code)


Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.

Yes 
x
                    No 
 o

Indicate the number of shares outstanding of each of
issuers classes of common stock, as of the latest
practicable date, August 7, 2001.

|                             |  |              
|---------------------------- |  | -------------
|Common Stock, $.10 par value |  | 27,856,291   
|                             |  |              
|(Class)                      |  | (Outstanding)



---






---

TABLE OF CONTENTS



|                                  |                                                                                       |  |  |  |  |  |  | 
|--------------------------------- | ------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I, ITEM 1.                  
|                                  | CONDENSED CONSOLIDATED BALANCE SHEETS                                                
|                                  | CONDENSED CONSOLIDATED STATEMENTS OF INCOME                                          
|                                  | CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                                      
|                                  | NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS                                 
|PART I, ITEM 2.                  
|                                  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|PART I, ITEM 3.                  
|                                  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|Computation of Earnings Per Share
|Accountants' preferability letter



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##### Table of Contents



FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001

CARAUSTAR INDUSTRIES, INC.

TABLE OF CONTENTS

|              |  |                                                                                                                                                                                               |    |      |    | 
|------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|              |  |                                                                                                                                                                                               |    | Page
|              |  |                                                                                                                                                                                               |    |     
|PART I       |  | FINANCIAL INFORMATION                                                                                                                                                                         |    |      |    | 
|Item 1.       |  | Condensed Consolidated Financial Statements:                                                                                                                                                  |    |      |    | 
|             
|             
|             
|             
|              |  | Condensed Consolidated Balance Sheets as of
        June 30, 2001 and December 31, 2000                                                                                                       |    |      | 3  | 
|             
|             
|             
|             
|              |  | Condensed Consolidated Statements of Income for
        the three-month and six-month periods ended June 30, 2001
        and June 30, 2000                                                   |    |      | 4  | 
|             
|             
|             
|             
|              |  | Condensed Consolidated Statements of Cash Flows
        for the six-month periods ended June 30, 2001 and
        June 30, 2000                                                               |    |      | 5  | 
|             
|             
|             
|             
|              |  | Notes to Condensed Consolidated Financial
        Statements                                                                                                                                  |    |      | 6  | 
|             
|             
|             
|             
|Item 2.       |  | Managements Discussion and Analysis of
        Financial Condition and Results of Operations for the
        three-month and six-month periods ended June 30, 2001 and
        June 30, 2000 |    |      | 13 | 
|             
|             
|             
|             
|Item 3.       |  | Quantitative and Qualitative Disclosures About
        Market Risk                                                                                                                            |    |      | 28 | 
|             
|             
|             
|             
|             
|PART II      |  | OTHER INFORMATION                                                                                                                                                                             |    |      |    | 
|             
|             
|             
|             
|Item 1.       |  | Legal Proceedings                                                                                                                                                                             |    |      | 29 | 
|             
|             
|             
|             
|Item 4.       |  | Submission of Matters to a Vote of Security
        Holders                                                                                                                                   |    |      | 29 | 
|             
|             
|             
|             
|Item 5.       |  | Other Information                                                                                                                                                                             |    |      | 29 | 
|             
|             
|             
|             
|Item 6.       |  | Exhibits and Reports on Form 8-K                                                                                                                                                              |    |      | 29 | 
|             
|             
|             
|             
|Signatures    |  |                                                                                                                                                                                               | 31 |     
|             
|             
|             
|             
|Exhibit Index |  |                                                                                                                                                                                               | 32 |     

2



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##### Table of Contents






FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001

PART I, ITEM 1.


CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES




CONDENSED CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS, EXCEPT SHARE DATA)


|                                                               |                                                                                                                                                                                                  |                           |         |              |         |   |         |          |         | 
|-------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ------------------------- | ------- | ------------ | ------- | - | ------- | -------- | ------- | 
|                                                               |                                                                                                                                                                                                  | June 30,                  |         | December 31,
|                                                               |                                                                                                                                                                                                  | 2001                      |         | 2000*       
|                                                               |                                                                                                                                                                                                  |                           |         |             
|                                                               |                                                                                                                                                                                                  | (Unaudited)               |         |             
|ASSETS                                                        
|                                                              
|                                                              
|                                                              
|                                                              
|CURRENT ASSETS:                                                |                                                                                                                                                                                                  |                           |         |              |         |   |         |         
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Cash and cash equivalents                                                                                                                                                                        |                           | $       | 25,177       |         |   | $       | 8,900    |        
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Receivables, net of allowances                                                                                                                                                                   |                           |         | 106,019      |         |   |         | 93,145   |        
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Inventories                                                                                                                                                                                      |                           |         | 106,298      |         |   |         | 111,560  |        
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Refundable income taxes                                                                                                                                                                          |                           |         | 3,825        |         |   |         | 3,913    |        
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Other current assets                                                                                                                                                                             |                           |         | 12,692       |         |   |         | 9,438    |        
|                                                               |                                                                                                                                                                                                  |                           |         |              |         |   |         |         
|                                                               |                                                                                                                                                                                                  | Total current assets      |         |              | 254,011 |   |         |          | 226,956 | 
|                                                               |                                                                                                                                                                                                  |                           |         |              |         |   |         |         
|PROPERTY, PLANT AND EQUIPMENT:                                 |                                                                                                                                                                                                  |                           |         |              |         |   |         |         
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Land                                                                                                                                                                                             |                           |         | 12,648       |         |   |         | 12,663   |        
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Buildings and improvements                                                                                                                                                                       |                           |         | 133,243      |         |   |         | 127,816  |        
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Machinery and equipment                                                                                                                                                                          |                           |         | 621,686      |         |   |         | 620,418  |        
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Furniture and fixtures                                                                                                                                                                           |                           |         | 12,415       |         |   |         | 12,164   |        
|                                                               |                                                                                                                                                                                                  |                           |         |              |         |   |         |         
|                                                               |                                                                                                                                                                                                  |                           | 779,992 |              |         |   | 773,061 |         
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Less accumulated depreciation                                                                                                                                                                    |                           |         | (310,279     | )       |   |         | (289,752 | )      
|                                                               |                                                                                                                                                                                                  |                           |         |              |         |   |         |         
|                                                               | Property, plant and equipment, net                                                                                                                                                               |                           |         | 469,713      |         |   |         | 483,309  |        
|                                                               |                                                                                                                                                                                                  |                           |         |              |         |   |         |         
|GOODWILL, net                                                  |                                                                                                                                                                                                  |                           | 148,694 |              |         |   | 150,894 |         
|                                                               |                                                                                                                                                                                                  |                           |         |              |         |   |         |         
|INVESTMENT IN UNCONSOLIDATED AFFILIATES                        |                                                                                                                                                                                                  |                           | 63,160  |              |         |   | 65,895  |         
|                                                               |                                                                                                                                                                                                  |                           |         |              |         |   |         |         
|OTHER ASSETS                                                   |                                                                                                                                                                                                  |                           | 17,475  |              |         |   | 7,043   |         
|                                                               |                                                                                                                                                                                                  |                           |         |              |         |   |         |         
|                                                               |                                                                                                                                                                                                  | $                         | 953,053 |              |         | $ | 934,097 |         
|                                                               |                                                                                                                                                                                                  |                           |         |              |         |   |         |         
|                                                              
|                                                              
|                                                              
|                                                              
|LIABILITIES AND SHAREHOLDERS
        EQUITY                  
|                                                              
|                                                              
|                                                              
|                                                              
|CURRENT LIABILITIES:                                           |                                                                                                                                                                                                  |                           |         |              |         |   |         |         
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Current maturities of debt                                                                                                                                                                       |                           | $       | 398          |         |   | $       | 1,259    |        
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accounts payable                                                                                                                                                                                 |                           |         | 57,172       |         |   |         | 63,752   |        
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accrued liabilities                                                                                                                                                                              |                           |         | 48,104       |         |   |         | 56,531   |        
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Dividends payable                                                                                                                                                                                |                           |         | 836          |         |   |         | 4,702    |        
|                                                               |                                                                                                                                                                                                  |                           |         |              |         |   |         |         
|                                                               |                                                                                                                                                                                                  | Total current liabilities |         |              | 106,510 |   |         |          | 126,244 | 
|                                                               |                                                                                                                                                                                                  |                           |         |              |         |   |         |         
|SENIOR CREDIT FACILITY (Note 4)                                |                                                                                                                                                                                                  |                           | 0       |              |         |   | 194,000 |         
|                                                               |                                                                                                                                                                                                  |                           |         |              |         |   |         |         
|OTHER LONG-TERM DEBT, less current maturities
        (Note 4) |                                                                                                                                                                                                  |                           | 508,447 |              |         |   | 272,813 |         
|                                                               |                                                                                                                                                                                                  |                           |         |              |         |   |         |         
|DEFERRED INCOME TAXES                                          |                                                                                                                                                                                                  |                           | 45,000  |              |         |   | 50,949  |         
|                                                               |                                                                                                                                                                                                  |                           |         |              |         |   |         |         
|DEFERRED COMPENSATION                                          |                                                                                                                                                                                                  |                           | 2,121   |              |         |   | 2,315   |         
|                                                               |                                                                                                                                                                                                  |                           |         |              |         |   |         |         
|OTHER LIABILITIES                                              |                                                                                                                                                                                                  |                           | 5,060   |              |         |   | 6,853   |         
|                                                               |                                                                                                                                                                                                  |                           |         |              |         |   |         |         
|MINORITY INTEREST                                              |                                                                                                                                                                                                  |                           | 1,078   |              |         |   | 1,115   |         
|                                                               |                                                                                                                                                                                                  |                           |         |              |         |   |         |         
|COMMITMENTS AND CONTINGENCIES (Note 8)                         |                                                                                                                                                                                                  |                           |         |              |         |   |         |         
|                                                              
|                                                              
|                                                              
|                                                              
|SHAREHOLDERS EQUITY:                                          |                                                                                                                                                                                                  |                           |         |              |         |   |         |         
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Preferred stock, $.10 par value; 5,000,000 shares
        authorized; none issued                                                                                                                |                           |         | 0            |         |   |         | 0        |        
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Common stock, $.10 par value; 60,000,000 shares
        authorized, 27,851,824 and 26,204,567 shares issued and
        outstanding at June 30, 2001 and December 31, 2000,
        respectively |                           |         | 2,785        |         |   |         | 2,620    |        
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Additional paid-in capital                                                                                                                                                                       |                           |         | 179,618      |         |   |         | 160,824  |        
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Retained earnings                                                                                                                                                                                |                           |         | 103,311      |         |   |         | 117,117  |        
|                                                              
|                                                              
|                                                              
|                                                              
|                                                               | Accumulated other comprehensive income                                                                                                                                                           |                           |         | (877         | )       |   |         | (753     | )      
|                                                               |                                                                                                                                                                                                  |                           |         |              |         |   |         |         
|                                                               |                                                                                                                                                                                                  |                           | 284,837 |              |         |   | 279,808 |         
|                                                               |                                                                                                                                                                                                  |                           |         |              |         |   |         |         
|                                                               |                                                                                                                                                                                                  | $                         | 953,053 |              |         | $ | 934,097 |         
|                                                               |                                                                                                                                                                                                  |                           |         |              |         |   |         |         






The accompanying notes are an integral part of these condensed
consolidated balance sheets.

3



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##### Table of Contents



FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001 
 PART I, ITEM 1.

CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES




CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(IN THOUSANDS, EXCEPT PER SHARE DATA)


|                                                                                    |                                                              |                      |         |                    |         |      |         |        |         |   |         |         |         |   |         |         |         | 
|----------------------------------------------------------------------------------- | ------------------------------------------------------------ | -------------------- | ------- | ------------------ | ------- | ---- | ------- | ------ | ------- | - | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                                                    |                                                              |                      |         |                   
|                                                                                    |                                                              | For the Three Months |         | For the Six Months
|                                                                                    |                                                              | Ended June 30,       |         | Ended June 30,    
|                                                                                    |                                                              |                      |         |                   
|                                                                                    |                                                              | 2001                 |         | 2000*              |         | 2001 |         | 2000* 
|                                                                                    |                                                              |                      |         |                    |         |      |         |       
|                                                                                    |                                                              |                      |         |                   
|                                                                                    |                                                              | (Unaudited)          |         | (Unaudited)       
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|SALES                                                                               |                                                              | $                    | 229,759 |                    |         | $    | 268,631 |        |         | $ | 462,847 |         |         | $ | 529,481 |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|FREIGHT                                                                             |                                                              |                      | 13,444  |                    |         |      | 13,552  |        |         |   | 26,430  |         |         |   | 25,849  |        
|                                                                                    |                                                              |                      |         |                    |         |      |         |        |         |   |         |         |         |   |         |        
|                                                                                    |                                                              | Net sales            |         |                    | 216,315 |      |         |        | 255,079 |   |         |         | 436,417 |   |         |         | 503,632 | 
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|COST OF SALES                                                                       |                                                              |                      | 165,615 |                    |         |      | 198,253 |        |         |   | 344,022 |         |         |   | 392,639 |        
|                                                                                    |                                                              |                      |         |                    |         |      |         |        |         |   |         |         |         |   |         |        
|                                                                                    |                                                              | Gross profit         |         |                    | 50,700  |      |         |        | 56,826  |   |         |         | 92,395  |   |         |         | 110,993 | 
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|SELLING, GENERAL AND ADMINISTRATIVE EXPENSES                                        |                                                              |                      | 36,312  |                    |         |      | 36,561  |        |         |   | 73,029  |         |         |   | 75,051  |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|RESTRUCTURING COSTS (Note 7)                                                        |                                                              |                      | 0       |                    |         |      | 0       |        |         |   | 7,083   |         |         |   | 6,913   |        
|                                                                                    |                                                              |                      |         |                    |         |      |         |        |         |   |         |         |         |   |         |        
|                                                                                    |                                                              | Operating income     |         |                    | 14,388  |      |         |        | 20,265  |   |         |         | 12,283  |   |         |         | 29,029  | 
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|OTHER (EXPENSE) INCOME:                                                             |                                                              |                      |         |                    |         |      |         |        |         |   |         |         |         |   |         |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Interest expense                                             |                      |         | (11,556            | )       |      |         | (7,824 | )       |   |         | (20,766 | )       |   |         | (15,611 | )      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Interest income                                              |                      |         | 217                |         |      |         | 83     |         |   |         | 305     |         |   |         | 257     |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Equity in (loss) income of unconsolidated
        affiliates |                      |         | (1,150             | )       |      |         | 3,460  |         |   |         | (2,735  | )       |   |         | 6,370   |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                    | Other, net                                                   |                      |         | (791               | )       |      |         | (282   | )       |   |         | (513    | )       |   |         | (350    | )      
|                                                                                    |                                                              |                      |         |                    |         |      |         |        |         |   |         |         |         |   |         |        
|                                                                                    |                                                              |                      | (13,280 | )                  |         |      | (4,563  | )      |         |   | (23,709 | )       |         |   | (9,334  | )      
|                                                                                    |                                                              |                      |         |                    |         |      |         |        |         |   |         |         |         |   |         |        
|INCOME (LOSS) BEFORE MINORITY INTEREST, INCOME
        TAXES AND EXTRAORDINARY LOSS |                                                              |                      | 1,108   |                    |         |      | 15,702  |        |         |   | (11,426 | )       |         |   | 19,695  |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|MINORITY INTEREST                                                                   |                                                              |                      | 65      |                    |         |      | (58     | )      |         |   | 37      |         |         |   | (133    | )      
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|PROVISION (BENEFIT) FOR INCOME TAXES                                                |                                                              |                      | 797     |                    |         |      | 6,158   |        |         |   | (3,634  | )       |         |   | 7,915   |        
|                                                                                    |                                                              |                      |         |                    |         |      |         |        |         |   |         |         |         |   |         |        
|INCOME (LOSS) BEFORE EXTRAORDINARY
        LOSS                                     |                                                              | $                    | 376     |                    |         | $    | 9,486   |        |         | $ | (7,755  | )       |         | $ | 11,647  |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|EXTRAORDINARY LOSS FROM EARLY EXTINGUISHMENT OF
        DEBT, NET OF TAX BENEFIT    |                                                              | $                    | 0       |                    |         | $    | 0       |        |         | $ | (2,695  | )       |         | $ | 0       |        
|                                                                                    |                                                              |                      |         |                    |         |      |         |        |         |   |         |         |         |   |         |        
|NET INCOME (LOSS)                                                                   |                                                              | $                    | 376     |                    |         | $    | 9,486   |        |         | $ | (10,450 | )       |         | $ | 11,647  |        
|                                                                                    |                                                              |                      |         |                    |         |      |         |        |         |   |         |         |         |   |         |        
|BASIC                                                                               |                                                              |                      |         |                    |         |      |         |        |         |   |         |         |         |   |         |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|EARNINGS (LOSS) PER COMMON SHARE BEFORE
        EXTRAORDINARY LOSS                  |                                                              | $                    | 0.01    |                    |         | $    | 0.37    |        |         | $ | (0.28   | )       |         | $ | 0.45    |        
|                                                                                    |                                                              |                      |         |                    |         |      |         |        |         |   |         |         |         |   |         |        
|EXTRAORDINARY LOSS PER COMMON SHARE                                                 |                                                              | $                    | 0.00    |                    |         | $    | 0.00    |        |         | $ | (0.10   | )       |         | $ | 0.00    |        
|                                                                                    |                                                              |                      |         |                    |         |      |         |        |         |   |         |         |         |   |         |        
|NET INCOME (LOSS) PER COMMON SHARE                                                  |                                                              | $                    | 0.01    |                    |         | $    | 0.37    |        |         | $ | (0.38   | )       |         | $ | 0.45    |        
|                                                                                    |                                                              |                      |         |                    |         |      |         |        |         |   |         |         |         |   |         |        
|Weighted average number of shares outstanding                                       |                                                              |                      | 27,852  |                    |         |      | 25,784  |        |         |   | 27,834  |         |         |   | 25,704  |        
|                                                                                    |                                                              |                      |         |                    |         |      |         |        |         |   |         |         |         |   |         |        
|DILUTED                                                                             |                                                              |                      |         |                    |         |      |         |        |         |   |         |         |         |   |         |        
|                                                                                   
|                                                                                   
|                                                                                   
|                                                                                   
|EARNINGS (LOSS) PER COMMON SHARE BEFORE
        EXTRAORDINARY LOSS                  |                                                              | $                    | 0.01    |                    |         | $    | 0.37    |        |         | $ | (0.28   | )       |         | $ | 0.45    |        
|                                                                                    |                                                              |                      |         |                    |         |      |         |        |         |   |         |         |         |   |         |        
|EXTRAORDINARY LOSS PER COMMON SHARE                                                 |                                                              | $                    | 0.00    |                    |         | $    | 0.00    |        |         | $ | (0.10   | )       |         | $ | 0.00    |        
|                                                                                    |                                                              |                      |         |                    |         |      |         |        |         |   |         |         |         |   |         |        
|NET INCOME (LOSS) PER COMMON SHARE                                                  |                                                              | $                    | 0.01    |                    |         | $    | 0.37    |        |         | $ | (0.38   | )       |         | $ | 0.45    |        
|                                                                                    |                                                              |                      |         |                    |         |      |         |        |         |   |         |         |         |   |         |        
|Diluted weighted average number of shares
        outstanding                       |                                                              |                      | 27,865  |                    |         |      | 25,793  |        |         |   | 27,840  |         |         |   | 25,721  |        
|                                                                                    |                                                              |                      |         |                    |         |      |         |        |         |   |         |         |         |   |         |        






