<PAGE>   1

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                             ---------------------

                                   FORM 10-Q

<TABLE>
<C>               <S>
   (MARK ONE)
      [X]         QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934
                  FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2001
                                      OR
      [ ]         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                  SECURITIES EXCHANGE ACT OF 1934
                  FOR THE TRANSITION PERIOD FROM ____________TO ____________
</TABLE>

                        COMMISSION FILE NUMBER: 0-20646

                             ---------------------

                           CARAUSTAR INDUSTRIES, INC.
             (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                        <C>
              NORTH CAROLINA                               58-1388387
     (State or other jurisdiction of        (I.R.S. Employer Identification Number)
      incorporation or organization)

 3100 JOE JERKINS BLVD., AUSTELL, GEORGIA                    30106
 (Address of principal executive offices)                  (Zip Code)
</TABLE>

                                 (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 [ ]

     Indicate the number of shares outstanding of each of issuer's classes of
common stock, as of the latest practicable date, May 10, 2001.

<TABLE>
<CAPTION>
        COMMON STOCK, $.10 PAR VALUE                                27,851,824
        ----------------------------                                ----------
<S>                                                <C>
                  (Class)                                         (Outstanding)
</TABLE>

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001

                           CARAUSTAR INDUSTRIES, INC.

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                          PAGE
                                                                          ----
<S>         <C>                                                           <C>
PART I --   FINANCIAL INFORMATION
Item 1.     Condensed Consolidated Financial Statements:
            Condensed Consolidated Balance Sheets as of March 31, 2001
              and December 31, 2000.....................................    3
            Condensed Consolidated Statements of Income for the
              three-month periods ended March 31, 2001 and March 31,
              2000......................................................    4
            Condensed Consolidated Statements of Cash Flows for the
              three-month periods ended March 31, 2001 and March 31,
              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 periods
              ended March 31, 2001 and March 31, 2000...................   12
Item 3.     Quantitative and Qualitative Disclosures About Market
              Risk......................................................   23

PART II --  OTHER INFORMATION
Item 1.     Legal Proceedings...........................................   24
Item 2.     Changes in Securities.......................................   24
Item 4.     Submission of Matters to a Vote of Security Holders.........   24
Item 6.     Exhibits and Reports on Form 8-K............................   25
Signatures..............................................................   26
Exhibit Index...........................................................   27
</TABLE>

                                        2
<PAGE>   3

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001
PART I, ITEM 1.

                  CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES

                     CONDENSED CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
                                                               MARCH 31,    DECEMBER 31,
                                                                 2001          2000*
                                                              -----------   ------------
                                                              (UNAUDITED)
<S>                                                           <C>           <C>
                                         ASSETS
CURRENT ASSETS:
  Cash and cash equivalents.................................   $  22,229     $   8,900
  Receivables, net of allowances............................     103,923        93,145
  Inventories...............................................     105,347       110,346
  Refundable income taxes...................................       3,675         3,857
  Other current assets......................................      11,992         9,438
                                                               ---------     ---------
         Total current assets...............................     247,166       225,686
                                                               ---------     ---------
PROPERTY, PLANT AND EQUIPMENT:
  Land......................................................      12,648        12,663
  Buildings and improvements................................     132,883       127,816
  Machinery and equipment...................................     615,464       620,418
  Furniture and fixtures....................................      12,211        12,164
                                                               ---------     ---------
                                                                 773,206       773,061
  Less accumulated depreciation.............................    (296,806)     (289,752)
                                                               ---------     ---------
  Property, plant and equipment, net........................     476,400       483,309
                                                               ---------     ---------
GOODWILL, net...............................................     149,819       150,894
                                                               ---------     ---------
INVESTMENT IN UNCONSOLIDATED AFFILIATES.....................      64,310        65,895
                                                               ---------     ---------
OTHER ASSETS................................................      16,187         7,043
                                                               ---------     ---------
                                                               $ 953,882     $ 932,827
                                                               =========     =========
                          LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  Current maturities of debt................................   $     408     $   1,259
  Accounts payable..........................................      64,384        63,752
  Accrued liabilities.......................................      41,850        56,531
  Dividends payable.........................................       2,506         4,702
                                                               ---------     ---------
         Total current liabilities..........................     109,148       126,244
                                                               ---------     ---------
SENIOR CREDIT FACILITY (Note 3).............................           0       194,000
                                                               ---------     ---------
OTHER LONG-TERM DEBT, less current maturities (Note 3)......     506,086       272,813
                                                               ---------     ---------
DEFERRED INCOME TAXES.......................................      44,029        50,437
                                                               ---------     ---------
DEFERRED COMPENSATION.......................................       2,214         2,315
                                                               ---------     ---------
OTHER LIABILITIES...........................................       6,826         6,853
                                                               ---------     ---------
MINORITY INTEREST...........................................       1,143         1,115
COMMITMENTS AND CONTINGENCIES (Note 7)
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, 27,850,814 and 26,204,567 shares issued and
    outstanding at March 31, 2001 and December 31, 2000,
    respectively............................................       2,785         2,620
  Additional paid-in capital................................     179,543       160,824
  Retained earnings.........................................     102,999       116,359
  Accumulated other comprehensive income....................        (891)         (753)
                                                               ---------     ---------
                                                                 284,436       279,050
                                                               ---------     ---------
                                                               $ 953,882     $ 932,827
                                                               =========     =========
</TABLE>

