<PAGE>   1
 
--------------------------------------------------------------------------------
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                                 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 AND EXCHANGE ACT OF 1934
                          FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998
                                               OR
      [  ]        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                  THE SECURITIES AND EXCHANGE ACT OF 1934
                  FOR THE TRANSITION PERIOD FROM ____________ TO ____________
</TABLE>
 
                          COMMISSION FILE NO. 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
       incorporation or organization)                     Identification Number)
</TABLE>
 
                             3100 WASHINGTON STREET
                             AUSTELL, GEORGIA 30106
                    (Address of principal executive offices)
                                   (Zip Code)
 
                                 (770) 948-3101
               (Registrant's telephone number, include 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 such 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, August 10, 1998.
 
<TABLE>
<S>                                            <C>
        COMMON STOCK, $.10 PAR VALUE                            25,427,407
                   (Class)                                     (Outstanding)
</TABLE>
 
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>   2
 
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
 
                           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 June 30, 1998
           and December 31, 1997.......................................    3
                                                                           
           Condensed Consolidated Statements of Income for the
           three-month and six-month periods ended June 30, 1998 and
           June 30, 1997...............................................    4
                                                                           
           Condensed Consolidated Statements of Cash Flows for the
           six-month periods ended June 30, 1998 and June 30, 1997.....    5
                                                                           
           Notes to Condensed Consolidated Financial Statements........    6
Item 2.    Management's Discussion and Analysis of Financial Condition     
           and Results of Operations for the three-month and six-month
           periods ended June 30, 1998 and June 30, 1997...............    8
PART II--  OTHER INFORMATION
Item 2.    Changes in Securities.......................................   13
Item 6.    Exhibits and Reports on Form 8-K............................   14
Signatures.............................................................   15
Exhibit Index..........................................................   16
</TABLE>
 
                                        2
<PAGE>   3
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
PART I, ITEM 1.
 
                  CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES
 
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                       (IN THOUSANDS, EXCEPT SHARE DATA)
 
<TABLE>
<CAPTION>
                                                               JUNE 30,     DECEMBER 31,
                                                                 1998          1997*
                                                              -----------   ------------
                                                              (UNAUDITED)
<S>                                                           <C>           <C>
                                         ASSETS
CURRENT ASSETS:
  Cash and cash equivalents.................................   $   6,810     $   1,391
  Receivables, net..........................................      81,816        70,944
  Inventories...............................................      70,721        62,319
  Refundable income taxes...................................         636         1,190
  Other current assets......................................       6,284         5,312
                                                               ---------     ---------
         Total current assets...............................     166,267       141,156
                                                               ---------     ---------
PROPERTY, PLANT AND EQUIPMENT:
  Land......................................................       6,785         6,305
  Buildings and improvements................................      94,672        86,967
  Machinery and equipment...................................     397,527       362,384
  Furniture and fixtures....................................      10,628        10,103
                                                               ---------     ---------
                                                                 509,612       465,759
  Less accumulated depreciation.............................    (189,636)     (174,723)
                                                               ---------     ---------
  Property, plant and equipment, net........................     319,976       291,036
                                                               ---------     ---------
GOODWILL, net...............................................     116,438       104,323
                                                               ---------     ---------
OTHER ASSETS................................................      15,367        13,575
                                                               ---------     ---------
                                                               $ 618,048     $ 550,090
                                                               =========     =========
                          LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
  Current maturities of long-term debt......................   $       9     $       9
  Accounts payable..........................................      48,738        43,861
  Accrued liabilities.......................................      28,327        21,414
  Dividends payable.........................................       4,068         4,052
  Other note payable........................................      26,000             0
                                                               ---------     ---------
         Total current liabilities..........................     107,142        69,336
                                                               ---------     ---------
REVOLVING CREDIT LOANS......................................     149,000       129,000
                                                               ---------     ---------
LONG-TERM DEBT, less current maturities.....................      83,061        83,129
                                                               ---------     ---------
DEFERRED INCOME TAXES.......................................      34,573        30,731
                                                               ---------     ---------
DEFERRED COMPENSATION.......................................       4,061         4,190
                                                               ---------     ---------
OTHER LIABILITIES...........................................       4,559         4,616
                                                               ---------     ---------
MINORITY INTEREST...........................................         419        15,157
                                                               ---------     ---------
COMMITMENTS AND CONTINGENCIES
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, 25,423,096 and 25,330,670 shares issued and
    outstanding at June 30, 1998 and December 31, 1997,
    respectively............................................       2,542         2,533
  Additional paid-in capital................................     147,313       144,442
  Retained earnings.........................................      87,219        68,823
  Accumulated other comprehensive income....................      (1,841)       (1,867)
                                                               ---------     ---------
                                                                 235,233       213,931
                                                               ---------     ---------
                                                               $ 618,048     $ 550,090
                                                               =========     =========
</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 JUNE 30, 1998
PART I, ITEM 1.
 