|  |                                                                                                                                                                                                                                                              
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | The three and six month periods ended June 30, 2000 were
        restated to reflect the change in the inventory costing method
        of accounting from LIFO to FIFO at one of the Companys
        subsidiaries. See Note  2 for additional information.

The accompanying notes are an integral part of these
consolidated statements of income.

4



---



##### Table of Contents



FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001

PART I, ITEM 1.


CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES




CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)


|                           |                                                              |                                                                             |   |        |          |   |   |         |         |  
|-------------------------- | ------------------------------------------------------------ | --------------------------------------------------------------------------- | - | ------ | -------- | - | - | ------- | ------- | -
|                           |                                                              |                                                                            
|                           |                                                              | For the Six Months Ended                                                   
|                           |                                                              | June 30,                                                                   
|                           |                                                              |                                                                            
|                           |                                                              | 2001                                                                        |   | 2000* 
|                           |                                                              |                                                                             |   |       
|                           |                                                              |                                                                            
|                           |                                                              | (Unaudited)                                                                
|Cash provided by (used in) |                                                              |                                                                             |   |        |          |   |   |        
|                          
|                          
|                          
|                          
|                           | Operating activities:                                        |                                                                             |   |        |          |   |   |         |        
|                          
|                          
|                          
|                          
|                           |                                                              | Net (loss) income                                                           |   | $      | (10,450  | ) |   | $       | 11,647  |  
|                          
|                          
|                          
|                          
|                           |                                                              | Extraordinary loss from early extinguishment of
        debt                |   |        | 4,305    |   |   |         | 0       |  
|                          
|                          
|                          
|                          
|                           |                                                              | Depreciation and amortization                                               |   |        | 31,011   |   |   |         | 29,874  |  
|                          
|                          
|                          
|                          
|                           |                                                              | Restructuring costs                                                         |   |        | 3,987    |   |   |         | 5,696   |  
|                          
|                          
|                          
|                          
|                           |                                                              | Other noncash adjustments                                                   |   |        | (5,867   | ) |   |         | 6,216   |  
|                          
|                          
|                          
|                          
|                           |                                                              | Equity in income of unconsolidated affiliates,
        net of distributions |   |        | 2,735    |   |   |         | (2,370  | )
|                          
|                          
|                          
|                          
|                           |                                                              | Changes in current assets and liabilities                                   |   |        | (9,430   | ) |   |         | (25,982 | )
|                           |                                                              |                                                                             |   |        |          |   |   |        
|                           |                                                              | Net cash provided by operating activities                                   |   |        | 16,291   |   |   |         | 25,081  |  
|                           |                                                              |                                                                             |   |        |          |   |   |        
|                           | Investing activities:                                        |                                                                             |   |        |          |   |   |         |        
|                          
|                          
|                          
|                          
|                           |                                                              | Purchases of property, plant and equipment                                  |   |        | (17,868  | ) |   |         | (33,449 | )
|                          
|                          
|                          
|                          
|                           |                                                              | Acquisitions of businesses, net of cash acquired                            |   |        | (34      | ) |   |         | (4,056  | )
|                          
|                          
|                          
|                          
|                           |                                                              | Investment in unconsolidated affiliates                                     |   |        | 0        |   |   |         | (50,809 | )
|                          
|                          
|                          
|                          
|                           |                                                              | Other                                                                       |   |        | 89       |   |   |         | 2,693   |  
|                           |                                                              |                                                                             |   |        |          |   |   |        
|                           |                                                              | Net cash used in investing activities                                       |   |        | (17,813  | ) |   |         | (85,621 | )
|                           |                                                              |                                                                             |   |        |          |   |   |        
|                           | Financing activities:                                        |                                                                             |   |        |          |   |   |         |        
|                          
|                          
|                          
|                          
|                           |                                                              | Proceeds from senior credit facility                                        |   |        | 18,000   |   |   |         | 103,000 |  
|                          
|                          
|                          
|                          
|                           |                                                              | Repayments of senior credit facility                                        |   |        | (212,000 | ) |   |         | (49,000 | )
|                          
|                          
|                          
|                          
|                           |                                                              | Proceeds from the issuance of the 7 1/4% and
        9 7/8% notes           |   |        | 291,200  |   |   |         | 0       |  
|                          
|                          
|                          
|                          
|                           |                                                              | Repayments of other long and short-term debt                                |   |        | (67,109  | ) |   |         | (104    | )
|                          
|                          
|                          
|                          
|                           |                                                              | 7.74% senior notes prepayment penalty                                       |   |        | (3,565   | ) |   |         | 0       |  
|                          
|                          
|                          
|                          
|                           |                                                              | Dividends paid                                                              |   |        | (7,202   | ) |   |         | (9,194  | )
|                          
|                          
|                          
|                          
|                           |                                                              | Proceeds from issuance of stock                                             |   |        | 0        |   |   |         | 460     |  
|                          
|                          
|                          
|                          
|                           |                                                              | Other                                                                       |   |        | (1,525   | ) |   |         | (420    | )
|                           |                                                              |                                                                             |   |        |          |   |   |        
|                           |                                                              | Net cash provided by financing activities                                   |   |        | 17,799   |   |   |         | 44,742  |  
|                           |                                                              |                                                                             |   |        |          |   |   |        
|                           | Net increase (decrease) in cash and cash
        equivalents |                                                                             |   | 16,277 |          |   |   | (15,798 | )      
|                          
|                          
|                          
|                          
|                           | Cash and cash equivalents at beginning of period             |                                                                             |   | 8,900  |          |   |   | 18,771  |        
|                           |                                                              |                                                                             |   |        |          |   |   |        
|                           | Cash and cash equivalents at end of period                   |                                                                             | $ | 25,177 |          |   | $ | 2,973   |        
|                           |                                                              |                                                                             |   |        |          |   |   |        
|                           | Supplemental Disclosures:                                    |                                                                             |   |        |          |   |   |         |        
|                          
|                          
|                          
|                          
|                           |                                                              | Cash payments for interest                                                  |   | $      | 14,504   |   |   | $       | 14,572  |  
|                           |                                                              |                                                                             |   |        |          |   |   |        
|                           |                                                              | Cash payments for income taxes                                              |   | $      | 1,113    |   |   | $       | 5,185   |  
|                           |                                                              |                                                                             |   |        |          |   |   |        
|                           |                                                              | Stock issued for acquisitions                                               |   | $      | 18,799   |   |   | $       | 5,374   |  
|                           |                                                              |                                                                             |   |        |          |   |   |        






|  |                                                                                                                                                                                                                                                 
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | The six month period ended June 30, 2000 was restated to
        reflect the change in the inventory costing method of accounting
        from LIFO to FIFO at one of the Companys subsidiaries. See
        Note 2 for additional information.

The accompanying notes are an integral part of these condensed
consolidated statements of cash flows.

5



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##### Table of Contents



FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001

PART I, ITEM 1.


CARAUSTAR INDUSTRIES, INC.




NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2001


(UNAUDITED)


Note  1.     Basis of
Presentation



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The financial information included herein is unaudited; however,
        such information reflects all adjustments (consisting of normal
        recurring adjustments) which are, in the opinion of management,
        necessary for a fair statement of results for the interim
        periods. The results of operations for the six months ended
        June 30, 2001 are not necessarily indicative of the results
        to be expected for the full year.

Note 
2.     Inventory



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Prior to June 30, 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, and increase net income for the
        three-month periods ended June 30, 2001 and June 30,
        2000 by $18,000 and $19,000, respectively. The effect on net
        income for the six-month periods ended June 30, 2001 and
        June 30, 2000, was $36,000, and $38,000, respectively.

Note  3.     Comprehensive
Income (Loss)



| |                                                                                                                                                                                                                                                                                                                                                                    
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Total comprehensive income, consisting of net income plus other
        nonowner changes in equity, for the three months ended
        June 30, 2001 and 2000 was $390,000 and $9,331,000,
        respectively. For the six months ended June 30, 2001 and
        2000 total comprehensive (loss) income was ($10,574,000)
        and $11,449,000, respectively.

Note  4.     Senior Credit
Facility and Other Long-Term Debt



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On March 29, 2001, the Company obtained a new credit
        facility that provides for a revolving line of credit in the
        aggregate principal amount of $75,000,000 for a term of three
        years, including subfacilities of $10,000,000 for swingline
        loans and $15,000,000 for letters of credit, usage of which
        reduces availability under the facility. No borrowings were
        outstanding under the facility as of June  30, 2001,
        although an aggregate of $9,838,000 in letter of credit
        obligations were outstanding. The Company intends to use the
        facility for working capital, capital expenditures and other
        general corporate purposes. Although the new facility is
        unsecured, the Companys obligations under the facility are
        unconditionally guaranteed, on a joint and several basis, by all
        of its existing and subsequently acquired wholly owned domestic
        subsidiaries.
|
| | Borrowings under the facility bear interest at a rate equal to,
        at the Companys option, either (1) the base rate
        (which is equal to the greater of the prime rate most recently
        announced by Bank of America, N.A., the administrative agent
        under the facility, or the federal funds rate plus one-half of
        1%) or (2) the adjusted Eurodollar Interbank Offered Rate,
        in each case plus an applicable margin determined by reference
        to the Companys leverage ratio (which is defined under the
        new facility as                                                                                                                                                                                                                                                                                                                                                                                                            

6



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##### Table of Contents



FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001


PART I, ITEM 1.




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | the ratio of the Companys total debt to its total
	capitalization). The initial applicable margins are 2.0% for
	Eurodollar rate loans and 0.75% for base rate loans. Beginning
	on the date the Company delivers its financial statements for
	the fiscal quarter ending September 30, 2001, the initial
	margins will be subject to reduction based on the Companys
	leverage ratio. Additionally, the undrawn portion of the
	facility is subject to a facility fee at an annual rate that is
	presently set at 0.5%, also subject to reduction, beginning on
	the date the Company delivers its September 30, 2001
	financial statements, based on its leverage ratio.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | The facility contains covenants that restrict, among other
	things, the Companys ability and its subsidiaries
	ability to create liens, merge or consolidate, dispose of
	assets, incur indebtedness and guarantees, pay dividends,
	repurchase or redeem capital stock and indebtedness, make
	certain investments or acquisitions, enter into certain
	transactions with affiliates, make capital expenditures or
	change the nature of the Companys business. The facility
	also contains several financial maintenance covenants, including
	covenants establishing a maximum leverage ratio (as described
	above), minimum tangible net worth and a minimum interest
	coverage ratio.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | The facility contains events of default including, but not
	limited to, nonpayment of principal or interest, violation of
	covenants, incorrectness of representations and warranties,
	cross-default to other indebtedness, bankruptcy and other
	insolvency events, material judgments, certain ERISA events,
	actual or asserted invalidity of loan documentation and certain
	changes of control of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | On March 22, 2001, the Company obtained commitments and
	executed an agreement for the issuance of $285,000,000 of
	9 7/8% senior subordinated notes due April 1, 2011 and
	$29,000,000 of 7 1/4% senior notes due May 1, 2010.
	These senior subordinated notes and senior notes were issued at
	a discount to yield effective interest rates of 10.5% and 9.4%,
	respectively. Under the terms of the agreement, the Company
	received aggregate proceeds, net of issuance costs, of
	approximately $291,200,000 on March 29, 2001. These
	proceeds were used to repay borrowings outstanding under the
	Companys former senior credit facility and its 7.74%
	senior notes. In connection with the repayment of the 7.74%
	senior notes, the Company incurred a prepayment penalty of
	approximately $3,600,000. The difference between issue price and
	principal amount at maturity of the Companys newly issued
	7 1/4% senior and 9 7/8% senior subordinated notes
	will be accreted each year as interest expense in its financial
	statements. These newly issued notes are unsecured, but are
	guaranteed, on a joint and several basis, by all of the
	Companys domestic subsidiaries, other than one that is not
	wholly owned.
|
| | In May 2001, the Company entered into two interest rate swap
	agreements in notional amounts of $185,000,000 and $25,000,000.
	The agreements, which have payment and expiration dates that
	correspond to the terms of the note obligations they cover,
	effectively converted $185,000,000 of the Companys fixed
	rate 9 7/8% senior subordinated notes and $25,000,000 of
	the Companys fixed rate 7  3/8% senior notes into
	variable rate obligations. The variable rates are based on LIBOR
	plus a fixed margin.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | The Company has assumed no ineffectiveness with respect to the
	two interest rate swap agreements, as it believes that the
	conditions for such an assumption are met under the guidelines
	of Statement of Financial Accounting Standards No. 133,
	Accounting for Derivative Instruments and Hedging
	Activities. The fair value of the swap agreements of
	approximately $2,200,000 as of June 30, 2001 has been
	reflected in other long-term assets and long-term debt in the
	accompanying balance sheet.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

Note  5.     New Accounting
Pronouncements



| |                                                                                                                                                                                           
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In June 1998, the Financial Accounting Standards Board
	(FASB) issued Statement of Financial Accounting
	Standards (SFAS) No. 133, Accounting for
	Derivative Instruments and Hedging

7



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##### Table of Contents



FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001


PART I, ITEM 1.