---------------
* Condensed from audited financial statements.

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

                                        3
<PAGE>   4

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001
PART I, ITEM 1.

                  CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES

                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
                                                                FOR THE THREE MONTHS ENDED
                                                                        MARCH 31,
                                                                --------------------------
                                                                   2001            2000
                                                                   ----         ----------
                                                                       (UNAUDITED)
<S>                                                             <C>             <C>
SALES.......................................................     $233,088        $260,850
FREIGHT.....................................................       12,986          12,297
                                                                 --------        --------
          Net sales.........................................      220,102         248,553
COST OF SALES...............................................      178,437         194,416
                                                                 --------        --------
          Gross profit......................................       41,665          54,137
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................       36,717          38,490
RESTRUCTURING COSTS (Note 6)................................        7,083           6,913
                                                                 --------        --------
          Operating (loss) income...........................       (2,135)          8,734
OTHER (EXPENSE) INCOME:
  Interest expense..........................................       (9,210)         (7,787)
  Interest income...........................................           88             174
  Equity in (loss) income of unconsolidated affiliates......       (1,585)          2,910
  Other, net................................................          278             (68)
                                                                 --------        --------
                                                                  (10,429)         (4,771)
                                                                 --------        --------
(LOSS) INCOME BEFORE MINORITY INTEREST, INCOME
  TAXES AND EXTRAORDINARY LOSS..............................      (12,564)          3,963
MINORITY INTEREST...........................................          (28)            (75)
(BENEFIT) PROVISION FOR INCOME TAXES........................       (4,443)          1,746
                                                                 --------        --------
(LOSS) INCOME BEFORE EXTRAORDINARY LOSS.....................     $ (8,149)       $  2,142
EXTRAORDINARY LOSS FROM EARLY EXTINGUISHMENT OF DEBT, NET OF
  TAX BENEFIT...............................................     $ (2,695)       $      0
                                                                 --------        --------
NET (LOSS) INCOME...........................................     $(10,844)       $  2,142
                                                                 ========        ========
BASIC
(LOSS) EARNINGS PER COMMON SHARE BEFORE EXTRAORDINARY
  LOSS......................................................     $  (0.29)       $   0.08
                                                                 ========        ========
EXTRAORDINARY LOSS PER COMMON SHARE.........................     $  (0.10)       $   0.00
                                                                 ========        ========
NET (LOSS) INCOME PER COMMON SHARE..........................     $  (0.39)       $   0.08
                                                                 ========        ========
Weighted average number of shares outstanding...............       27,815          25,624
                                                                 ========        ========
DILUTED
(LOSS) EARNINGS PER COMMON SHARE BEFORE EXTRAORDINARY
  LOSS......................................................     $  (0.29)       $   0.08
                                                                 ========        ========
EXTRAORDINARY LOSS PER COMMON SHARE.........................     $  (0.10)       $   0.00
                                                                 ========        ========
NET (LOSS) INCOME PER COMMON SHARE..........................     $  (0.39)       $   0.08
                                                                 ========        ========
Diluted weighted average number of shares outstanding.......       27,815          25,649
                                                                 ========        ========
</TABLE>

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

                                        4
<PAGE>   5

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001
PART I, ITEM 1.