                  CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES
 
                  CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                     (IN THOUSANDS, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                        THREE MONTHS ENDED     SIX MONTHS ENDED
                                                             JUNE 30,              JUNE 30,
                                                        -------------------   -------------------
                                                          1998       1997       1998       1997
                                                        --------   --------   --------   --------
                                                            (UNAUDITED)           (UNAUDITED)
<S>                                                     <C>        <C>        <C>        <C>
SALES.................................................  $199,026   $167,769   $384,614   $332,304
FREIGHT...............................................     9,368      6,935     18,085     13,887
                                                        --------   --------   --------   --------
            Net sales.................................   189,658    160,834    366,529    318,417
COST OF SALES.........................................   138,429    113,012    265,545    226,775
                                                        --------   --------   --------   --------
            Gross profit..............................    51,229     47,822    100,984     91,642
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES..........    26,501     23,130     51,327     44,840
                                                        --------   --------   --------   --------
            Operating income..........................    24,728     24,692     49,657     46,802
OTHER (EXPENSE) INCOME:
  Interest expense....................................    (3,990)    (3,524)    (7,689)    (6,779)
  Interest income.....................................       103         65        176        135
  Equity in income of unconsolidated affiliates.......     1,323        365      1,901      1,181
  Other, net..........................................      (205)       (42)      (323)      (101)
                                                        --------   --------   --------   --------
                                                          (2,769)    (3,136)    (5,935)    (5,564)
                                                        --------   --------   --------   --------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST......    21,959     21,556     43,722     41,238
MINORITY INTEREST.....................................      (103)      (398)      (558)      (760)
PROVISION FOR INCOME TAXES............................     8,525      8,339     16,656     15,918
                                                        --------   --------   --------   --------
NET INCOME............................................  $ 13,331   $ 12,819   $ 26,508   $ 24,560
                                                        ========   ========   ========   ========
BASIC
NET INCOME PER COMMON SHARE...........................  $   0.53   $   0.52   $   1.05   $   0.99
                                                        ========   ========   ========   ========
Weighted average number of shares outstanding.........    25,376     24,655     25,328     24,735
                                                        ========   ========   ========   ========
DILUTED
NET INCOME PER COMMON SHARE...........................  $   0.52   $   0.51   $   1.04   $   0.98
                                                        ========   ========   ========   ========
Diluted weighted average number of shares
  outstanding.........................................    25,585     24,908     25,548     25,035
                                                        ========   ========   ========   ========
</TABLE>
 
The accompanying notes are an integral part of these condensed consolidated
statements of income.
 
                                        4
<PAGE>   5
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
PART I, ITEM 1.
 