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Activities. SFAS No. 133 established accounting and
	reporting standards for derivative instruments, including
	certain derivative instruments embedded in other contracts
	(collectively referred to as derivatives), and for hedging
	activities. It also requires that an entity recognize all
	derivatives as either assets or liabilities in the statement of
	financial position and measure those instruments at fair value.
	In June 1999, the FASB issued SFAS No. 137,
	Accounting for Derivative Instruments and Hedging
	Activities  Deferral of the Effective Date of FASB
	Statement 133. This statement deferred the effective
	date of SFAS No. 133 until the fiscal year ending
	December  31, 2001. In June 2000, the FASB issued SFAS
	No. 138, Accounting for Certain Derivative
	Instruments and Certain Hedging Activities (an Amendment of FASB
	No. 133). This statement amends the accounting and
	reporting standards of SFAS No. 133 for certain derivative
	instruments and hedging activities. The Company adopted SFAS
	No. 133, as amended, on January 1, 2001. This
	pronouncement did not have a material impact on the
	Companys financial statements upon adoption.
|
| | In June 2001, the FASB issued SFAS No. 142, Goodwill
	and Other Intangible Assets. This statement changes the
	accounting for goodwill from an amortization method to an
	impairment-only approach. As of June 30, 2001, the Company
	had $148,694,000 of recorded net goodwill, which will be subject
	to this new standard. During fiscal year 2001, the Company
	expects approximately $2,800,000 of goodwill amortization
	expense, net of taxes. The Company expects to adopt this
	standard in the first quarter of fiscal year 2002. The Company
	is currently evaluating this new pronouncement and has not yet
	determined the impact on its consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

Note  6.     Segment
Information



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Company operates principally in three business segments
	organized by products. The paperboard segment consists of
	facilities that manufacture 100 percent recycled uncoated and
	clay-coated paperboard and facilities that collect recycled
	paper and broker recycled paper and other paper rolls. The tube,
	core and composite container segment is principally made up of
	facilities that produce spiral and convolute-wound tubes, cores
	and cans. The carton and custom packaging segment consists of
	facilities that produce printed and unprinted folding and set-up
	cartons and facilities that provide contract manufacturing and
	contract packaging services. Intersegment sales are recorded at
	prices which approximate market prices.
|
| | Operating income includes all costs and expenses directly
	related to the segment involved. Corporate expenses include
	corporate, general, administrative and unallocated information
	systems expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       

8



---



##### Table of Contents



FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001


PART I, ITEM 1.




| |                                                                                                             
| | ------------------------------------------------------------------------------------------------------------
| | The following table presents certain business segment
	information for the periods indicated (in thousands):

|                                                                             |                                                       |                |        |                |         |      |        |         |         |   |         |         |         |   |        |         |         | 
|---------------------------------------------------------------------------- | ----------------------------------------------------- | -------------- | ------ | -------------- | ------- | ---- | ------ | ------- | ------- | - | ------- | ------- | ------- | - | ------ | ------- | ------- | 
|                                                                             |                                                       |                |        |               
|                                                                             |                                                       | Three Months   |        | Six Months    
|                                                                             |                                                       | Ended June 30, |        | Ended June 30,
|                                                                             |                                                       |                |        |               
|                                                                             |                                                       | 2001           |        | 2000           |         | 2001 |        | 2000   
|                                                                             |                                                       |                |        |                |         |      |        |        
|Net sales (external customers):                                              |                                                       |                |        |                |         |      |        |         |         |   |         |         |         |   |        |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Paperboard                                            |                | $      | 73,209         |         |      | $      | 110,205 |         |   | $       | 147,761 |         |   | $      | 217,283 |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Tube, core and composite container                    |                |        | 63,589         |         |      |        | 68,666  |         |   |         | 128,540 |         |   |        | 133,647 |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Carton and custom packaging                           |                |        | 79,517         |         |      |        | 76,208  |         |   |         | 160,116 |         |   |        | 152,702 |        
|                                                                             |                                                       |                |        |                |         |      |        |         |         |   |         |         |         |   |        |        
|                                                                             |                                                       | Total          |        | $              | 216,315 |      |        | $       | 255,079 |   |         | $       | 436,417 |   |        | $       | 503,632 | 
|                                                                             |                                                       |                |        |                |         |      |        |         |         |   |         |         |         |   |        |        
|Net sales (intersegment):                                                    |                                                       |                |        |                |         |      |        |         |         |   |         |         |         |   |        |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Paperboard                                            |                | $      | 27,849         |         |      | $      | 33,791  |         |   | $       | 63,492  |         |   | $      | 67,120  |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Tube, core and composite container                    |                |        | 953            |         |      |        | 1,332   |         |   |         | 1,955   |         |   |        | 2,378   |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Carton and custom packaging                           |                |        | 166            |         |      |        | 383     |         |   |         | 301     |         |   |        | 550     |        
|                                                                             |                                                       |                |        |                |         |      |        |         |         |   |         |         |         |   |        |        
|                                                                             |                                                       | Total          |        | $              | 28,968  |      |        | $       | 35,506  |   |         | $       | 65,748  |   |        | $       | 70,048  | 
|                                                                             |                                                       |                |        |                |         |      |        |         |         |   |         |         |         |   |        |        
|Operating income:                                                            |                                                       |                |        |                |         |      |        |         |         |   |         |         |         |   |        |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Paperboard(A)                                         |                | $      | 13,365         |         |      | $      | 14,009  |         |   | $       | 13,153  |         |   | $      | 19,083  |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Tube, core and composite container                    |                |        | 2,193          |         |      |        | 5,821   |         |   |         | 5,221   |         |   |        | 10,208  |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Carton and custom packaging(B)                        |                |        | 1,619          |         |      |        | 3,484   |         |   |         | 641     |         |   |        | 6,033   |        
|                                                                             |                                                       |                |        |                |         |      |        |         |         |   |         |         |         |   |        |        
|                                                                             |                                                       | Total          |        |                | 17,177  |      |        |         | 23,314  |   |         |         | 19,015  |   |        |         | 35,324  | 
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|Corporate expense                                                            |                                                       |                | (2,789 | )              |         |      | (3,049 | )       |         |   | (6,732  | )       |         |   | (6,295 | )      
|                                                                             |                                                       |                |        |                |         |      |        |         |         |   |         |         |         |   |        |        
|Operating income                                                             |                                                       |                | 14,388 |                |         |      | 20,265 |         |         |   | 12,283  |         |         |   | 29,029 |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Interest expense                                      |                |        | (11,556        | )       |      |        | (7,824  | )       |   |         | (20,766 | )       |   |        | (15,611 | )      
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Interest income                                       |                |        | 217            |         |      |        | 83      |         |   |         | 305     |         |   |        | 257     |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Equity in (loss) income of unconsolidated
	affiliates |                |        | (1,150         | )       |      |        | 3,460   |         |   |         | (2,735  | )       |   |        | 6,370   |        
|                                                                            
|                                                                            
|                                                                            
|                                                                            
|                                                                             | Other, net                                            |                |        | (791           | )       |      |        | (282    | )       |   |         | (513    | )       |   |        | (350    | )      
|                                                                             |                                                       |                |        |                |         |      |        |         |         |   |         |         |         |   |        |        
|Income (loss) before income taxes, minority
	interest and extraordinary loss |                                                       | $              | 1,108  |                |         | $    | 15,702 |         |         | $ | (11,426 | )       |         | $ | 19,695 |        
|                                                                             |                                                       |                |        |                |         |      |        |         |         |   |         |         |         |   |        |        






| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (A) | Results include first quarter 2000 charges to operations of
	$6,913,000 for restructuring costs related to the closing of the
	Baltimore, Maryland paperboard mill. Results include first
	quarter 2001 charges to operations of $4,447,000 for
	restructuring costs related to the closing of the Chicago,
	Illinois paperboard mill (See Note 7). Results also include
	a $3,800,000 reduction in reserves in the second quarter of 2001
	related to expiring unfavorable supply contracts at the Sprague
	paperboard mill. These are related to the paperboard segment and
	are reflected in the segments operating income.



| |     |                                                                                                                                                                                                                                                                                                                                                  
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (B) | Results include first quarter 2001 charges to operations of
	$2,636,000 related to the consolidation of the operations of the
	Salt Lake City, Utah carton plant into the Denver, Colorado
	carton plant. These costs were related to the carton and custom
	packaging segment and are reflected in the segments
	operating income (See Note 7).

Note  7.     Restructuring
Costs



| |                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In February 2000, the Company initiated a plan to close its
	paperboard mill located in Baltimore, Maryland and recorded a
	charge to operations of approximately $6,913,000. The plan to
	close the mill was adopted in conjunction with the
	Companys ongoing efforts to increase manufacturing

9



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##### Table of Contents



FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001


PART I, ITEM 1.




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | efficiency and reduce costs in its mill system. The $6,913,000
	charge included a $5,696,000 noncash asset impairment charge to
	write-down machinery and equipment to net realizable value. The
	charge also included a $604,000 accrual for severance and
	termination benefits for 21 salaried and 83 hourly
	employees terminated in connection with this plan and a $613,000
	accrual for other exit costs. All exit costs were paid as of
	December 31, 2000. As of June 30, 2001, one employee
	remained to assist in marketing the land and building. The
	Company will complete the exit plan upon the sale of the
	property, which is anticipated to occur prior to
	December 31, 2001. The Company does not expect the mill
	closure to have a material impact on future operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | In September 2000, the Company initiated a plan to close its
	paperboard mill located in Camden, New Jersey and recorded a
	pretax charge to operations of approximately $8,564,000. The
	mill experienced a slowdown in gypsum facing paper shipments
	during the third quarter of 2000, and the shut down was
	precipitated by the refusal of the Companys largest gypsum
	facing paper customer to continue purchasing facing paper under
	a long-term supply agreement. The $8,564,000 charge included a
	$7,038,000 noncash asset impairment write down of fixed assets
	to estimated net realizable value and a $558,000 accrual for
	severance and termination benefits for 19 salaried and 46 hourly
	employees terminated in connection with this plan as well as a
	$968,000 accrual for other exit costs. As of June 30, 2001,
	one part-time employee remained to assist in the closing of the
	mill. The remaining severance and termination benefits and other
	exit costs will be paid by December 31, 2001. The Company
	is marketing the property and will complete the exit plan upon
	the sale of the property, which it anticipates will occur prior
	to December 31, 2001. This mill contributed net sales and
	operating income of $11,600,000 and $1,200,000, respectively,
	for the nine months ended September 30, 2000 and
	$19,100,000 and $2,101,000, respectively, for the year ended
	December 31, 1999.
|
| | The following is a summary of restructuring activity from plan
	adoption to June 30, 2001:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

|                                              |         |            |           |               |  |            |          |         |  |   |          |         |  |   |           |           | 
|--------------------------------------------- | ------- | ---------- | --------- | ------------- |  | ---------- | -------- | ------- |  | - | -------- | ------- |  | - | --------- | --------- | 
|                                              |         |            |           | Severance and |  |            |          |        
|                                              |         |            |           | Other         |  |            |          |        
|                                              |         | Asset      |           | Termination   |  | Other Exit |          |        
|                                              |         | Impairment |           | Benefits      |  | Costs      |          | Total  
|                                              |         |            |           |               |  |            |          |        
|2000 provision                                |         | $          | 7,038,000 |               |  | $          | 558,000  |         |  | $ | 968,000  |         |  | $ | 8,564,000 |          
|                                             
|                                             
|                                             
|                                             
|                                              | Noncash |            |           | 7,038,000     |  |            |          | 0       |  |   |          | 0       |  |   |           | 7,038,000 | 
|                                              |         |            |           |               |  |            |          |         |  |   |          |         |  |   |           |          
|                                              | Cash    |            |           | 0             |  |            |          | 558,000 |  |   |          | 968,000 |  |   |           | 1,526,000 | 
|                                             
|                                             
|                                             
|                                             
|2000 cash activity                            |         |            | 0         |               |  |            | (380,000 | )       |  |   | (346,000 | )       |  |   | (726,000  | )        
|                                              |         |            |           |               |  |            |          |         |  |   |          |         |  |   |           |          
|Balance as of December 31, 2000               |         |            | 0         |               |  |            | 178,000  |         |  |   | 622,000  |         |  |   | 800,000   |          
|                                             
|                                             
|                                             
|                                             
|First quarter 2001 cash activity (unaudited)  |         |            | 0         |               |  |            | (31,000  | )       |  |   | (266,000 | )       |  |   | (297,000  | )        
|                                              |         |            |           |               |  |            |          |         |  |   |          |         |  |   |           |          
|Balance as of March 31, 2001 (unaudited)      |         |            | 0         |               |  |            | 147,000  |         |  |   | 356,000  |         |  |   | 503,000   |          
|                                             
|                                             
|                                             
|                                             
|Second quarter 2001 cash activity (unaudited) |         |            | 0         |               |  |            | 0        |         |  |   | (114,000 | )       |  |   | (114,000  | )        
|                                              |         |            |           |               |  |            |          |         |  |   |          |         |  |   |           |          
|Balance as of June 30, 2001 (unaudited)       |         | $          | 0         |               |  | $          | 147,000  |         |  | $ | 242,000  |         |  | $ | 389,000   |          
|                                              |         |            |           |               |  |            |          |         |  |   |          |         |  |   |           |          



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In January 2001, the Company initiated a plan to close its
	paperboard mill located in Chicago, Illinois and recorded a
	pretax charge to operations of approximately $4,447,000. The
	mill was profitable through 1998, but declining sales resulted
	in losses of approximately $2,600,000 and $1,500,000 in 1999 and
	2000, respectively. The $4,447,000 charge included a $2,237,000
	noncash asset impairment write down of fixed assets to estimated
	net realizable value and a $1,221,000 accrual for severance and
	termination benefits for 16 salaried and 59 hourly employees
	terminated in connection with this plan as well as a $989,000
	accrual for other exit costs. As of June 30, 2001, two
	employees remained to assist in the closing of the mill. The
	remaining other exit costs will be paid

10



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##### Table of Contents



FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001


PART I, ITEM 1.




| |                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | by December 31, 2001. The Company is marketing the property
	and will complete the exit plan upon the sale of the property,
	which it anticipates will occur prior to December 31, 2001.
|
| | The following is a summary of restructuring activity from plan
	adoption to June 30, 2001 (unaudited):                                                                                  

|                                  |         |            |           |               |  |            |            |           |  |   |          |         |  |   |            |           | 
|--------------------------------- | ------- | ---------- | --------- | ------------- |  | ---------- | ---------- | --------- |  | - | -------- | ------- |  | - | ---------- | --------- | 
|                                  |         |            |           | Severance and |  |            |            |          
|                                  |         |            |           | Other         |  |            |            |          
|                                  |         | Asset      |           | Termination   |  | Other Exit |            |          
|                                  |         | Impairment |           | Benefits      |  | Costs      |            | Total    
|                                  |         |            |           |               |  |            |            |          
|First quarter 2001 provision      |         | $          | 2,237,000 |               |  | $          | 1,221,000  |           |  | $ | 989,000  |         |  | $ | 4,447,000  |          
|                                 
|                                 
|                                 
|                                 
|                                  | Noncash |            |           | 2,237,000     |  |            |            | 0         |  |   |          | 0       |  |   |            | 2,237,000 | 
|                                  |         |            |           |               |  |            |            |           |  |   |          |         |  |   |            |          
|                                  | Cash    |            |           | 0             |  |            |            | 1,221,000 |  |   |          | 989,000 |  |   |            | 2,210,000 | 
|                                 
|                                 
|                                 
|                                 
|First quarter 2001 cash activity  |         |            | 0         |               |  |            | (1,172,000 | )         |  |   | (246,000 | )       |  |   | (1,418,000 | )        
|                                  |         |            |           |               |  |            |            |           |  |   |          |         |  |   |            |          
|Balance as of March 31, 2001      |         |            | 0         |               |  |            | 49,000     |           |  |   | 743,000  |         |  |   | 792,000    |          
|                                 
|                                 
|                                 
|                                 
|Second quarter 2001 cash activity |         |            | 0         |               |  |            | (49,000    | )         |  |   | (208,000 | )       |  |   | (257,000   | )        
|                                  |         |            |           |               |  |            |            |           |  |   |          |         |  |   |            |          
|Balance as of June 30, 2001       |         | $          | 0         |               |  | $          | 0          |           |  | $ | 535,000  |         |  | $ | 535,000    |          
|                                  |         |            |           |               |  |            |            |           |  |   |          |         |  |   |            |          