                  CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES

                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                                                  FOR THE THREE MONTHS ENDED
                                                                          MARCH 31,
                                                                  --------------------------
                                                                     2001            2000
                                                                  ----------      ----------
                                                                         (UNAUDITED)
<S>                                                               <C>             <C>
Cash provided by (used in)
  Operating activities:
     Net (loss) income......................................       $(10,844)       $  2,142
     Extraordinary loss from early extinguishment of debt...          4,305               0
     Depreciation and amortization..........................         15,398          14,858
     Restructuring costs....................................          3,987           5,696
     Other noncash adjustments..............................         (6,320)          3,355
     Equity in income of unconsolidated affiliates, net of
       distributions........................................          1,585            (910)
     Changes in current assets and liabilities..............         (2,717)          1,284
                                                                   --------        --------
     Net cash provided by operating activities..............          5,394          26,425
                                                                   --------        --------
  Investing activities:
     Purchases of property, plant and equipment.............        (11,826)        (17,151)
     Acquisitions of businesses, net of cash acquired.......            (34)         (4,071)
     Investment in unconsolidated affiliates................              0               0
     Other..................................................           (716)            380
                                                                   --------        --------
     Net cash used in investing activities..................        (12,576)        (20,842)
                                                                   --------        --------
  Financing activities:
     Proceeds from senior credit facility...................         18,000           4,000
     Repayments of senior credit facility...................       (212,000)        (14,000)
     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...........        (67,051)            (42)
     7.74% senior notes prepayment penalty..................         (3,565)              0
     Dividends paid.........................................         (4,698)         (4,570)
     Proceeds from issuance of stock........................              0              86
     Other..................................................         (1,375)           (216)
                                                                   --------        --------
     Net cash provided by (used in) financing activities....         20,511         (14,742)
                                                                   --------        --------
  Net increase (decrease) in cash and cash equivalents......         13,329          (9,159)
  Cash and cash equivalents at beginning of period..........          8,900          18,771
                                                                   --------        --------
  Cash and cash equivalents at end of period................       $ 22,229        $  9,612
                                                                   ========        ========
  Supplemental Disclosures:
     Cash payments for interest.............................       $  7,092        $  1,822
                                                                   ========        ========
     Cash payments for income taxes.........................       $    628        $    935
                                                                   ========        ========
     Stock issued for acquisitions..........................       $ 18,799        $  5,303
                                                                   ========        ========
</TABLE>

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

                                        5
<PAGE>   6

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001
PART I, ITEM 1.

                           CARAUSTAR INDUSTRIES, INC.

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 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 three months ended March 31, 2001 are not necessarily
        indicative of the results to be expected for the full year.

NOTE 2.  COMPREHENSIVE INCOME

        Total comprehensive (loss) income, consisting of net (loss) income plus
        other nonowner changes in equity, for the three months ended March 31,
        2001 and 2000 was ($10,982,000) and $2,099,000, respectively.

NOTE 3.  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 March 31, 2001,
        although an aggregate of $9,500,000 in letter of credit obligations
        outstanding under the Company's former credit facility have been
        transferred to the new credit facility. The Company intends to use the
        new 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 new 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 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 new 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.

                                        6
<PAGE>   7
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001
PART I, ITEM 1.

        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
        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 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.

NOTE 4.  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.

NOTE 5.  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.

                                        7
<PAGE>   8
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001
PART I, ITEM 1.

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

<TABLE>
<CAPTION>
                                                                          THREE MONTHS
                                                                         ENDED MARCH 31,
                                                                       -------------------
                                                                         2001       2000
                                                                       --------   --------
         <S>                                                           <C>        <C>
         Net sales (external customers):
           Paperboard................................................  $ 74,552   $107,078
           Tube, core and composite container........................    64,951     64,981
           Carton and custom packaging...............................    80,599     76,494
                                                                       --------   --------
                   Total.............................................  $220,102   $248,553
                                                                       ========   ========
         Net sales (intersegment):
           Paperboard................................................  $ 35,643   $ 33,329
           Tube, core and composite container........................     1,002      1,046
           Carton and custom packaging...............................       135        167
                                                                       --------   --------
                   Total.............................................  $ 36,780   $ 34,542
                                                                       ========   ========
         Operating (loss) income:
           Paperboard(A).............................................  $   (212)  $  5,074
           Tube, core and composite container........................     3,028      4,387
           Carton and custom packaging(B)............................    (1,008)     2,519
                                                                       --------   --------
                   Total.............................................  $  1,808   $ 11,980
         Corporate expense...........................................  $ (3,943)  $ (3,246)
                                                                       --------   --------
         Operating (loss) income.....................................    (2,135)     8,734
           Interest expense..........................................    (9,210)    (7,787)
           Interest income...........................................        88        174
           Equity in (loss) income of unconsolidated affiliates......    (1,585)     2,910
           Other (net)...............................................       278        (68)
                                                                       --------   --------
         (Loss) income before income taxes, minority interest and
           extraordinary loss........................................  $(12,564)  $  3,963
                                                                       ========   ========
</TABLE>

---------------

        (A) Results for 2000 include charges to operations of $6,913,000 for
            restructuring costs related to the closing of the Baltimore,
            Maryland paperboard mill. Results for 2001 include charges to
            operations of $4,447,000 for restructuring costs related to the
            closing of the Chicago, Illinois paperboard mill. Both of these were
            related to the paperboard segment and are reflected in the segment's
            operating (loss) or income. (Note 6)

        (B) Results for 2001 include 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 (loss) or income. (Note 6)

NOTE 6.  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
        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

                                        8
<PAGE>   9
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001
PART I, ITEM 1.