                  CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES
 
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
 
<TABLE>
<CAPTION>
                                                              FOR THE SIX MONTHS
                                                                ENDED JUNE 30,
                                                              -------------------
                                                                1998       1997
                                                              --------   --------
                                                                  (UNAUDITED)
<S>                                                           <C>        <C>
Cash provided by (used in)
  Operating activities:
     Net income.............................................  $26,508    $24,560
     Adjustments for noncash charges........................   17,655     15,676
     Changes in current assets and liabilities..............   (2,366)    (9,043)
                                                              -------    -------
            Net cash provided by operating activities.......   41,797     31,193
                                                              -------    -------
  Investing activities:
     Purchases of property, plant and equipment.............  (19,055)   (21,038)
     Acquisitions of businesses.............................  (14,433)         0
     Other..................................................      760      1,795
                                                              -------    -------
            Net cash used in investing activities...........  (32,728)   (19,243)
                                                              -------    -------
  Financing activities:
     Proceeds from revolving credit loans...................   43,000     39,000
     Repayments of revolving credit loans...................  (23,000)   (23,000)
     Repayments of long-term debt...........................  (10,304)    (2,355)
     Dividends paid.........................................   (8,097)    (6,965)
     Proceeds from issuances of stock.......................      433      2,021
     Purchases of stock.....................................   (2,192)   (29,444)
     Distributions to minority interest holder..............   (3,100)         0
     Other..................................................     (390)      (381)
                                                              -------    -------
            Net cash used in financing activities...........   (3,650)   (21,124)
                                                              -------    -------
  Net increase (decrease) in cash and cash equivalents......    5,419     (9,174)
  Cash and cash equivalents at beginning of period..........    1,391     11,989
                                                              -------    -------
  Cash and cash equivalents at end of period................  $ 6,810    $ 2,815
                                                              =======    =======
  Supplemental Disclosures:
     Cash payments for interest.............................  $ 7,586    $ 6,753
                                                              =======    =======
     Cash payments for income taxes.........................  $16,322    $13,391
                                                              =======    =======
     Stock issued for acquisition...........................  $ 4,660    $10,300
                                                              =======    =======
     Note payable issued for acquisition....................  $26,000    $     0
                                                              =======    =======
</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 JUNE 30, 1998
PART I, ITEM 1.
 
                           CARAUSTAR INDUSTRIES, INC.
 
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 JUNE 30, 1998
                                  (UNAUDITED)
 
NOTE 1. BASIS OF PRESENTATION
 
       The financial information included herein is unaudited; however, such
       information reflects all adjustments (consisting of normal recurring
       adjustments) which are, in the opinion of management, necessary for a
       fair statement of results for the interim periods. The results of
       operations for the six months ended June 30, 1998 are not necessarily
       indicative of the results to be expected for the full year. Certain
       amounts in the prior period financial statements have been reclassified
       to conform with the 1998 presentation.
 
NOTE 2. COMMON STOCK PURCHASE PLAN
 
       During the first quarter of 1998, the Company purchased and retired
       66,000 shares of its common stock at a market price of $33.00 per share,
       totaling $2.2 million. The Company has cumulatively purchased 2,258,000
       shares since January 1996. The Company's board of directors has
       authorized purchases of up to 1,742,000 additional shares.
 
NOTE 3. ACQUISITIONS
 
       Each of the following acquisitions was accounted for under the purchase
       method of accounting, applying the provisions of Accounting Principles
       Board Opinion No. 16 and, as a result, the Company recorded the assets
       and liabilities of the acquired companies at their estimated fair values
       with the excess of the purchase price over these amounts being recorded
       as goodwill. Actual allocations of goodwill and other identifiable assets
       will be based on further studies and may change during the allocation
       period, generally one year following the date of acquisition. These
       acquisitions are not expected to have a material impact on the operations
       of the Company.
 