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In March 2001, the Company initiated a plan to consolidate the
	operations of the Salt Lake City, Utah carton plant into the
	Denver, Colorado carton plant and recorded a pretax charge to
	operations of approximately $2,636,000. The $2,636,000 charge
	included a $1,750,000 noncash asset impairment write down of
	fixed assets to estimated net realizable value and a $464,000
	accrual for severance and termination benefits for 5 salaried
	and 31 hourly employees terminated in connection with this plan
	as well as a $422,000 accrual for other exit costs. As of
	June 30, 2001, one employee remained to assist in the
	closing of the plant. The remaining severance and termination
	benefits and other exit costs will be paid by December 31,
	2001.
|
| | The following is a summary of restructuring activity from plan
	adoption to June 30, 2001 (unaudited):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

|                                  |         |            |           |               |  |            |          |         |  |   |          |         |  |   |           |           | 
|--------------------------------- | ------- | ---------- | --------- | ------------- |  | ---------- | -------- | ------- |  | - | -------- | ------- |  | - | --------- | --------- | 
|                                  |         |            |           | Severance and |  |            |          |        
|                                  |         |            |           | Other         |  |            |          |        
|                                  |         | Asset      |           | Termination   |  | Other Exit |          |        
|                                  |         | Impairment |           | Benefits      |  | Costs      |          | Total  
|                                  |         |            |           |               |  |            |          |        
|First quarter 2001 provision      |         | $          | 1,750,000 |               |  | $          | 464,000  |         |  | $ | 422,000  |         |  | $ | 2,636,000 |          
|                                 
|                                 
|                                 
|                                 
|                                  | Noncash |            |           | 1,750,000     |  |            |          | 0       |  |   |          | 0       |  |   |           | 1,750,000 | 
|                                  |         |            |           |               |  |            |          |         |  |   |          |         |  |   |           |          
|                                  | Cash    |            |           | 0             |  |            |          | 464,000 |  |   |          | 422,000 |  |   |           | 886,000   | 
|                                 
|                                 
|                                 
|                                 
|First quarter 2001 cash activity  |         |            | 0         |               |  |            | (170,000 | )       |  |   | (134,000 | )       |  |   | (304,000  | )        
|                                  |         |            |           |               |  |            |          |         |  |   |          |         |  |   |           |          
|Balance as of March 31, 2001      |         |            | 0         |               |  |            | 294,000  |         |  |   | 288,000  |         |  |   | 582,000   |          
|                                 
|                                 
|                                 
|                                 
|Second quarter 2001 cash activity |         |            | 0         |               |  |            | (288,000 | )       |  |   | (120,000 | )       |  |   | (408,000  | )        
|                                  |         |            |           |               |  |            |          |         |  |   |          |         |  |   |           |          
|Balance as of June 30, 2001       |         | $          | 0         |               |  | $          | 6,000    |         |  | $ | 168,000  |         |  | $ | 174,000   |          
|                                  |         |            |           |               |  |            |          |         |  |   |          |         |  |   |           |          

Note 
8.     Litigation



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On May 9, 2001, the Company and a significant customer
	jointly announced a tentative settlement regarding the
	litigation over the terms of the long-term supply contract the
	parties entered in April 1996. The pending litigation relating
	to that contract has been previously reported in the
	Companys annual report on Form 10-K for the year
	ended December 31, 2000 and in the previous quarterly
	reports on Form 10-Q. Under the terms of the tentative
	settlement, the Company and a wholly owned subsidiary of the
	customer have entered into a new ten-year agreement under which
	the Company would supply a minimum of 50,000 tons of gypsum
	facing paper per year to the customer. Implementation of the new
	agreement, and settlement of the pending litigation over the 1996

11



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##### Table of Contents



FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001


PART I, ITEM 1.




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | agreement, is subject to satisfactory completion of a transition
	period. The transition period initially was to expire no later
	than August 6, 2001. As described below, however, the
	parties have recently agreed to extend the outside termination
	date of the transition period to December 31, 2001. During
	the transition period, the Company is supplying the customer
	with such facing paper as it requests to enable it to evaluate
	the papers compliance with its specifications for quality
	and end-use suitability. Once the customer is satisfied with the
	paper, it is to notify the Company that the transition period
	has ended, and at that time the term of the new agreement,
	including the annual minimum quantity requirement described
	above, is to commence. If and when the new agreement commences,
	the parties will dismiss all pending litigation relating to the
	1996 agreement. Under the terms of the tentative settlement,
	either party may terminate its obligations under the new
	agreement during the transition period without cause and without
	liability to the other party.
|
| | During the second quarter of 2001, ongoing discussions with the
	customer led to a mutual agreement to extend the outside
	expiration date of the transition period to December 31,
	2001. The extension was the result of the customers recent
	curtailment of a significant portion of its gypsum wallboard
	manufacturing capacity because of adverse market conditions.
	This curtailment, along with the customers stated
	reservations about committing to the minimum tonnage requirement
	under the new agreement in light of current market conditions,
	led the parties to agree to the extension of the transition
	period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | Although the Company believes that it will be able to satisfy
	the customers product requirements, the Company can give
	no assurance that the new agreement will be implemented in
	accordance with its terms or that the pending litigation will be
	dismissed. Specifically, the Company cannot predict whether the
	customers recent curtailment of gypsum wallboard
	manufacturing capacity will further affect whether, when or how
	a new agreement is implemented, including whether such
	curtailment will result in modifications to the ultimate volume
	requirements under any new contract that may be implemented.
	Accordingly, the Company believes that its operating results and
	financial condition will continue to be materially and adversely
	affected by the loss of contract volume from the customer unless
	and until a new supply agreement is implemented with significant
	volume requirements, and until a new supply agreement has been
	effective long enough to generate a substantial volume of
	required purchases from the customer.                                                      
|
| | The Company is involved in certain other litigation arising in
	the ordinary course of business. In the opinion of management,
	the ultimate resolution of these matters will not have a
	material adverse effect on the Companys financial
	condition or results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 

12



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##### Table of Contents



FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001




PART I, ITEM 2.


CARAUSTAR INDUSTRIES, INC.




MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION

AND RESULTS OF OPERATIONS


The following is managements discussion and analysis of
certain significant factors that have affected our financial
condition and operating results during the periods included in
the accompanying condensed consolidated financial statements.

General

We are a major manufacturer of recycled paperboard and converted
paperboard products. We operate in three business segments. The
paperboard segment manufactures 100% recycled uncoated and
clay-coated paperboard and collects recycled paper and brokers
recycled paper and other paper rolls. The tube, core and
composite container segment produces spiral and convolute-wound
tubes, cores and cans. The carton and custom packaging segment
produces printed and unprinted folding and set-up cartons and
provides contract manufacturing and packaging services.

Our business is vertically integrated to a large extent. This
means that our converting operations consume a large portion of
our own paperboard production, approximately 38% in the first
six months of 2001. The remaining 62% of our paperboard
production was sold to external customers in any of the four
recycled paperboard end-use markets: tube, core and composite
containers; folding cartons; gypsum wallboard facing paper; and
other specialty products. We are the only major manufacturer to
serve all four end-use markets. As part of our strategy to
maintain optimum levels of production capacity, we regularly
purchase paperboard from other manufacturers in an effort to
minimize the potential impact of demand declines on our own mill
system. Additionally, each of our mills can produce recycled
paperboard for more than one end-use market. This allows us to
shift production between mills in response to customer or market
demands.

Recovered fiber, which is derived from recycled paper stock, is
our most significant raw material. Historically, the cost of
recovered fiber has fluctuated significantly due to market and
industry conditions. For example, our average recovered fiber
cost per ton of paperboard produced increased from $43 per ton
in 1993 to $144 per ton in 1995, an increase of 235%, before
dropping to $66 per ton in 1996. Same-mill recovered fiber cost
per ton averaged $104 during 2000 and $66 during the first half
of 2001.

We raise our selling prices in response to increases in raw
material costs. However, we often are unable to pass the full
amount of these costs through to our customers on a timely
basis, and as a result often cannot maintain our operating
margins in the face of dramatic cost increases. We experience
margin shrinkage during all periods of price increases due to
customary time lags in implementing our price increases. We
cannot assure you that we will be able to recover any future
increases in the cost of recovered fiber by raising the prices
of our products. Even if we are able to recover future cost
increases, our operating margins and results of operations may
still be materially and adversely affected by time delays in the
implementation of price increases.

Excluding labor, energy is our most significant manufacturing
cost. Energy is used to generate steam used in the paper making
process and to operate our paperboard machines and all of our
other converting machinery. Our energy costs increased steadily
throughout 2000 due primarily to increases in natural gas and
fuel oil costs. In 2000, the average energy cost in our mill
system was approximately $52 per ton. In the second quarter of
2001, energy costs were $57 per ton, compared to $46 per ton in
the second quarter of 2000 and $66 per ton in the first quarter
of 2001. Until recently, our business had not been significantly
affected by energy costs, and we historically have not passed
energy costs through to our customers. We were not able to pass
through to our customers all of the energy cost increases we
incurred in 2000 and the first six months of 2001. As a result,
our operating margins were adversely affected. We continue to
evaluate our energy costs and consider ways to factor energy
costs into our pricing. However, we cannot assure you that our
operating margins and results of operations will not continue to
be adversely affected by rising energy costs.

13



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##### Table of Contents



FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001


PART I, ITEM 2.


Historically, we have grown our business, revenues and
production capacity to a significant degree through
acquisitions. Based on the current difficult operating climate
for our industry and our financial position, we anticipate that
the pace of our acquisition activity, and accordingly, our
revenue growth, will slow as we focus on conserving cash and
maximizing the productivity of our existing facilities. We made
no acquisitions during the first six months of 2001.

We are a holding company that operates our business through 34
subsidiaries. We also own a 50% interest in two joint ventures
with Temple-Inland, Inc. We account for these interests in our
joint ventures under the equity method of accounting.

Three Months Ended June 30, 2001 and 2000

The following table shows volume, gross paper margins and
related data for the periods indicated. The volume information
shown below includes shipments of unconverted paperboard and
converted paperboard products. Tonnage volumes from our business
segments, excluding tonnage produced by our unconsolidated joint
venture, Premier Boxboard, are combined and presented along
end-use market lines. Additional financial information is
reported by segment in Note 6 to the consolidated financial
statements.

|                                                           |                                                        |                                |                                           |       |      |        |  |        |      |       |  |       |       |       |   |       |       |       |  
|---------------------------------------------------------- | ------------------------------------------------------ | ------------------------------ | ----------------------------------------- | ----- | ---- | ------ |  | ------ | ---- | ----- |  | ----- | ----- | ----- | - | ----- | ----- | ----- | -
|                                                           |                                                        |                                |                                           |       |      |       
|                                                           |                                                        | Three Months                   |                                           |       |      |       
|                                                           |                                                        | Ended                          |                                           |       |      |       
|                                                           |                                                        | June 30,                       |                                           |       |      |       
|                                                           |                                                        |                                |                                           |       |      | %     
|                                                           |                                                        | 2001                           |                                           | 2000  |      | Change |  | Change
|                                                           |                                                        |                                |                                           |       |      |        |  |       
|Production source of paperboard tons sold (in
	thousands): |                                                        |                                |                                           |       |      |        |  |        |      |       |  |       |       |       |   |      
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | From paperboard mill production                        |                                |                                           | 223.7 |      |        |  | 264.9  |      |       |  | (41.2 | )     |       |   | 15.6 | %    
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Outside purchases                                      |                                |                                           | 32.6  |      |        |  | 29.3   |      |       |  | 3.3   |       |       |   | 11.3  | %    
|                                                           |                                                        |                                |                                           |       |      |        |  |        |      |       |  |       |       |       |   |      
|                                                           |                                                        |                                | Total paperboard tonnage                  |       |      | 256.3  |  |        |      | 294.2 |  |       |       | (37.9 | ) |       |       | 12.9 | %
|                                                           |                                                        |                                |                                           |       |      |        |  |        |      |       |  |       |       |       |   |      
|                                                           | Tons sold by market (in thousands):                    |                                |                                           |       |      |        |  |        |      |       |  |       |       |       |   |       |      
|                                                           | Tube, core and composite container volume              |                                |                                           |       |      |        |  |        |      |       |  |       |       |       |   |       |      
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                        | Paperboard (internal)          |                                           |       | 48.1 |        |  |        | 53.6 |       |  |       | (5.5  | )     |   |       | 10.3 | %    
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                        | Outside purchases              |                                           |       | 6.6  |        |  |        | 6.6  |       |  |       | 0.0   |       |   |       | 0.0   | %    
|                                                           |                                                        |                                |                                           |       |      |        |  |        |      |       |  |       |       |       |   |      
|                                                           | Tube, core and composite container converted
	products |                                |                                           | 54.7  |      |        |  | 60.2   |      |       |  | (5.5  | )     |       |   | 9.1  | %    
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Unconverted paperboard                                 |                                |                                           | 8.6   |      |        |  | 9.0    |      |       |  | (0.4  | )     |       |   | 4.4  | %    
|                                                           |                                                        |                                |                                           |       |      |        |  |        |      |       |  |       |       |       |   |      
|                                                           |                                                        |                                | Tube, core and composite container volume |       |      | 63.3   |  |        |      | 69.2  |  |       |       | (5.9  | ) |       |       | 8.5  | %
|                                                           | Folding carton volume                                  |                                |                                           |       |      |        |  |        |      |       |  |       |       |       |   |       |      
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                        | Paperboard (internal)          |                                           |       | 18.7 |        |  |        | 16.5 |       |  |       | 2.2   |       |   |       | 13.3  | %    
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                        | Outside purchases              |                                           |       | 24.6 |        |  |        | 20.8 |       |  |       | 3.8   |       |   |       | 18.3  | %    
|                                                           |                                                        |                                |                                           |       |      |        |  |        |      |       |  |       |       |       |   |      
|                                                           | Folding carton converted products                      |                                |                                           | 43.3  |      |        |  | 37.3   |      |       |  | 6.0   |       |       |   | 16.1  | %    
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Unconverted paperboard                                 |                                |                                           | 56.0  |      |        |  | 66.8   |      |       |  | (10.8 | )     |       |   | 16.2 | %    
|                                                           |                                                        |                                |                                           |       |      |        |  |        |      |       |  |       |       |       |   |      
|                                                           |                                                        |                                | Folding carton volume                     |       |      | 99.3   |  |        |      | 104.1 |  |       |       | (4.8  | ) |       |       | 4.6  | %
|                                                           | Gypsum wallboard facing paper volume                   |                                |                                           |       |      |        |  |        |      |       |  |       |       |       |   |       |      
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                        | Unconverted paperboard         |                                           |       | 39.8 |        |  |        | 56.7 |       |  |       | (16.9 | )     |   |       | 29.8 | %    
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                        | Outside purchases (for resale) |                                           |       | 0.0  |        |  |        | 0.0  |       |  |       | 0.0   |       |   |       | 0.0   | %    
|                                                           |                                                        |                                |                                           |       |      |        |  |        |      |       |  |       |       |       |   |      
|                                                           |                                                        |                                | Gypsum wallboard facing paper volume      |       |      | 39.8   |  |        |      | 56.7  |  |       |       | (16.9 | ) |       |       | 29.8 | %

14



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##### Table of Contents



FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001


PART I, ITEM 2.