        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 March 31, 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 during
        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 March 31, 2001, one part-time employee remained to assist
        in the closing of the mill. The remaining severance and termination
        benefits 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 March 31, 2001 (unaudited):

<TABLE>
<CAPTION>
                                                               SEVERANCE AND
                                                                   OTHER
                                                    ASSET       TERMINATION    OTHER EXIT
                                                 IMPAIRMENT      BENEFITS        COSTS        TOTAL
                                                 -----------   -------------   ----------   ----------
         <S>                                     <C>           <C>             <C>          <C>
         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......            0       (31,000)     (266,000)     (297,000)
                                                 -----------     ---------     ---------    ----------
         Balance as of March 31, 2001..........  $         0     $ 147,000     $ 356,000    $  503,000
                                                 ===========     =========     =========    ==========
</TABLE>

        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 March 31, 2001, three employees
        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.

                                        9
<PAGE>   10
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001
PART I, ITEM 1.

        The following is a summary of restructuring activity from plan adoption
        to March 31, 2001 (unaudited):

<TABLE>
<CAPTION>
                                                                SEVERANCE AND
                                                                    OTHER
                                                     ASSET       TERMINATION    OTHER EXIT
                                                   IMPAIRMENT     BENEFITS        COSTS        TOTAL
                                                   ----------   -------------   ----------   ----------
         <S>                                       <C>          <C>             <C>          <C>
         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
                                                   ==========    ==========      ========    ==========
</TABLE>

        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
        March 31, 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 March 31, 2001 (unaudited):

<TABLE>
<CAPTION>
                                                                SEVERANCE AND
                                                                    OTHER
                                                     ASSET       TERMINATION    OTHER EXIT
                                                   IMPAIRMENT     BENEFITS        COSTS        TOTAL
                                                   ----------   -------------   ----------   ----------
         <S>                                       <C>          <C>             <C>          <C>
         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
                                                   ==========     =========      ========    ==========
</TABLE>

NOTE 7.  LITIGATION

        On May 9, 2001, the Company and a significant customer jointly announced
        that a tentative settlement has been reached 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 previous quarterly reports on Form
        10-Q. The Company and a wholly owned subsidiary of the customer have
        entered into a new ten-year agreement under which the Company will
        supply amounts between a minimum of 1.89 billion and a maximum 3.78
        billion square feet (between 50,000 and 100,000 tons) of gypsum facing
        paper per year as the customer may order for use in its recently
        introduced wall board product. Implementation of the new agreement, and
        settlement of the pending litigation over the 1996 agreement, is subject
        to satisfactory completion of a transition period of a duration to be
        determined in good faith by the customer, but not to exceed 90 days.
        During this period, the Company will supply the customer, as it
        requests, with such facing paper to enable it to evaluate the paper's
        compliance with its specifications for quality and end-use suitability.
        Upon the customer's satisfaction with the paper, it will notify the
        Company that the transition period has ended, and the term of the new
        agreement, including the annual quantity

                                        10
<PAGE>   11
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001
PART I, ITEM 1.

        requirements described above, will commence. Upon commencement of the
        new agreement, 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. Although the Company believes that it will be able to
        satisfy the customer's product requirements and that the new agreement
        will be implemented, the Company can give no assurance that the
        conditions to the new agreement will be satisfied (or that the customer
        will determine or agree that the conditions have been satisfied), or
        that the new agreement will be implemented and the pending litigation
        will be dismissed. Even if the new agreement is implemented, it could be
        at least 45 days following implementation before the Company is
        supplying tonnage equal to at least 50% of the 7,000 tons per month
        levels purchased by the customer during the first half of 2000 before
        the dispute arose. 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 the new supply agreement is implemented, and until the
        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.

                                        11
<PAGE>   12

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 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 39% in the first three months of 2001. The remaining 61% 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 $70 during the first quarter 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 first quarter of 2001, energy costs were $66
per ton compared to $47 per ton in the first quarter of 2000 and $62 per ton in
the fourth quarter of 2000. 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 or the first
quarter 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.
                                        12
<PAGE>   13
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 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 quarter ended March 31,
2001.

     We are a holding company that currently 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 MARCH 31, 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 5 to the
consolidated financial statements.