|                                |                                    |                       |                                        |                                    |      |        |       |        |      |     |       |       |       |     |       |       |       |       |       |  
|------------------------------- | ---------------------------------- | --------------------- | -------------------------------------- | ---------------------------------- | ---- | ------ | ----- | ------ | ---- | --- | ----- | ----- | ----- | --- | ----- | ----- | ----- | ----- | ----- | -
|                                |                                    |                       |                                        |                                    |      |       
|                                |                                    | Three Months          |                                        |                                    |      |       
|                                |                                    | Ended                 |                                        |                                    |      |       
|                                |                                    | June 30,              |                                        |                                    |      |       
|                                |                                    |                       |                                        |                                    |      | %     
|                                |                                    | 2001                  |                                        | 2000                               |      | Change |       | Change
|                                |                                    |                       |                                        |                                    |      |        |       |       
|Other specialty products volume |                                    |                       |                                        |                                    |      |        |       |        |      |     |       |       |       |     |       |      
|                               
|                               
|                               
|                               
|                                |                                    | Paperboard (internal) |                                        |                                    | 17.3 |        |       |        | 35.6 |     |       |       | (18.3 | )   |       |       | 51.4 | %    
|                               
|                               
|                               
|                               
|                                |                                    | Outside purchases     |                                        |                                    | 1.4  |        |       |        | 1.9  |     |       |       | (0.5  | )   |       |       | 26.3 | %    
|                                |                                    |                       |                                        |                                    |      |        |       |        |      |     |       |       |       |     |       |      
|                                | Other specialty converted products |                       |                                        | 18.7                               |      |        |       | 37.5   |      |     |       | (18.8 | )     |     |       | 50.1 | %    
|                               
|                               
|                               
|                               
|                                | Unconverted paperboard             |                       |                                        | 35.2                               |      |        |       | 26.7   |      |     |       | 8.5   |       |     |       | 31.8  | %    
|                                |                                    |                       |                                        |                                    |      |        |       |        |      |     |       |       |       |     |       |      
|                                |                                    |                       |                                        | Other specialty products volume    |      |        | 53.9  |        |      |     | 64.2  |       |       |     | (10.3 | )     |       |       | 16.0 | %
|                                |                                    |                       |                                        |                                    |      |        |       |        |      |     |       |       |       |     |       |      
|                                |                                    |                       |                                        | Total paperboard tonnage           |      |        | 256.3 |        |      |     | 294.2 |       |       |     | (37.9 | )     |       |       | 12.9 | %
|                                |                                    |                       |                                        |                                    |      |        |       |        |      |     |       |       |       |     |       |      
|Gross paper margins ($/ton):    |                                    |                       |                                        |                                    |      |        |       |        |      |     |       |       |       |     |       |      
|                               
|                               
|                               
|                               
|                                |                                    | Paperboard mill:      |                                        |                                    |      |        |       |        |      |     |       |       |       |     |       |       |       |      
|                               
|                               
|                               
|                               
|                                |                                    |                       | Average same-mill net selling price    |                                    | $    | 415    |       |        | $    | 448 |       |       | $     | (33 | )     |       |       | 7.4  | %    
|                               
|                               
|                               
|                               
|                                |                                    |                       | Average same-mill recovered fiber cost |                                    |      | 62     |       |        |      | 125 |       |       |       | (63 | )     |       |       | 50.4 | %    
|                                |                                    |                       |                                        |                                    |      |        |       |        |      |     |       |       |       |     |       |      
|                                |                                    |                       |                                        | Paperboard mill gross paper margin |      | $      | 353   |        |      | $   | 323   |       |       | $   | 30    |       |       |       | 9.3   | %
|                                |                                    |                       |                                        |                                    |      |        |       |        |      |     |       |       |       |     |       |      
|                                |                                    | Tube and core:        |                                        |                                    |      |        |       |        |      |     |       |       |       |     |       |       |       |      
|                               
|                               
|                               
|                               
|                                |                                    |                       | Average net selling price              |                                    | $    | 797    |       |        | $    | 782 |       |       | $     | 15  |       |       |       | 1.9   | %    
|                               
|                               
|                               
|                               
|                                |                                    |                       | Average paperboard cost                |                                    |      | 450    |       |        |      | 435 |       |       |       | 15  |       |       |       | 3.4   | %    
|                                |                                    |                       |                                        |                                    |      |        |       |        |      |     |       |       |       |     |       |      
|                                |                                    |                       |                                        | Tube and core gross paper margin   |      | $      | 347   |        |      | $   | 347   |       |       | $   | 0     |       |       |       | 0.0   | %
|                                |                                    |                       |                                        |                                    |      |        |       |        |      |     |       |       |       |     |       |      

Net Sales. Our consolidated net sales for the quarter
ended June 30, 2001 decreased 15.2% to $216.3 million from
$255.1 million in the same quarter of 2000. Acquisitions
completed during 2000 accounted for $10.2 million of net sales
during the second quarter of 2001. These acquisitions included
Arrow Paper Products Company and Crane Carton Company, LLC.
These acquisitions were all accounted for using the purchase
method of accounting, and their results of operations were
included only from and after the date of the acquisition.
Excluding 2000 acquisitions, net sales decreased 19.2% during
the second quarter of 2001. This decrease was due to lower sales
and volume from the paperboard segment, partially attributable
to the dispute with Georgia-Pacific (see Georgia-Pacific
Litigation below), and lower sales from the carton and
custom packaging segment. Also contributing to the decrease was
lower volume from the tube, core and composite container segment.

Total paperboard tonnage for the quarter decreased 12.9% to
256.3 thousand tons from 294.2 thousand tons. Excluding 2000
acquisitions, total paperboard tonnage decreased 15.1% to 249.8
thousand tons. This decrease was primarily due to lower
shipments of unconverted paperboard to external customers
combined with lower internal conversion by our converting
operations. The decrease in volume was primarily due to a
decline in industry demand and partially attributable to the
dispute with Georgia-Pacific. Excluding 2000 acquisitions,
outside purchases decreased 10.7% to 26.2 thousand tons compared
to prior year. Tons sold from paperboard mill production
decreased 15.6% for the quarter to 223.7 thousand tons compared
with 264.9 thousand tons in the second quarter of last year.
Total tonnage converted decreased 13.5% in the second quarter to
116.7 thousand tons compared to 135.0 thousand tons last year,
and decreased 18.9% from second quarter last year excluding 2000
acquisitions. Excluding 2000 acquisitions, volumes in the
folding carton and the tube, core and composite container
end-use markets decreased 10.6% and 8.8%, respectively.

Gross Margin. Gross margin for the second quarter of 2001
increased to 23.4% of net sales from 22.3% in 2000. This margin
increase was due primarily to the $3.8 million reduction in
reserves related to expiring unfavorable supply contracts at the
Sprague paperboard mill. Excluding this reduction in reserves,
gross margin was 21.7% in the second quarter of 2001. The margin
decrease was due to lower volume and higher energy costs in the
paperboard segment, combined with lower margins in the carton
and custom packaging and

15



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##### Table of Contents



FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001


PART I, ITEM 2.


tube, core and composite container segments. Margins decreased
in the carton and custom packaging segment due to a decrease in
selling prices resulting from competitive pressures. Margins in
the tube, core and composite container segment decreased as a
result of higher energy costs and lower volume.

Operating Income. Operating income for the second quarter
of 2001 was $14.4 million, a decrease of $5.9 million from the
second quarter of 2000 operating income of $20.3 million.
Operating income, excluding the Sprague reserve reduction,
decreased $9.7 million, or 48.0%, from the prior year. This
decline was due primarily to lower volume and higher energy
costs in the paperboard segment, combined with lower margins in
the carton and custom packaging and tube, core and composite
container segments. Selling, general and administrative expenses
decreased by $249 thousand, or 0.7%, in the second quarter of
2001 compared to 2000. This decrease was primarily due to a
decrease in expenses in the paperboard segment as a result of
the Camden and Chicago mill closures, partially offset by
increased expenses in the tube, core and composite container
segment and the carton and custom packaging segment. The
increase in these segments was due to acquisitions completed in
2000.

Our Sprague boxboard mill, located in Versailles, Connecticut,
which we purchased from International Paper Company in April
1999, has continued to have a significant impact on our earnings
in 2000 and 2001. Sprague incurred operating losses of $17.2
million in 2000 and $5.1 million in the first quarter of 2001.
Sprague incurred an operating loss of $3.0 million (excluding
the $3.8 million pretax reduction in reserves noted above) in
the second quarter of 2001 compared with a $4.3 million
operating loss in the second quarter of 2000. The losses were
attributable to a combination of unfavorable fixed price
contracts, low capacity utilization and higher fiber costs that
we were unable to pass through to our customers. Our primary
objectives at Sprague have been to improve quality, reduce costs
and increase sales volume. Based on improvements we have made
since the acquisition, we now believe Sprague is competitive in
terms of cost and quality, and we expect Spragues
financial performance to improve with increases in sale volume.
Although we expect losses at Sprague to decline, in light of
current difficult industry conditions, we do not expect Sprague
to become profitable for the balance of 2001.

Other Income (Expense). Interest expense increased 47.7%
to $11.6 million for the second quarter of 2001 from $7.8
million in 2000. This increase was due to higher outstanding
debt balances at higher interest rates compared to prior year.
See Liquidity and Capital Resources for additional
information regarding our debt and interest expense.

Equity in loss from unconsolidated affiliates for the second
quarter of 2001 was $1.2 million, down $4.6 million from equity
income of $3.5 million in the second quarter of 2000. This
decrease was primarily due to lower operating results for
Standard Gypsum, L.P., our gypsum wallboard joint venture,
partially offset by income at Premier Boxboard Limited LLC, our
containerboard mill joint venture, which began operations in the
third quarter of 2000. The lower operating results for Standard
Gypsum, L.P. was the result of excess production capacity in
that market, which has lowered sales prices significantly since
the first quarter of 2000. Both of these joint ventures are with
Temple-Inland.

Net Income. As discussed above, our results for the
second quarter of 2001 included the Sprague reserve reduction
relating to expiring unfavorable supply contracts at the Sprague
paperboard mill. The reserve reduction was $3.8 million ($2.4
million, net of tax provision, or $0.08 per common share on a
diluted basis). Excluding the Sprague reserve reduction, net
loss for the second quarter of 2001 was $2.0 million, or $0.07
net loss per common share compared to net income of $9.5
million, or $0.37 net income per common share for the same
period last year. Including the Sprague reserve reduction, net
income was $376 thousand in the second quarter of 2001, and
diluted net income per common share was $0.01.

16



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##### Table of Contents



FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001


PART I, ITEM 2.


Six Months Ended June 30, 2001 and 2000

The following table shows volume, gross paper margins and
related data for the periods indicated. The volume information
shown below includes shipments of unconverted paperboard and
converted paperboard products. Tonnage volumes from our business
segments, excluding tonnage produced by our unconsolidated joint
venture, Premier Boxboard, are combined and presented along
end-use market lines. Additional financial information is
reported by segment in Note 6 to the consolidated financial
statements.

|                                                           |                                                        |                                |                                        |                                           |      |        |       |        |       |     |       |       |       |     |       |       |        |       |       |  
|---------------------------------------------------------- | ------------------------------------------------------ | ------------------------------ | -------------------------------------- | ----------------------------------------- | ---- | ------ | ----- | ------ | ----- | --- | ----- | ----- | ----- | --- | ----- | ----- | ------ | ----- | ----- | -
|                                                           |                                                        |                                |                                        |                                           |      |       
|                                                           |                                                        | Six Months                     |                                        |                                           |      |       
|                                                           |                                                        | Ended                          |                                        |                                           |      |       
|                                                           |                                                        | June 30,                       |                                        |                                           |      |       
|                                                           |                                                        |                                |                                        |                                           |      | %     
|                                                           |                                                        | 2001                           |                                        | 2000                                      |      | Change |       | Change
|                                                           |                                                        |                                |                                        |                                           |      |        |       |       
|Production source of paperboard tons sold (in
	thousands): |                                                        |                                |                                        |                                           |      |        |       |        |       |     |       |       |       |     |       |      
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | From paperboard mill production                        |                                |                                        | 441.6                                     |      |        |       | 534.8  |       |     |       | (93.2 | )     |     |       | 17.4 | %     
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Outside purchases                                      |                                |                                        | 64.4                                      |      |        |       | 60.9   |       |     |       | 3.5   |       |     |       | 5.7   | %     
|                                                           |                                                        |                                |                                        |                                           |      |        |       |        |       |     |       |       |       |     |       |      
|                                                           |                                                        |                                |                                        | Total paperboard tonnage                  |      |        | 506.0 |        |       |     | 595.7 |       |       |     | (89.7 | )     |        |       | 15.1 | %
|                                                           |                                                        |                                |                                        |                                           |      |        |       |        |       |     |       |       |       |     |       |      
|                                                           | Tons sold by market (in thousands):                    |                                |                                        |                                           |      |        |       |        |       |     |       |       |       |     |       |       |       
|                                                           | Tube, core and composite container volume              |                                |                                        |                                           |      |        |       |        |       |     |       |       |       |     |       |       |       
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                        | Paperboard (internal)          |                                        |                                           | 94.7 |        |       |        | 103.2 |     |       |       | (8.5  | )   |       |       | 8.2   | %    
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                        | Outside purchases              |                                        |                                           | 13.4 |        |       |        | 12.5  |     |       |       | 0.9   |     |       |       | 7.2    | %    
|                                                           |                                                        |                                |                                        |                                           |      |        |       |        |       |     |       |       |       |     |       |      
|                                                           | Tube, core and composite container converted
	products |                                |                                        | 108.1                                     |      |        |       | 115.7  |       |     |       | (7.6  | )     |     |       | 6.6  | %     
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Unconverted paperboard                                 |                                |                                        | 16.2                                      |      |        |       | 18.3   |       |     |       | (2.1  | )     |     |       | 11.5 | %     
|                                                           |                                                        |                                |                                        |                                           |      |        |       |        |       |     |       |       |       |     |       |      
|                                                           |                                                        |                                |                                        | Tube, core and composite container volume |      |        | 124.3 |        |       |     | 134.0 |       |       |     | (9.7  | )     |        |       | 7.2  | %
|                                                           | Folding carton volume                                  |                                |                                        |                                           |      |        |       |        |       |     |       |       |       |     |       |       |       
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                        | Paperboard (internal)          |                                        |                                           | 38.7 |        |       |        | 35.8  |     |       |       | 2.9   |     |       |       | 8.1    | %    
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                        | Outside purchases              |                                        |                                           | 48.0 |        |       |        | 44.0  |     |       |       | 4.0   |     |       |       | 9.1    | %    
|                                                           |                                                        |                                |                                        |                                           |      |        |       |        |       |     |       |       |       |     |       |      
|                                                           | Folding carton converted products                      |                                |                                        | 86.7                                      |      |        |       | 79.8   |       |     |       | 6.9   |       |     |       | 8.6   | %     
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Unconverted paperboard                                 |                                |                                        | 110.9                                     |      |        |       | 141.7  |       |     |       | (30.8 | )     |     |       | 21.7 | %     
|                                                           |                                                        |                                |                                        |                                           |      |        |       |        |       |     |       |       |       |     |       |      
|                                                           |                                                        |                                |                                        | Folding carton volume                     |      |        | 197.6 |        |       |     | 221.5 |       |       |     | (23.9 | )     |        |       | 10.8 | %
|                                                           | Gypsum wallboard facing paper volume                   |                                |                                        |                                           |      |        |       |        |       |     |       |       |       |     |       |       |       
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                        | Unconverted paperboard         |                                        |                                           | 74.9 |        |       |        | 111.5 |     |       |       | (36.6 | )   |       |       | 32.8  | %    
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                        | Outside purchases (for resale) |                                        |                                           | 0.0  |        |       |        | 0.5   |     |       |       | (0.5  | )   |       |       | 100.0 | %    
|                                                           |                                                        |                                |                                        |                                           |      |        |       |        |       |     |       |       |       |     |       |      
|                                                           |                                                        |                                |                                        | Gypsum wallboard facing paper volume      |      |        | 74.9  |        |       |     | 112.0 |       |       |     | (37.1 | )     |        |       | 33.1 | %
|                                                           | Other specialty products volume                        |                                |                                        |                                           |      |        |       |        |       |     |       |       |       |     |       |       |       
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                        | Paperboard (internal)          |                                        |                                           | 36.0 |        |       |        | 67.7  |     |       |       | (31.7 | )   |       |       | 46.8  | %    
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                        | Outside purchases              |                                        |                                           | 3.0  |        |       |        | 3.9   |     |       |       | (0.9  | )   |       |       | 23.1  | %    
|                                                           |                                                        |                                |                                        |                                           |      |        |       |        |       |     |       |       |       |     |       |      
|                                                           | Other specialty converted products                     |                                |                                        | 39.0                                      |      |        |       | 71.6   |       |     |       | (32.6 | )     |     |       | 45.5 | %     
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           | Unconverted paperboard                                 |                                |                                        | 70.2                                      |      |        |       | 56.6   |       |     |       | 13.6  |       |     |       | 24.0  | %     
|                                                           |                                                        |                                |                                        |                                           |      |        |       |        |       |     |       |       |       |     |       |      
|                                                           |                                                        |                                |                                        | Other specialty products volume           |      |        | 109.2 |        |       |     | 128.2 |       |       |     | (19.0 | )     |        |       | 14.8 | %
|                                                           |                                                        |                                |                                        |                                           |      |        |       |        |       |     |       |       |       |     |       |      
|                                                           |                                                        |                                |                                        | Total paperboard tonnage                  |      |        | 506.0 |        |       |     | 595.7 |       |       |     | (89.7 | )     |        |       | 15.1 | %
|                                                           |                                                        |                                |                                        |                                           |      |        |       |        |       |     |       |       |       |     |       |      
|Gross paper margins ($/ton):                               |                                                        |                                |                                        |                                           |      |        |       |        |       |     |       |       |       |     |       |      
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                        | Paperboard mill:               |                                        |                                           |      |        |       |        |       |     |       |       |       |     |       |       |        |      
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                        |                                | Average same-mill net selling price    |                                           | $    | 419    |       |        | $     | 444 |       |       | $     | (25 | )     |       |        | 5.6  | %    
|                                                          
|                                                          
|                                                          
|                                                          
|                                                           |                                                        |                                | Average same-mill recovered fiber cost |                                           |      | 66     |       |        |       | 118 |       |       |       | (52 | )     |       |        | 44.1 | %    
|                                                           |                                                        |                                |                                        |                                           |      |        |       |        |       |     |       |       |       |     |       |      
|                                                           |                                                        |                                |                                        | Paperboard mill gross paper margin        |      | $      | 353   |        |       | $   | 326   |       |       | $   | 27    |       |        |       | 8.3   | %
|                                                           |                                                        |                                |                                        |                                           |      |        |       |        |       |     |       |       |       |     |       |      

17



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##### Table of Contents



FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001


PART I, ITEM 2.


|               |                           |                                  |   |      |     |        |   |        |     |  |   |    |   |  |  |     |     |  
|-------------- | ------------------------- | -------------------------------- | - | ---- | --- | ------ | - | ------ | --- |  | - | -- | - |  |  | --- | --- | -
|               |                           |                                  |   |      |     |       
|               |                           | Six Months                       |   |      |     |       
|               |                           | Ended                            |   |      |     |       
|               |                           | June 30,                         |   |      |     |       
|               |                           |                                  |   |      |     | %     
|               |                           | 2001                             |   | 2000 |     | Change |   | Change
|               |                           |                                  |   |      |     |        |   |       
|Tube and core: |                           |                                  |   |      |     |        |   |        |     |  |   |    |   |  |  |    
|              
|              
|              
|              
|               | Average net selling price |                                  | $ | 796  |     |        | $ | 773    |     |  | $ | 23 |   |  |  | 3.0 | %  
|              
|              
|              
|              
|               | Average paperboard cost   |                                  |   | 451  |     |        |   | 428    |     |  |   | 23 |   |  |  | 5.4 | %  
|               |                           |                                  |   |      |     |        |   |        |     |  |   |    |   |  |  |    
|               |                           | Tube and core gross paper margin |   | $    | 345 |        |   | $      | 345 |  |   | $  | 0 |  |  |     | 0.0 | %
|               |                           |                                  |   |      |     |        |   |        |     |  |   |    |   |  |  |    

Net Sales.Our consolidated net sales for the six months
ended June 30, 2001 decreased 13.3% to $436.4 million from
$503.6 million in the same period last year. Acquisitions
completed during 2000 accounted for $22.2 million of net sales
during the first six months of 2001. These acquisitions included
MilPak, Inc., Arrow Paper Products Company and Crane Carton
Company, LLC. These acquisitions were all accounted for using
the purchase method of accounting, and their results of
operations were included only from and after the date of the
acquisition. Excluding 2000 acquisitions, net sales decreased
17.7% during the first six months of 2001. This decrease was due
to lower sales and volume from the paperboard segment, partially
attributable to the dispute with Georgia-Pacific, and lower
sales from the tube, core and composite container and carton and
custom packaging segment.

Total paperboard tonnage for the first six months of 2001
decreased 15.1% to 506.0 thousand tons from 595.7 thousand tons.
Excluding 2000 acquisitions, total paperboard tonnage decreased
17.4% to 492.1 thousand tons. This decrease was primarily due to
lower shipments of unconverted paperboard to external customers
combined with lower internal conversion by our converting
operations. The decrease in volume was due primarily to a
decline in industry demand and partially attributable to the
contract dispute with Georgia-Pacific. Excluding 2000
acquisitions, outside purchases decreased 17.1% to 50.5 thousand
tons compared to prior year. Tons sold from paperboard mill
production decreased 17.4% for the first six months of 2001 to
441.6 thousand tons compared with 534.8 thousand tons last year.
Total tonnage converted decreased 12.5% for the first six months
of 2001 to 233.8 thousand tons compared to 267.1 thousand tons
last year and decreased 18.0% excluding 2000 acquisitions.
Excluding 2000 acquisitions, volumes in the folding carton and
the tube, core and composite container end-use markets decreased
16.8% and 7.7%, respectively.

Gross Margin. Gross margin for the first six months of
2001 decreased to 21.2% of net sales from 22.0% in 2000. This
margin decrease was due primarily to lower volume and higher
energy costs in the paperboard segment, combined with lower
margins in the carton and custom packaging and tube, core and
composite container segments. These margin decreases were
partially offset by the $3.8 million reduction in reserves
related to expiring unfavorable supply contracts at the Sprague
paperboard mill. Excluding this reduction in reserves, gross
margin was 20.3% in the first six months of 2001.

Restructuring Costs. In January 2001, we initiated a plan
to close our paperboard mill located in Chicago, Illinois and
recorded a pretax charge to operations of approximately $4.4
million. The mill was profitable through 1998, but declining
sales resulted in losses of approximately $2.6 million and
$1.5 million in 1999 and 2000, respectively. We expect the
proceeds from the sale of the real estate to more than offset
the pretax charge. The $4.4 million charge included a
$2.2 million noncash asset impairment write down of fixed
assets to estimated net realizable value, a $1.2 million
accrual for severance and termination benefits for
16 salaried and 59 hourly employees terminated in
connection with this plan and a $989 thousand accrual for other
exit costs. In the first six months of 2001, we paid
$1.2 million in severance and termination benefits and $454
thousand in other exit costs. As of June 30, 2001, two
employees remained to assist in the closing of the mill. The
remaining other exit costs will be paid by December 31,
2001. We are marketing the property and will complete the exit
plan upon the sale of the property, which we anticipate will
occur prior to December 31, 2001.

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FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001


PART I, ITEM 2.


In March 2001, we initiated a plan to consolidate the operations
of our Salt Lake City, Utah carton plant into our Denver,
Colorado carton plant and recorded a pretax charge to operations
of approximately $2.6 million. The $2.6 million charge
included a $1.8 million noncash asset impairment write down
of fixed assets to estimated net realizable value, a $464
thousand accrual for severance and termination benefits for
5 salaried and 31 hourly employees terminated in
connection with this plan and a $422 thousand accrual for
other exit costs. In the first six months of 2001, we paid
$458 thousand in severance and termination benefits and
$254 thousand in other exit costs. As of June 30, 2001, one
employee remained to assist in the closing of the plant. The
remaining severance and termination benefits and other exit
costs will be paid by December 31, 2001.

Operating Income. Operating income for the first six
months of 2001 was $12.3 million, a decrease of
$16.7 million, from the year-earlier period. Operating
income for comparable facilities, excluding restructuring costs
in 2001 and 2000 and the Sprague reserve reduction, decreased
$21.4 million, or 59.6%, from the prior year. This decline
was due primarily to lower volume and higher energy costs in the
paperboard segment, combined with lower margins in the carton
and custom packaging and tube, core and composite container
segments. Selling, general and administrative expenses decreased
by $2.0 million, or 2.7%, in the first six months of 2001
compared to 2000 due primarily to a decrease in expenses in the
paperboard segment as a result of the Chesapeake, Camden and
Chicago mill closures, partially offset by higher expenses due
to 2000 acquisitions in the tube, core and composite container
and carton and custom packaging segments.

Other Income (Expense). Interest expense increased 33.0%
to $20.8 million for the first six months of 2001 from
$15.6 million in 2000. This increase was due to higher
outstanding debt balances at higher interest rates compared to
prior year. See Liquidity and Capital Resources for
additional information regarding our debt and interest expense.

Equity in loss from unconsolidated affiliates for the first six
months of 2001 was $2.7 million, down $9.1 million
from equity income of $6.4 million in the first six months of
2000. This decrease was primarily due to lower operating results
for Standard Gypsum, L.P., our gypsum wallboard joint venture.
Our containerboard mill joint venture, Premier Boxboard Limited
LLC, which began operations in the third quarter of 2000, posted
a net loss of $77 thousand through the six-month period
ended June 30, 2001. The lower operating results for
Standard Gypsum, L.P. was the result of excess production
capacity in that market, which has lowered sales prices
significantly since the first quarter of 2000. Both of these
joint ventures are with Temple-Inland.

Net Income. As discussed above, our results for the first
six months of 2001 included restructuring charges recorded in
conjunction with the closing of our Chicago, Illinois paperboard
mill and the consolidation of operations of our Salt Lake City,
Utah carton plant into our Denver, Colorado carton plant. These
charges were $7.0 million in the aggregate
($4.4 million, net of tax benefit, or $0.16 per common
share on a diluted basis). Also included in the results for the
first six months of 2001 was an extraordinary loss of
$4.3 million related to the early extinguishment of debt
($2.7 million, net of tax benefit, or $0.10 per common
share on a diluted basis). Partially offsetting these charges
was the $3.8 million reduction in reserves related to
expiring unfavorable supply contracts at the Sprague paperboard
mill ($2.4 million, net of tax provision, or $0.08 per
common share on a diluted basis). Excluding the extraordinary
loss, restructuring charges and the Sprague reserve reduction,
net loss for the first six months of 2001 was $5.7 million,
or $0.20 net loss per common share compared to net income before
restructuring costs of $16.0 million, or $0.62 per common
share for the same period last year. Including the extraordinary
loss, restructuring charges and the Sprague reserve reduction,
net loss was $10.5 million for the first six months of
2001, or $0.38 per common share, compared with net income of
$11.6 million, or $0.45 per common share last year.

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FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001


PART I, ITEM 2.


Liquidity and Capital Resources

At June 30, 2001 and 2000, and December 31, 2000,
total debt consisted of the following (in thousands):

|                                 |  |          |         |              |  |      |         |  |  |   |         | 
|-------------------------------- |  | -------- | ------- | ------------ |  | ---- | ------- |  |  | - | ------- | 
|                                 |  |          |         |             
|                                 |  | June 30, |         |             
|                                 |  |          |         | December 31,
|                                 |  | 2001     |         | 2000         |  | 2000
|                                 |  |          |         |              |  |     
|Senior credit facility           |  | $        | 0       |              |  | $    | 194,000 |  |  | $ | 194,000 | 
|                                
|                                
|                                
|                                
|9 7/8% senior subordinated notes |  |          | 276,278 |              |  |      | 0       |  |  |   | 0       | 
|                                
|                                
|                                
|                                
|7 1/4 senior notes               |  |          | 25,311  |              |  |      | 0       |  |  |   | 0       | 
|                                
|                                
|                                
|                                
|7 3/8% senior notes              |  |          | 199,008 |              |  |      | 198,740 |  |  |   | 198,791 | 
|                                
|                                
|                                
|                                
|7.74% senior notes               |  |          | 0       |              |  |      | 82,750  |  |  |   | 66,200  | 
|                                
|                                
|                                
|                                
|Other notes payable              |  |          | 8,248   |              |  |      | 4,808   |  |  |   | 9,081   | 
|                                 |  |          |         |              |  |      |         |  |  |   |         | 
|                                 |  | $        | 508,845 |              |  | $    | 480,298 |  |  | $ | 468,072 | 
|                                 |  |          |         |              |  |      |         |  |  |   |         | 

On March 29, 2001, we completed a series of financing
transactions pursuant to which we (i) issued $29.0 million
in aggregate principal amount of 7  1/4% senior notes due
May 1, 2010 and $285.0 million in aggregate principal
amount of 9  7/8% senior subordinated notes due
April 1, 2011, (ii) used the proceeds from these notes
to repay in full our former senior credit facility and 7.74%
senior notes, and (iii) obtained a new $75.0 million
senior credit facility. The 7  1/4% senior notes and
9  7/8% senior subordinated notes were issued at a discount
to yield effective interest rates of 9.4% and 10.5%,
respectively. Aggregate proceeds from the sale of these notes,
net of issuance costs, was approximately $291.2 million. In
connection with the repayment of the 7.74% senior notes, we
incurred a prepayment penalty of approximately
$3.6 million. The difference between issue price and
principal amount at maturity of our 7  1/4% senior and
9  7/8% senior subordinated notes will be accreted each
year as interest expense in our financial statements. These
newly issued notes are unsecured, but are guaranteed, on a joint
and several basis, by all of our domestic subsidiaries, other
than one that is not wholly owned.

Our new credit facility provides for a revolving line of credit
in the aggregate principal amount of $75.0 million for a
term of three years, including subfacilities of
$10.0 million for swingline loans and $15.0 million
for letters of credit, usage of which reduces availability under
the facility. No borrowings were outstanding under the facility
as of June 30, 2001, versus $194.0 million outstanding
on our former senior credit facility on both June 30, 2000
and December 31, 2000; however, an aggregate of
$9.8 million in letter of credit obligations were
outstanding on June 30, 2001. We intend to use the facility
for working capital, capital expenditures and other general
corporate purposes. Although the facility is unsecured, our
obligations under the facility are unconditionally guaranteed,
on a joint and several basis, by all of our existing and
subsequently acquired wholly owned domestic subsidiaries.

Borrowings under the new facility bear interest at a rate equal
to, at our option, either (1) the base rate (which is equal
to the greater of the prime rate most recently announced by Bank
of America, N.A., the administrative agent under the facility,
or the federal funds rate plus one-half of 1%) or (2) the
adjusted Eurodollar Interbank Offered Rate, in each case plus an
applicable margin determined by reference to our leverage ratio
(which is defined under the new facility as the ratio of our
total debt to our total capitalization). The initial applicable
margins are 2.0% for Eurodollar rate loans and 0.75% for base
rate loans. Beginning on the date we deliver our financial
statements for the fiscal quarter ending September 30,
2001, the initial margins will be subject to reduction based on
our leverage ratio. Additionally, the undrawn portion of the
facility is subject to a facility fee at an annual rate that is
presently set at 0.5%, also subject to reduction, beginning on
the date we deliver our September 30, 2001 financial
statements, based on our leverage ratio.

The new facility contains covenants that restrict, among other
things, our ability and our subsidiaries ability to create
liens, merge or consolidate, dispose of assets, incur
indebtedness and guarantees, pay dividends, repurchase or redeem
capital stock and indebtedness, make certain investments or
acquisitions, enter into certain transactions with affiliates,
make capital expenditures or change the nature of our business.
The facility

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FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001


PART I, ITEM 2.


also contains several financial maintenance covenants, including
covenants establishing a maximum leverage ratio (as described
above), minimum tangible net worth and a minimum interest
coverage ratio.

The new facility contains events of default including, but not
limited to, nonpayment of principal or interest, violation of
covenants, incorrectness of representations and warranties,
cross-default to other indebtedness, bankruptcy and other
insolvency events, material judgements, certain ERISA events,
actual or asserted invalidity of loan documentation and certain
changes of control of our company.

In 1998, we registered with the SEC a total of $300.0 million in
public debt securities for issuance in one or more series and
with such specific terms as to be determined from time to time.
On June 1, 1999, we issued $200.0 million in aggregate
principal amount of our 7  3/8% senior notes due
June 1, 2009. Our 7  3/8% senior notes were issued at
a discount to yield an effective interest rate of 7.473%, are
unsecured obligations of our company and pay interest
semiannually. In connection with the offering of our 7 
1/4% senior notes and 9  7/8% senior subordinated notes,
our subsidiary guarantors also guaranteed our 7  3/8%
senior notes.

We have severally and unconditionally guaranteed 50% of the
obligations of our Premier Boxboard and Standard Gypsum joint
ventures under their respective credit facilities. In addition,
Premier Boxboard has issued $50.0 million in senior notes, which
are guaranteed by our joint venture partner, Temple-Inland, and
are secured by a substantial portion of the assets of Premier
Boxboard. As of June 30, 2001, approximately $86.2 million
of indebtedness under the joint venture credit agreements was
outstanding, of which we have guaranteed one-half (approximately
$43.1 million).