<TABLE>
<CAPTION>
                                                               THREE MONTHS
                                                                   ENDED
                                                                 MARCH 31,
                                                              ---------------              %
                                                               2001     2000    CHANGE   CHANGE
                                                              ------   ------   ------   ------
<S>                                                           <C>      <C>      <C>      <C>
Production source of paperboard tons sold (in thousands):
  From paperboard mill production...........................   217.9    269.9    (52.0)   -19.3%
  Outside purchases.........................................    31.7     31.6      0.1      0.3%
                                                              ------   ------   ------   ------
          Total paperboard tonnage..........................   249.6    301.5    (51.9)   -17.2%
                                                              ======   ======   ======   ======
  Tons sold by market (in thousands):
  Tube, core and composite container volume
     Paperboard (internal)..................................    46.7     49.7     (3.0)    -6.0%
     Outside purchases......................................     6.7      5.9      0.8     13.6%
                                                              ------   ------   ------   ------
  Tube, core and composite container converted products.....    53.4     55.6     (2.2)    -4.0%
  Unconverted paperboard....................................     7.5      9.3     (1.8)   -19.4%
                                                              ------   ------   ------   ------
          Tube, core and composite container volume.........    60.9     64.9     (4.0)    -6.2%
  Folding carton volume
     Paperboard (internal)..................................    20.0     19.3      0.7      3.6%
     Outside purchases......................................    23.4     23.2      0.2      0.9%
                                                              ------   ------   ------   ------
  Folding carton converted products.........................    43.4     42.5      0.9      2.1%
  Unconverted paperboard....................................    54.9     74.9    (20.0)   -26.7%
                                                              ------   ------   ------   ------
          Folding carton volume.............................    98.3    117.4    (19.1)   -16.3%
  Gypsum wallboard facing paper volume
     Unconverted paperboard.................................    35.1     54.7    (19.6)   -35.8%
     Outside purchases (for resale).........................     0.0      0.5     (0.5)  -100.0%
                                                              ------   ------   ------   ------
          Gypsum wallboard facing paper volume..............    35.1     55.2    (20.1)   -36.4%
  Other specialty products volume
     Paperboard (internal)..................................    18.7     32.1    (13.4)   -41.7%
     Outside purchases......................................     1.6      2.0     (0.4)   -20.0%
                                                              ------   ------   ------   ------
  Other specialty converted products........................    20.3     34.1    (13.8)   -40.5%
  Unconverted paperboard....................................    35.0     29.9      5.1     17.1%
                                                              ------   ------   ------   ------
          Other specialty products volume...................    55.3     64.0     (8.7)   -13.6%
                                                              ------   ------   ------   ------
          Total paperboard tonnage..........................   249.6    301.5    (51.9)   -17.2%
                                                              ======   ======   ======   ======
</TABLE>

                                        13
<PAGE>   14
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001
PART I, ITEM 2.

<TABLE>
<CAPTION>
                                                               THREE MONTHS
                                                                   ENDED
                                                                 MARCH 31,
                                                              ---------------              %
                                                               2001     2000    CHANGE   CHANGE
                                                              ------   ------   ------   ------
<S>                                                           <C>      <C>      <C>      <C>
Gross paper margins ($/ton):
     Paperboard mill:
       Average same-mill net selling price..................  $  422   $  441   $  (19)    -4.3%
       Average same-mill recovered fiber cost...............      70      112      (42)   -37.5%
                                                              ------   ------   ------   ------
          Paperboard mill gross paper margin................  $  352   $  329   $   23      7.0%
                                                              ======   ======   ======   ======
     Tube and core:
       Average net selling price............................  $  797   $  763   $   34      4.5%
       Average paperboard cost..............................     453      420       33      7.9%
                                                              ------   ------   ------   ------
          Tube and core gross paper margin..................  $  344   $  343   $    1      0.3%
                                                              ======   ======   ======   ======
</TABLE>

Net Sales.  Our consolidated net sales for the quarter ended March 31, 2001
decreased 11.5% to $220.1 million from $248.6 million in the same quarter of
2000. Acquisitions completed during 2000 accounted for $11.9 million of net
sales during the first quarter 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 16.2% during the
first quarter of 2001. This decrease was due to lower volume from the paperboard
segment, partially attributable to the dispute with Georgia-Pacific, and lower
sales from the carton and custom packaging segment, partially offset by higher
selling prices in the tube, core and composite container segments.