As noted above, on March 29, 2001, we repaid in full all
outstanding balances under our former senior credit facility and
7.74% senior notes. Our former senior credit facility was a
$400.0 million, five-year senior credit facility with a
scheduled maturity date in July 2002. Interest under the
facility was computed using our choice of: (a) the adjusted
Eurodollar rate (as defined under the facility) plus a margin;
or (b) the higher of (i) the federal funds rate plus
one-half of 1% or (ii) the prime lending rate most recently
announced by the administrative agent under the facility. At
December 31, 2000 and March 29, 2001, the date we repaid
and terminated our former senior credit facility, the interest
margin above the adjusted Eurodollar rate was computed on the
basis of our leverage ratio. For the three months ended
March 31, 2001, six months ended June 30, 2000 and for
the year ended December 31, 2000, the weighted average
borrowings outstanding under our former senior credit facility
during such periods bore interest at 6.95%, 6.56% and 7.18%,
respectively.

Our 7.74% senior notes, which we originally issued on
October 1, 1992 to an insurance company in an aggregate
principal amount of $82.75 million, bore interest at a rate of
7.74% per annum, payable semiannually in April and October of
each year. In connection with the repayment of our 7.74% senior
notes, we incurred a prepayment penalty of approximately $3.6
million.

In May 2001, we entered into two interest rate swap agreements
in notional amounts of $185.0 million and $25.0 million. The
agreements, which have payment and expiration dates that
correspond to the terms of the note obligations they cover,
effectively converted $185.0 million of our fixed rate 9 
7/8% senior subordinated notes and $25.0 million of our fixed
rate 7  3/8% senior notes into variable rate obligations.
The variable rates are based on LIBOR plus a fixed margin. We
expect these swap agreements to lower our interest expense;
however, if LIBOR increases significantly, our interest expense
could also increase significantly. For example, assuming the
continuation of the variable interest rates currently in effect
under the swap agreements, we expect to save approximately $4.6
million per year in interest expense. If, however, LIBOR were to
increase by 100 basis points, our interest expense would
increase by approximately $2.1 million annually.

Cash generated from operations was $16.3 million for the six
months ended June 30, 2001, compared with $25.1 million for
the same period last year. The decrease in the first six months
of 2001 compared to the same period last year was due primarily
to lower net income and a decrease in distributions from
unconsolidated affiliates, partially offset by favorable changes
in working capital.

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FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001


PART I, ITEM 2.


Capital expenditures were $17.9 million in the first six months
of 2001 versus $33.4 million for the same period last year.
Aggregate capital expenditures of approximately $30.0 million
are anticipated for 2001 compared with $58.3 million in 2000. To
conserve cash, we intend to limit capital expenditures in 2001
to cost reduction and productivity improvement projects.

We paid cash dividends of $7.2 million in the first six months
of 2001 versus $9.2 million in the same period last year. In
February 2001, we reduced our first quarter dividend from $0.18
to $0.09 per issued and outstanding common share. In June 2001,
we reduced our second quarter dividend from $0.09 to $0.03 per
issued and outstanding common share. We made these decisions to
reduce the quarterly dividends to preserve our financial
flexibility in light of difficult industry conditions. Although
our former debt agreements contained no specific limitations on
the payment of dividends, our new debt agreements contain
certain limitations on the payment of future dividends. We
intend to continue assessing our ability to pay quarterly
dividends in light of difficult industry conditions, our need to
preserve financial flexibility and the limitations on dividends
in our financial covenants.

We did not purchase any shares of our common stock during the
first six months of 2001 under our common stock purchase plan.
We have cumulatively purchased 3,169,000 shares since January
1996. Our board of directors has authorized purchases of up to
831,000 additional shares. Our newly issued 9 7/8% senior
subordinated notes and our new credit facility will limit our
future ability to repurchase our common stock.

We believe that our existing cash and cash from operations will
be adequate to fund our operations, working capital needs and
debt service obligations for the foreseeable future. If,
however, we were to face unexpected liquidity needs, we could
require additional funds from external sources such as our
senior credit facility.

New Accounting Pronouncements

In June 1998, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities. SFAS
No. 133 established accounting and reporting standards for
derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. It also requires that
an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure
those instruments at fair value. In June 1999, the FASB issued
SFAS No. 137, Accounting for Derivative Instruments
and Hedging Activities  Deferral of the Effective
Date of FASB Statement 133. This statement deferred
the effective date of SFAS No. 133 until the fiscal year
ending December 31, 2001. In June 2000, the FASB issued
SFAS No. 138, Accounting for Certain Derivative
Instruments and Certain Hedging Activities (an Amendment of FASB
No. 133). This statement amends the accounting and
reporting standards of SFAS No. 133 for certain derivative
instruments and hedging activities. The Company adopted SFAS
No. 133, as amended, on January 1, 2001. This
pronouncement did not have a material impact on the
Companys financial statements upon adoption.

In June 2001, the FASB issued SFAS No. 142, Goodwill
and Other Intangible Assets. This statement changes the
accounting for goodwill from an amortization method to an
impairment-only approach. As of June 30, 2001, the Company
had $148,694,000 of recorded net goodwill, which will be subject
to this new standard. During fiscal year 2001, the Company
expects approximately $2,800,000 of goodwill amortization
expense, net of taxes. The Company expects to adopt this
standard in the first quarter of fiscal year 2002. The Company
is currently evaluating this new pronouncement and has not yet
determined the impact on its consolidated financial statements.

Georgia-Pacific Litigation

On May 9, 2001, we and Georgia-Pacific Corporation jointly
announced a tentative settlement regarding the litigation over
the terms of the long-term supply contract the parties entered
in April 1996. The pending

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FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001


PART I, ITEM 2.


litigation relating to that contract has been previously
reported in our annual report on Form 10-K for the year
ended December 31, 2000 and in our previous quarterly
reports on Form 10-Q. Under the terms of the tentative
settlement, we and G-P Gypsum Corporation, a wholly owned
subsidiary of Georgia-Pacific, entered into a new ten-year
agreement under which we would supply a minimum of 50,000 tons
of gypsum facing paper per year to G-P Gypsum. Implementation of
the new agreement, and settlement of the pending litigation over
the 1996 agreement, is subject to satisfactory completion of a
transition period. The transition period initially was to expire
no later than August 6, 2001. As described below, however,
the parties have recently agreed to extend the outside
termination date of the transition period to December 31,
2001. During the transition period, we are supplying G-P Gypsum
with such facing paper as it requests to enable it to evaluate
the papers compliance with its specifications for quality
and end-use suitability. Once G-P Gypsum is satisfied with the
paper, it is to notify us that the transition period has ended,
and at that time the term of the new agreement, including the
annual minimum quantity requirement described above, is to
commence. If and when the new agreement commences, the parties
will dismiss all pending litigation relating to the 1996
agreement. Under the terms of the tentative settlement, either
party may terminate its obligations under the new agreement
during the transition period without cause and without liability
to the other party.

During the second quarter of 2001, ongoing discussions with G-P
Gypsum led to a mutual agreement to extend the outside
expiration date of the transition period to December 31,
2001. The extension was the result of Georgia-Pacifics
recent curtailment of a significant portion of its gypsum
wallboard manufacturing capacity because of adverse market
conditions. This curtailment, along with Georgia-Pacifics
stated reservations about committing to the minimum tonnage
requirement under the new agreement in light of current market
conditions, led the parties to agree to the extension of the
transition period.

Although we believe that we are able to satisfy G-P
Gypsums product requirements, we can give no assurance
that the new agreement will be implemented in accordance with
its terms or that the pending litigation will be dismissed.
Specifically, we cannot predict whether Georgia-Pacifics
recent curtailment of gypsum wallboard manufacturing capacity
will further affect whether, when or how a new agreement is
implemented, including whether such curtailment will result in
modifications to the ultimate volume requirements under any new
contract that may be implemented. Accordingly, we believe that
our operating results and financial condition will continue to
be materially and adversely affected by the loss of contract
volume from Georgia-Pacific unless and until a new supply
agreement is implemented with significant volume requirements,
and until a new supply agreement has been effective long enough
to generate a substantial volume of required purchases from
Georgia-Pacific.

Forward-Looking Information

This Quarterly Report on Form 10-Q, including
Managements Discussion and Analysis of Financial
Condition and Results of Operations, may contain various
forward-looking statements, within the meaning of
Section 21E of the Securities Exchange Act of 1934, that
are based on managements belief and assumptions, as well
as information currently available to management. When used in
this document, the words believe,
anticipate, estimate,
expect, intend, should,
would, could, or may and
similar expressions may identify forward-looking statements. Any
such statements are subject to certain risks, uncertainties and
assumptions. Should one or more of these risks or uncertainties
materialize or should underlying assumptions prove incorrect,
our actual financial results, performance or condition may vary
materially from those anticipated, estimated or expected. For a
discussion of some of the key factors that may have a direct
bearing on our actual financial results, performance or
condition, please read carefully the information under
Risk Factors in this Report, as well as the
discussion of other factors included elsewhere in this Report
and our other filings with the Securities and Exchange
Commission. We do not undertake any obligation to update any
forward-looking statements we make.

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##### Table of Contents



FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001


PART I, ITEM 2.


Risk Factors

Investors should consider the following risk factors, in
addition to the other information presented in this Report and
the other reports and registration statements we file from time
to time with the Securities and Exchange Commission, in
evaluating us, our business and an investment in our securities.
Any of the following risks, as well as other risks and
uncertainties, could harm our business and financial results and
cause the value of our securities to decline, which in turn
could cause investors to lose all or part of their investment in
our company. The risks below are not the only ones facing our
company. Additional risks not currently known to us or that we
currently deem immaterial also may impair our business.

Our Business and Financial Performance May Be Harmed By
Future Increases In Raw Material Costs.

Our primary raw material is recycled paper, which is known in
our industry as recovered fiber. The cost of
recovered fiber has, at times, fluctuated greatly because of
factors such as shortages or surpluses created by market or
industry conditions. Although we have historically raised the
selling prices of our products in response to raw material price
increases, sometimes raw material prices have increased so
quickly or to such levels that we have been unable to pass the
price increases through to our customers on a timely basis,
which has adversely affected our operating margins. We cannot
assure you that we will be able to pass such price changes
through to our customers on a timely basis and maintain our
margins in the face of raw material cost fluctuations in the
future.

Our Operating Margins May Be Adversely Affected By Rising
Energy Costs.

Excluding labor, energy is our most significant manufacturing
cost. We use energy to generate steam used in the paper making
process and to operate our paperboard machines and all of our
other converting machinery. Our energy costs increased steadily
throughout 2000 and into 2001 due primarily to increases in
natural gas and fuel oil costs. Until recently, our business had
not been significantly affected by energy costs, and we
historically have not passed energy costs through to our
customers. We have not been able to pass through to our
customers all of the energy cost increases we incurred in 2000
and 2001. We continue to evaluate our energy costs and consider
ways to factor energy costs into our pricing. However, we cannot
assure you that our operating margins and results of operations
will not continue to be adversely affected by rising energy
costs.

Our Business and Financial Performance May Be Adversely
Affected By Downturns In Industrial Production, Housing and
Construction and the Consumption
of Nondurable and Durable Goods.

Demand for our products in our four principal end use markets is
primarily driven by the following factors:



|  |                                                                                                                                      
|- | -------------------------------------------------------------------------------------------------------------------------------------
| | Tube, core and composite container  industrial
	production, construction spending and consumer nondurable
	consumption              
| 
| | Folding cartons  consumer nondurable consumption and
	industrial production                                                         
| 
| | Gypsum wallboard facing paper  single and multifamily
	construction, repair and remodeling construction and commercial
	construction
| 
| | Other specialty products  consumer nondurable
	consumption and consumer durable consumption.                                        

Downturns in any of these sectors will result in decreased
demand for our products. In particular, our business has been
adversely affected in recent periods by the general slow down in
industrial demand and softness in the housing markets. These
conditions are beyond our ability to control, but have had, and
will continue to have, a significant impact on our sales and
results of operations.

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FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001


PART I, ITEM 2.


We Are Adversely Affected By the Cycles, Conditions and
Problems Inherent In Our Industry.

Our operating results tend to reflect the general cyclical
nature of the business in which we operate. In addition, our
industry has suffered from excess capacity. Our industry also is
capital intensive, which leads to high fixed costs and generally
results in continued production as long as prices are sufficient
to cover marginal costs. These conditions have contributed to
substantial price competition and volatility within our
industry. In the event of a recession, demand and prices are
likely to drop substantially. Our profitability historically has
been more sensitive to price changes than to changes in volume.
Future decreases in prices for our products would adversely
affect our operating results. These factors, coupled with our
substantially leveraged financial position, may adversely affect
our ability to respond to competition and to other market
conditions or to otherwise take advantage of business
opportunities.

The Lingering Effects of Our Tentatively Settled Dispute With
Georgia-Pacific May Continue To Materially and Adversely Affect
Our Operating Results and Financial Condition.

As previously reported, we have been in litigation with
Georgia-Pacific Corporation over Georgia-Pacifics refusal
to continue purchasing its requirements of gypsum facing paper
for certain plants pursuant to the terms of a long-term supply
contract. As a result of the dispute, by the end of the third
quarter of 2000, Georgia-Pacifics purchases fell by more
than 80% from an average of 7,000 tons per month during the
first half of 2000, and fell to approximately 300 tons per month
in the fourth quarter of 2000. As a result of this loss in
volume, we have closed our Camden, New Jersey paperboard mill
and lost volume amounting to approximately 40% of the capacity
of our Buffalo, New York paperboard mill. In May 2001, we
announced that we reached a tentative settlement pursuant to
which we entered into a new supply agreement with G-P Gypsum, a
subsidiary of Georgia-Pacific, subject to completion of a
transition period. Ongoing discussions with G-P Gypsum recently
led the parties to extend the outside expiration date of the
transition period to December 31, 2001. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations  Georgia-Pacific
Litigation. We can give no assurance that the conditions
to the new agreement will be satisfied (or that G-P Gypsum will
determine or agree that the conditions have been satisfied), or
that the new agreement will be implemented in accordance with
its terms and the pending litigation will be dismissed.
Accordingly, we believe that our operating results and financial
condition will continue to be materially and adversely affected
by the loss of contract volume from Georgia-Pacific unless and
until a new supply agreement is implemented with significant
volume requirements, and until the new supply agreement has been
effective long enough to generate a substantial volume of
required purchases from Georgia-Pacific.

Our Business May Suffer From Risks Associated With Growth and
Acquisitions.

Historically, we have grown our business, revenues and
production capacity to a significant degree through
acquisitions. In the current difficult operating climate facing
our industry, we anticipate that the pace of our acquisition
activity will slow significantly as we focus on conserving cash
and maximizing the productivity of our existing facilities.
However, we expect to continue evaluating and pursuing
acquisition opportunities on a selective basis, subject to
available funding and credit flexibility. Growth through
acquisitions involves risks, many of which may continue to
affect us based on acquisitions we have completed in the past.
For example, we have suffered significant unexpected losses at
our Sprague mill in Versailles, Connecticut, which we acquired
from International Paper Company in 1999, resulting from
unfavorable fixed price contracts, low capacity utilization and
higher recovered fiber costs that we were unable to pass through
to our customers. Sprague incurred operating losses of $17.2
million in 2000 and $5.1 million and $4.3 million in the first
and second quarter of 2001, respectively. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations. We cannot assure you
that our acquired businesses will achieve the same levels of

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##### Table of Contents



FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001


PART I, ITEM 2.


revenue, profit or productivity as our existing locations or
otherwise perform as we expect. Acquisitions also involve
specific risks. Some of these risks include:



|  |                                                           
|- | ----------------------------------------------------------
| | assumption of unanticipated liabilities and contingencies;
| 
| | diversion of managements attention; and                  
| 
| | possible reduction of our reported earnings because of:   



| |   |                                                 
| | - | ------------------------------------------------
| |  | increased goodwill write-offs;                  
|
| |  | increased interest costs;                       
|
| |  | issuances of additional securities or debt; and 
|
| |  | difficulties in integrating acquired businesses.

As we grow, we can give no assurance that we will be able to:



|  |                                                                          
|- | -------------------------------------------------------------------------
| | use the increased production capacity of any new or improved
	facilities;
| 
| | identify suitable acquisition candidates;                                
| 
| | complete additional acquisitions; or                                     
| 
| | integrate acquired businesses into our operations.                       

If We Cannot Raise the Necessary Capital For, Or Use Our
Stock To Finance, Acquisitions, Expansion Plans Or Other
Significant Corporate Opportunities, Our Growth May Be
Impaired.