Total paperboard tonnage for the quarter decreased 17.2% to 249,615 tons from
301,521 tons. Excluding 2000 acquisitions, total paperboard tonnage decreased
19.7% to 242,245 tons. This decrease was primarily due to lower shipments of
unconverted paperboard to external customers in the gypsum wallboard facing
paper, folding carton and tube, core, and composite container end-use markets.
The decrease in shipments to gypsum wallboard facing paper customers was
partially attributable to the dispute with Georgia-Pacific and a general
softness in industry demand. Excluding 2000 acquisitions, outside purchases
decreased 23.0% to 24,329 tons compared to prior year. Tons sold from paperboard
mill production decreased 19.3% for the quarter to 217,916 tons compared with
269,927 tons in the first quarter of last year. Total tonnage converted
decreased 11.4% in the first quarter to 117,126 tons compared to 132,157 tons
last year, and decreased 17.0% from first 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 22.3% and 6.6%,
respectively.

Gross Margin.  Gross margin for the first quarter of 2001 decreased to 18.9% of
net sales from 21.8% 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. Margins decreased in the carton and custom packaging segment
due to lower volume and 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.

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 quarter of 2001, we paid $1.2 million in severance and termination
benefits and $246 thousand in other exit costs. As of March 31, 2001, three
employees remained to assist in the closing of the mill. The

                                        14
<PAGE>   15
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001
PART I, ITEM 2.

remaining severance and termination benefits and 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.

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 quarter of 2001, we paid $170 thousand in severance and termination
benefits and $134 thousand in other exit costs. As of March 31, 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 (Loss) Income.  Operating loss for the first quarter of 2001 was $2.1
million, a decrease of $10.9 million, from the first quarter of 2000 operating
income of $8.7 million. Operating income for comparable facilities, excluding
restructuring costs, decreased $11.3 million, or 72.3%, 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 $1.8 million, or 4.6% in the first quarter
of 2001 compared to 2000 due primarily to a decrease in expenses in the
paperboard segment and lower information technology costs. The decrease in the
paperboard segment is the result of the Chesapeake, Camden and Chicago mill
closures.

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. 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 made during the last year and a half, 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 18.3% to $9.2 million for
the first quarter of 2001 from $7.8 million in 2000. This increase was primarily
due to higher average borrowings under our former senior credit facility
combined with higher interest rates under our former senior credit facility. See
"Liquidity and Capital Resources."

Equity in loss from unconsolidated affiliates for the first quarter of 2001 was
$1.6 million, down $4.5 million from equity income of $2.9 million in the first
quarter of 2000. This decrease was primarily due to lower operating results for
Standard Gypsum, L.P., our gypsum wallboard joint venture, and losses 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 first quarter 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 quarter of 2001 was an extraordinary loss of $4.3 million related

                                        15
<PAGE>   16
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001
PART I, ITEM 2.

to the early extinguishment of debt ($2.7 million, net of tax benefit, or $0.10
per common share on a diluted basis). Excluding the extraordinary loss and
restructuring charges, net loss for the first quarter of 2001 was $3.7 million,
or $0.13 net loss per common share compared to net income before restructuring
costs of $6.5 million, or $0.25 net income per common share for the same period
last year. Including the extraordinary loss and restructuring charges, net loss
was $10.8 million in the first quarter of 2001 compared with net income of $2.1
million last year. Including the extraordinary loss and restructuring charges,
diluted net loss per common share was $0.39 in the first quarter of 2001
compared to diluted net income per common share of $0.08 in 2000.

LIQUIDITY AND CAPITAL RESOURCES

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

<TABLE>
<CAPTION>
                                                                   MARCH 31,
                                                              -------------------   DECEMBER 31,
                                                                2001       2000         2000
                                                              --------   --------   ------------
<S>                                                           <C>        <C>        <C>
Senior credit facility......................................  $      0   $130,000     $194,000
9 7/8% senior subordinated notes............................   274,128          0            0
7 1/4% senior notes.........................................    25,243          0            0
7 3/8% senior notes.........................................   198,817    198,667      198,791
7.74% senior notes..........................................         0     82,750       66,200
Other notes payable.........................................     8,306      4,919        9,081
                                                              --------   --------     --------
                                                              $506,494   $416,336     $468,072
                                                              ========   ========     ========
</TABLE>

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 March 31, 2001, versus $130.0 million
and $194.0 million outstanding on our former senior credit facility on March 31,
2000 and December 31, 2000, respectively; however, an aggregate of $9.5 million
in letter of credit obligations outstanding under our former credit facility
have been transferred to the new credit facility. 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).

                                        16
<PAGE>   17
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001
PART I, ITEM 2.

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 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 March 31, 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 and 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%, 6.45% 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.

Cash generated from operations was $5.4 million for the three months ended March
31, 2001, compared with $26.4 million for the same period last year. The
decrease in the first three months of 2001 compared to the same period last year
was due primarily to lower net income, a decrease in distributions from
unconsolidated affiliates, and unfavorable changes in working capital.

                                        17
<PAGE>   18
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001
PART I, ITEM 2.

Capital expenditures were $11.8 million in the first three months of 2001 versus
$17.2 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 $4.7 million in the first three months of 2001 versus
$4.6 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. We made the decision to reduce the quarterly dividend 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 expect to continue dividend payments at the reduced rate we
declared in the first quarter of 2001, subject to compliance with the financial
covenants in our new debt agreements.

We did not purchase any shares of our common stock during the first three 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 the remaining net proceeds from our recent sale of 7 1/4% senior
notes and 9 7/8% senior subordinated notes, together with 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
undertake any significant acquisitions in the next 12 months, we could require
additional funds from external sources such as our new senior credit facility.

GEORGIA-PACIFIC LITIGATION

On May 9, 2001, we and Georgia-Pacific Corporation jointly announced that a
tentative settlement has been reached 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 our annual
report on Form 10-K for the year ended December 31, 2000 and in previous
quarterly reports on Form 10-Q. We and G-P Gypsum Corporation, a wholly owned
subsidiary of Georgia-Pacific, have entered into a new ten-year agreement under
which we will supply amounts between a minimum of 1.89 billion and a maximum
3.78 billion square feet (between 50,000 and 100,000 tons) of gypsum facing
paper per year as G-P Gypsum may order for use in its new ToughRock wallboard.
Implementation of the new agreement, and settlement of the pending litigation
over the 1996 agreement, is subject to satisfactory completion of a transition
period of a duration to be determined in good faith by G-P Gypsum, but not to
exceed 90 days. During this period, we will supply G-P Gypsum, as it requests,
with such facing paper to enable it to evaluate the paper's compliance with its
specifications for quality and end-use suitability. Upon G-P Gypsum's
satisfaction with the paper, it will notify us that the transition period has
ended, and the term of the new agreement, including the annual quantity
requirements described above, will commence. Upon commencement of the new
agreement, 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. Although we believe that
we will be able to satisfy G-P Gypsum's product requirements and that the new
agreement will be implemented, 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 and the pending litigation will be dismissed. Even if the new
agreement is implemented, it could be at least 45 days following implementation
before we are supplying tonnage equal to at least 50% of the 7,000 tons per
month levels purchased by Georgia-Pacific during the first half of 2000 before
the dispute arose. 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 the new supply
agreement is implemented, and

                                        18
<PAGE>   19
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001
PART I, ITEM 2.

until the 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.

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.

                                        19
<PAGE>   20
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001
PART I, ITEM 2.

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.

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. As we recently announced, however, we have reached a
tentative settlement pursuant to which we have entered into a new supply
agreement with G-P Gypsum, a subsidiary of Georgia-Pacific, that will become
effective upon the completion of a transition period. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Georgia-Pacific Litigation." We can give no assurance, however, 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 and the pending litigation will be dismissed. Even
if the new agreement is implemented, it could be at least 45 days before we are
supplying tonnage equal to at least 50% of the 7,000 tons per month levels
purchased by Georgia-Pacific during the first half of 2000 before the dispute
arose. 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 the new supply agreement
is implemented, and until the new supply agreement has been effective long
enough to generate a substantial volume of required purchases from
Georgia-Pacific.
                                        20
<PAGE>   21
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001
PART I, ITEM 2.

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 in the first quarter of 2001. 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 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.

                                        21
<PAGE>   22
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001
PART I, ITEM 2.

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;

     - 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.

                                        22
<PAGE>   23

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 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. There have been
no significant developments with respect to our exposure to interest rate market
risk.

                                        23
<PAGE>   24

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001
PART II, ITEM 1.

                           PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

On May 9, 2001, we and Georgia-Pacific Corporation jointly announced that a
tentative settlement has been reached 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 our annual
report on Form 10-K for the year ended December 31, 2000 and in previous
quarterly reports on Form 10-Q. We and G-P Gypsum Corporation, a wholly owned
subsidiary of Georgia-Pacific, have entered into a new ten-year agreement under
which we will supply amounts between a minimum of 1.89 billion and a maximum
3.78 billion square feet (between 50,000 and 100,000 tons) of gypsum facing
paper per year as G-P Gypsum may order for use in its new ToughRock wallboard.
Implementation of the new agreement, and settlement of the pending litigation
over the 1996 agreement, is subject to satisfactory completion of a transition
period of a duration to be determined in good faith by G-P Gypsum, but not to
exceed 90 days. During this period, we will supply G-P Gypsum, as it requests,
with such facing paper to enable it to evaluate the paper's compliance with its
specifications for quality and end-use suitability. Upon G-P Gypsum's
satisfaction with the paper, it will notify us that the transition period has
ended, and the term of the new agreement, including the annual quantity
requirements described above, will commence. Upon commencement of the new
agreement, 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. Although we believe that
we will be able to satisfy G-P Gypsum's product requirements and that the new
agreement will be implemented, 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 and the pending litigation will be dismissed. Even if the new
agreement is implemented, it could be at least 45 days following implementation
before we are supplying tonnage equal to at least 50% of the 7,000 tons per
month levels purchased by Georgia-Pacific during the first half of 2000 before
the dispute arose. 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 the new supply
agreement is implemented, and until the new supply agreement has been effective
long enough to generate a substantial volume of required purchases from
Georgia-Pacific.