Without additional capital, we may have to curtail any
acquisition and expansion plans or forego other significant
corporate opportunities that may be vital to our long-term
success. Although we expect to use borrowed funds to pursue
these opportunities, we must continue to comply with financial
and other covenants in order to do so. If our revenues and cash
flow do not meet expectations, then we may lose our ability to
borrow money or to do so on terms that we consider favorable.
Conditions in the capital markets also will affect our ability
to borrow, as well as the terms of those borrowings. In
addition, our financial performance and the conditions of the
capital markets will also affect the value of our common stock,
which could make it a less attractive form of consideration in
making acquisitions. All of these factors could also make it
difficult or impossible for us to expand in the future.

Our Substantial Indebtedness Could Adversely Affect Our Cash
Flow and Our Ability to Fulfill Our Obligations Under Our
Indebtedness.

We have a substantial amount of outstanding indebtedness. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the unaudited
financial statements included in this Report. Our substantial
level of indebtedness increases the possibility that we may be
unable to generate cash sufficient to pay when due the principal
of, interest on or other amounts due in respect of our
indebtedness. We may also obtain additional long-term debt,
increasing the risks discussed below. Our substantial leverage
could have significant consequences to holders of our debt and
equity securities. For example, it could:



|  |                                                                                                                                                                                                                                                          
|- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | make it more difficult for us to satisfy our obligations with
	respect to our indebtedness;                                                                                                                                                              
| 
| | increase our vulnerability to general adverse economic and
	industry conditions;                                                                                                                                                                         
| 
| | limit our ability to obtain additional financing;                                                                                                                                                                                                        
| 
| | require us to dedicate a substantial portion of our cash flow
	from operations to payments on our indebtedness, reducing the
	amount of our cash flow available for other purposes, including
	capital expenditures and other general corporate purposes;

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FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001


PART I, ITEM 2.




|  |                                                                                                                                               
|- | ----------------------------------------------------------------------------------------------------------------------------------------------
| | require us to sell debt or equity securities or to sell some of
	our core assets, possibly on unfavorable terms, to meet payment
	obligations;
| 
| | restrict us from making strategic acquisitions, introducing new
	technologies or exploiting business opportunities;                           
| 
| | limit our flexibility in planning for, or reacting to, changes
	in our business and our industry;                                             
| 
| | place us at a possible competitive disadvantage compared to our
	competitors that have less debt; and                                         
| 
| | adversely affect the value of our common stock.                                                                                               

We are Subject to Many Environmental Laws and Regulations
that Require Significant Expenditures for Compliance and
Remediation Efforts, and Changes in the Law Could Increase Those
Expenses and Adversely Affect Our Operations.

Compliance with the environmental requirements of international,
federal, state and local governments significantly affects our
business. Among other things, these requirements regulate the
discharge of materials into the water, air and land and govern
the use and disposal of hazardous substances. Under
environmental laws, we can be held strictly liable if hazardous
substances are found on real property we have ever owned,
operated or used as a disposal site. In recent years, we have
adopted a policy of assessing real property for environmental
risks prior to purchase. We are aware of issues regarding
hazardous substances at some facilities, and we have put into
place a remedial plan at each site where we believe such a plan
is necessary. We regularly make capital and operating
expenditures to stay in compliance with environmental laws.
Despite these compliance efforts, risk of environmental
liability is part of the nature of our business. We cannot
assure you that environmental liabilities, including compliance
and remediation costs, will not have a material adverse effect
on us in the future. In addition, future events may lead to
additional compliance or other costs that could have a material
adverse effect on our business. Such future events could include
changes in, or new interpretations of, existing laws,
regulations or enforcement policies or further investigation of
the potential health hazards of certain products or business
activities.

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FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001




PART I, ITEM 3.


CARAUSTAR INDUSTRIES, INC.




QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For a discussion of certain market risks related to us, see
Part II, Item 7A, Quantitative and Qualitative
Disclosures about Market Risk, in our Annual Report on
Form 10-K for the fiscal year ended December 31, 2000.

In May 2001, we entered into two interest rate swap agreements
in notional amounts of $185.0 million and $25.0 million. The
agreements, which have payment and expiration dates that
correspond to the terms of the note obligations they cover,
effectively converted $185.0 million of our fixed rate 9 
7/8% senior subordinated notes and $25.0 million of our fixed
rate 7  3/8% senior notes into variable rate obligations.
The variable rates are based on LIBOR plus a fixed margin. We
expect these swap agreements to lower our interest expense;
however, if LIBOR increases significantly, our interest expense
could also increase significantly. For example, assuming the
continuation of the variable interest rates currently in effect
under the swap agreements, we expect to save approximately $4.6
million per year in interest expense. If, however, LIBOR were to
increase by 100 basis points, our interest expense would
increase by approximately $2.1 million annually.

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FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001

PART II, ITEM 1.





PART II. OTHER INFORMATION




ITEM  1.     LEGAL
PROCEEDINGS

As previously reported, we have been in litigation with
Georgia-Pacific Corporation over the terms of a long-term supply
contract the parties entered in April 1996. The pending
litigation relating to that contract has been reported in
previous quarterly reports on Form 10-Q, including the
report on Form 10-Q for the quarter ended March 31,
2001, and in the annual report on Form 10-K for the year
ended December 31, 2000. For a discussion of developments
regarding the litigation and the previously announced tentative
settlement of that litigation, see Managements
Discussion and Analysis of Financial Condition and Results of
Operations  Georgia-Pacific Litigation above.




ITEM  4.     SUBMISSION OF
MATTERS TO A VOTE OF SECURITY HOLDERS

Information regarding the results of matters voted upon at our
annual meeting of shareholders held May 10, 2001 was
previously reported in our report on Form 10-Q for the
quarter ended March 31, 2001.




ITEM  5.     OTHER
INFORMATION

2002 Annual Meeting Date And Deadlines For Shareholder
Proposals Established

Our 2002 annual meeting of shareholders will be held on
May 8, 2002. Accordingly, shareholders who intend to
present proposals at next years annual meeting are advised
that any such proposal must be received by the Secretary of our
company no later than the close of business on December 11,
2001 in order to be considered for inclusion in our proxy
statement and proxy appointment form relating to that meeting.
Only persons who have held beneficially or of record at least
$2,000 in market value, or 1% of our outstanding common shares,
for at least one year on the date the proposal is submitted and
who continue in such capacity through the meeting date are
eligible to submit proposals to be considered for inclusion in
our proxy statement. In addition, our bylaws prescribe
procedures a shareholder must follow to make nominations for
director candidates or propose any other business to be
considered at an annual meeting. Shareholder nominations for
director will be considered at the 2002 annual meeting or any
other meeting at which an election is to be held if the
shareholder delivers to the Secretary of our company, not later
than the close of business on the fifth business day following
the date on which notice is first given to shareholders of the
meeting at which such election is to be held, a notice setting
forth the information specified in Section 3 of
Article III of our bylaws. Other shareholder proposals will
be considered at the 2002 annual meeting if the shareholder
delivers to the Secretary of our company at our principal
executive office, no earlier than February 7, 2002 nor
later than March 11, 2002, a written notice setting forth
the information specified in Section 15 of Article II
of our bylaws. Any shareholder desiring a copy of our bylaws
will be furnished one without charge upon written request to the
Secretary of our company at 3100 Joe Jerkins Boulevard, Austell,
Georgia, 30106. This disclosure updates and supplements the
previous disclosure set forth under the caption Proposals
for 2002 Annual Meeting of Shareholders in our proxy
statement dated April 9, 2001 relating to our 2001 annual
meeting of shareholders.




ITEM  6.     EXHIBITS AND
REPORTS ON FORM 8-K

(a)  Exhibits

The Exhibits to this Report on Form 10-Q are listed in the
accompanying Exhibit Index.

(b)  Reports on Form 8-K

We filed two current reports on Form 8-K during the quarter
ended June 30, 2001. The first report, filed on
April 12, 2001, incorporated certain disclosures and
supplemental information regarding our expected operating
results for the first quarter of 2001.

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FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001


PART II, ITEM 6.


The second report, filed on May 9, 2001, incorporated by
reference the contents of our press release disclosing the
tentative settlement of our litigation with Georgia-Pacific
Corporation.

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FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.



| |                           
| | --------------------------
| | CARAUSTAR INDUSTRIES, INC.



| |     |                       
| | --- | ----------------------
| | By: | /s/ H. LEE THRASH, III

| |                                              
| | ---------------------------------------------
| |                                              
| | H. Lee Thrash, III                           
| | Vice President and Chief Financial
	Officer  
| | (Principal Financial and Accounting
	Officer)



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FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2001




EXHIBIT INDEX

|        |       |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- | ----- | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |            
|No.     |       | Description
|        |       |            
|        | 3.01  |             |  | Amended and Restated Articles of Incorporation of
        the Company (Incorporated by reference 
        Exhibit 3.01 to Annual Report for 1992 on Form 10-K
        [SEC File No. 0-20646])                                                                                                                                                                                                                                                                                                                                                                                        
|        | 3.02  |             |  | Second Amended and Restated Bylaws of the Company
        (Incorporated by reference  Exhibit 3.02 to
        Registration Statement on Form S-4 [SEC File
        No. 333-29937])                                                                                                                                                                                                                                                                                                                                                                                                   
|        | 4.01  |             |  | Specimen Common Stock Certificate (Incorporated
        by reference  Exhibit 4.01 to Registration
        Statement on Form S-1 [SEC File No. 33-50582])                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 4.02  |             |  | Articles 3 and 4 of the Companys
        Amended and Restated Articles of Incorporation (included in
        Exhibit 3.01)                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 4.03  |             |  | Article II of the Companys Second
        Amended and Restated Bylaws (included in Exhibit 3.02)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 4.04  |             |  | Amended and Restated Rights Agreement, dated as
        of May 24, 1999, between Caraustar Industries, Inc. and The
        Bank of New York as Rights Agent (Incorporated by
        reference  Exhibit  10.1 to current report on
        Form 8-K dated June 1, 1999 [SEC File No. 020646])                                                                                                                                                                                                                                                                                       
|        | 4.05  |             |  | Indenture, dated as of June 1, 1999, between
        Caraustar Industries, Inc. and The Bank of New York, as Trustee,
        regarding the Companys 7 3/8% Notes due 2009
        (Incorporated by reference  Exhibit 4.05 to
        report on Form 10-Q for the quarter ended June 30,
        1999 [SEC File No. 0-20646])                                                                                                                                                                                                                                                      
|        | 4.06  |             |  | First Supplemental Indenture, dated as of
        June 1, 1999, between Caraustar Industries, Inc. and The
        Bank of New York, as Trustee (Incorporated by
        reference  Exhibit 4.06 to report on
        Form 10-Q for the quarter ended June 30, 1999 [SEC
        File No. 0-20646])                                                                                                                                                                                                                                                                                  
|        | 4.07  |             |  | Second Supplemental Indenture, dated as of
        March 29, 2001, between the Company, the Subsidiary
        Guarantors and The Bank of New York, as Trustee, regarding the
        Companys 7 3/8% Notes due 2009 (Incorporated by
        reference  Exhibit 4.07 to report on
        Form 10-K for the year ended December 31, 2000 [SEC
        File No. 0-20646])                                                                                                                                                                                                           
|        | 10.01 |             |  | Indenture, dated as of March 29, 2001,
        between the Company, the Guarantors and The Bank of New York, as
        Trustee, regarding the Companys 7 1/4% Senior Notes
        due 2010 (Incorporated by reference 
        Exhibit 10.01 to report on Form 10-K for the year
        ended December 31, 2000 [SEC File No. 0-20646])                                                                                                                                                                                                                                          
|        | 10.02 |             |  | Indenture, dated as of March 29, 2001,
        between the Company, the Guarantors and The Bank of New York, as
        Trustee, regarding the Companys 9 7/8% Senior
        Subordinated Notes due 2011 (Incorporated by
        reference  Exhibit 10.02 to report on
        Form 10-K for the year ended December 31, 2000 [SEC
        File No. 0-20646])                                                                                                                                                                                                                     
|        | 10.03 |             |  | Credit Agreement, dated as of March 29,
        2001, among the Company, certain subsidiaries of the Company,
        various lenders, Bank of America, N.A., as Administrative Agent,
        Banc of America Securities LLC and Deutsche Banc Alex. Brown
        Inc. as Joint Lead Arrangers and Joint Book Managers and Credit
        Suisse, First Boston and Credit Lyonnais New York Branch as
        Co-Documentation Agents (Incorporated by reference 
        Exhibit 10.03 to report on Form 10-K for the year
        ended December 31, 2000 [SEC File No. 0-20646])
|        | 10.04 |             |  | Purchase Agreement, dated as of March 22,
        2001, between the Company and Credit Suisse First Boston
        Corporation, Banc of America Securities LLC, Deutsche Banc Alex.
        Brown Inc. and SunTrust Equitable Securities Corporation
        (Incorporated by reference  Exhibit 10.04 to
        report on Form 10-K for the year ended December 31,
        2000 [SEC File No. 0-20646])                                                                                                                                                                           

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|        |        |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- | ------ | ----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |            
|No.     |        | Description
|        |        |            
|        | 10.05  |             |  | Registration Rights Agreement, dated as of March 22, 2001,
	between the Company, certain subsidiaries of the Company and
	Credit Suisse First Boston Corporation, Banc of America
	Securities LLC, Deutsche Banc Alex. Brown Inc. and SunTrust
	Equitable Securities Corporation (Incorporated by
	reference  Exhibit 10.05 to report on
	Form 10-K for the year ended December 31, 2000 [SEC
	File No. 0-20646])
|        | 10.06  |             |  | Employment Agreement, dated December 31, 1990, between the
	Company and Thomas V. Brown (Incorporated by
	reference  Exhibit 10.06 to Registration
	Statement on Form S-1 [SEC File No. 33-50582])                                                                                                                                                                                                               
|        | 10.07  |             |  | Deferred Compensation Plan, together with copies of existing
	individual deferred compensation agreements (Incorporated by
	reference  Exhibit 10.08 to Registration
	Statement on Form S-1 [SEC File No. 33-50582])                                                                                                                                                                                             
|        | 10.08  |             |  | 1987 Executive Stock Option Plan (Incorporated by
	reference  Exhibit 10.09 to Registration
	Statement on Form S-1 [SEC File No. 33-50582])                                                                                                                                                                                                                                                                      
|        | 10.09  |             |  | 1993 Key Employees Share Ownership Plan (Incorporated by
	reference  Exhibit 10.10 to Registration
	Statement on Form S-1 [SEC File No. 33-50582])                                                                                                                                                                                                                                                              
|        | 10.10  |             |  | Incentive Bonus Plan of the Company (Incorporated by
	reference  Exhibit 10.10 to Annual Report for
	1993 on Form 10-K [SEC File No. 0-20646])                                                                                                                                                                                                                                                                   
|        | 10.11  |             |  | 1996 Director Equity Plan of the Company (Incorporated by
	reference  Exhibit 10.12 to report on
	Form 10-Q for the quarter ended March 31, 1996 [SEC
	File No. 0-20646])                                                                                                                                                                                                                                        
|        | 10.12  |             |  | Amendment No. 1 to the Companys 1996 Director Equity
	Plan, dated July 16, 1998 (Incorporated by
	reference  Exhibit  10.2 to Current Report on
	Form 8-K dated June 1, 1999 [SEC File
	No. 0-20646])                                                                                                                                                                                                           
|        | 10.13  |             |  | Second Amended and Restated 1998 Key Employee Incentive
	Compensation Plan (Incorporated by reference 
	Exhibit  10.13 to report on Form 10-Q for the quarter
	ended March  31, 2001 [SEC File No. 0-20646])                                                                                                                                                                                                     
|        | 10.14  |             |  | Asset Purchase Agreement between Caraustar Industries, Inc.,
	Sprague Paperboard, Inc. and International Paper Company, dated
	as of March 4, 1999 (Incorporated by reference 
	Exhibit 10.17 to report on Form 10-Q for the quarter
	ended March 31, 1999 [SEC File No. 0-20646])                                                                                                                               
|        | 10.15  |             |  | Paperboard Agreement, dated as of April 10, 1996 between
	the Company and Georgia-Pacific Corporation. (Incorporated by
	reference  Exhibit 10.06 to report on
	Form 10-Q for the quarter ended September 30, 2000
	[SEC File No.  0-20646])                                                                                                                                                                     
|        | 11.01 |             |  | Computation of Earnings Per Share                                                                                                                                                                                                                                                                                                                                                                                 
|        | 18.01 |             |  | Accountants preferability letter regarding the change in
	inventory costing method from LIFO to FIFO at one of the
	Companys subsidiaries.                                                                                                                                                                                                                                                                      






| |                 
| | ----------------
| |  Filed herewith

33