ITEM 2.  CHANGES IN SECURITIES

As previously reported, on March 29, 2001, we sold $29.0 million aggregate
principal amount of 7 1/4% senior notes due 2010 and $285.0 million aggregate
principal amount of 9 7/8% senior subordinated notes due 2011 to Credit Suisse
First Boston Corporation, Banc of America Securities LLC, Deutsche Banc Alex.
Brown Inc. and SunTrust Equitable Securities Corporation, as purchasers.
Aggregate discounts and commissions to the purchasers were approximately $7.1
million. These notes were sold to the purchasers in a transaction not involving
a public offering in reliance on the exemption from registration provided by
Section 4(2) of the Securities Act and Regulation D thereunder. These notes were
jointly and severally guaranteed by all of our domestic subsidiaries other than
one that is not wholly owned. In connection with the issuance of these notes, we
and our subsidiary guarantors also entered into a supplemental indenture with
respect to our 7 3/8% senior notes due 2009 pursuant to which these subsidiary
guarantors jointly and severally guaranteed our 7 3/8% senior notes.

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

Our annual shareholders' meeting was held on May 10, 2001. The matters voted
upon at the meeting were (1) a proposal to elect three Class II directors
(Robert J. Clannin, James H. Hance, Jr., and James E. Rogers) (2) a proposal to
ratify the amendment to our 1998 Key Employee Incentive

                                        24
<PAGE>   25

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001
PART II, ITEM 4.

Compensation Plan as described in our Proxy Statement and (3) a proposal to
ratify the selection of Arthur Andersen LLP as our independent public
accountants for fiscal 2001. Proposals (1), (2) and (3) were approved by the
following margins:

<TABLE>
<CAPTION>
                                                      VOTES AGAINST OR                  BROKER
PROPOSAL                                 VOTES FOR        WITHHELD       ABSTENTIONS   NONVOTES
--------                                 ----------   ----------------   -----------   ---------
<S>                                      <C>          <C>                <C>           <C>
Election of Directors
  Robert J. Clannin....................  19,700,306      1,422,685               0             0
  James H. Hance, Jr. .................  19,700,736      1,422,255               0             0
  James E. Rogers......................  19,702,026      1,420,965               0             0
Ratification of Amendment to 1998 Key
  Employee Incentive Compensation
  Plan.................................  14,754,516      4,484,213         129,512     1,754,750
Ratification of Selection of
  Independent Public Accountants.......  20,661,969        456,066           4,956             0
</TABLE>

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 five current reports on Form 8-K during the quarter ended March 31,
2001. The first report, filed on March 14, 2001, incorporated certain
disclosures and supplemental information regarding us and our unaudited
financial statements for the year ended December 31, 2000.

The second report, also filed on March 14, 2001, incorporated by reference the
contents of our press release announcing that we were seeking to raise
approximately $300.0 million through an institutional private placement of
senior subordinated notes.

The third report, filed on March 23, 2001, incorporated the contents of our
press release announcing that we had agreed to sell $29.0 million of our 7 1/4%
senior notes due 2010 and $285.0 million of our 9 7/8% senior subordinated notes
due 2011 through institutional private placements.

The fourth report, filed on March 26, 2001, incorporated certain disclosures and
supplemental information regarding us and our audited financial statements for
the three years ended December 31, 2000.

The fifth report, filed on March 29, 2001, incorporated by reference the
contents of our press release announcing that we had sold $29.0 million of our
7 1/4% senior notes due 2010 and $285.0 million of our 9 7/8% senior
subordinated notes due 2011 through institutional private placements.

                                        25
<PAGE>   26

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 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)
Dated: May 14, 2001

                                        26
<PAGE>   27

FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2001

                                 EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
  NO.     DESCRIPTION
-------   -----------
<C>       <S>
 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])
</TABLE>

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<PAGE>   28

<TABLE>
<CAPTION>
EXHIBIT
  NO.     DESCRIPTION
-------   -----------
<C>       <S>
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
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
</TABLE>

---------------

+ Filed herewith

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