       In March 1998, the Company acquired all of the outstanding common stock
       of Chesapeake Paperboard Company and its wholly owned subsidiary,
       Chesapeake Fiber Packaging Corporation, ("Chesapeake") for approximately
       $21.0 million, including approximately $8.2 million of Chesapeake's debt,
       which was repaid by the Company. Chesapeake Paperboard, located in
       Baltimore, Maryland, produces recycled paperboard used primarily in the
       folding carton and other specialty markets. Chesapeake Fiber Packaging,
       located in Hunt Valley, Maryland, manufactures folding cartons and
       specialty corrugated products. No goodwill was recorded in connection
       with the Chesapeake acquisition.
 
       In May 1998, the Company acquired all of the outstanding stock of Etowah
       Recycling, Inc. ("Etowah") in exchange for approximately 140,000 shares
       of the Company's common stock, valued at $4.7 million. Simultaneously,
       the Company repaid Etowah's debt of approximately $2.1 million. Etowah
       operates two recovered fiber facilities, located in Canton, Georgia and
       Hardeeville, South Carolina. Goodwill in the amount of $3.3 million was
       recorded in connection with the Etowah acquisition and is being amortized
       over 40 years.
 
       In June 1998, the Company acquired the 20 percent interest in the CPI
       partnership held by Tenneco Packaging, Inc. ("TPI") for $27.4 million.
       The CPI partnership had operated as a joint venture of the Company and
       TPI since July of 1996. As a result of this transaction, the Company now
       owns 100 percent of the partnership's operations which include
       clay-coated recycled paperboard mills located in Rittman, Ohio and Tama,
       Iowa and recovered fiber recycling and brokerage operations located in
 
                                        6
<PAGE>   7
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
PART I, ITEM 1.
 
       Rittman and Cleveland, Ohio. The purchase price consisted of $1.4 million
       in cash paid at closing and a note payable to TPI for the remaining $26.0
       million due in June of 1999. Goodwill in the amount of $9.7 million was
       recorded in connection with this transaction and will be amortized over
       40 years.
 
NOTE 4. COMPREHENSIVE INCOME
 
       In June 1997, the Financial Accounting Standards Board ("FASB") issued
       Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
       Comprehensive Income." SFAS No. 130 is designed to improve the reporting
       of changes in equity from period to period. The Company adopted SFAS 130
       on January 1, 1998. Total comprehensive income, consisting of net income
       plus other nonowner changes in equity, for the six months ended June 30,
       1998 and 1997 was $26,534,000 and $24,569,000, respectively.
 
NOTE 5. NEW ACCOUNTING PRONOUNCEMENTS
 
       In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments
       of an Enterprise and Related Information." SFAS No. 131 requires that an
       enterprise disclose certain information about operating segments. SFAS
       No. 131 is effective for the Company's fiscal year ending December 31,
       1998. Management has not yet determined the impact of SFAS No. 131.
 
       In February 1998, the FASB issued SFAS No. 132, "Employer's Disclosures
       about Pensions and Other Postretirement Benefits." SFAS No. 132 revises
       employers' disclosures about pension and other postretirement benefit
       plans. It does not change the measurement or recognition of those plans.
       It standardizes the disclosure requirements for pensions and other
       postretirement benefits to the extent practicable, requires additional
       information on changes in the benefit obligations and fair values of plan
       assets that will facilitate financial analysis, and eliminates certain
       disclosures that are no longer deemed as useful. SFAS No. 132 is
       effective for the Company's fiscal year ending December 31, 1998.
 
       In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
       Instruments and Hedging Activities." SFAS 133 establishes accounting and
       reporting standards for derivative instruments and hedging activities and
       is effective for all fiscal quarters for fiscal years beginning after
       June 15, 1999. Management does not expect SFAS 133 to have a significant
       impact on the Company's financial statements.
 
NOTE 6. COMMITMENTS AND CONTINGENCIES
 
       The Company is involved in certain 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.
 
                                        7
<PAGE>   8
 
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
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 which have affected the Company's financial condition and operating
results during the periods included in the accompanying condensed consolidated
financial statements.
 
QUARTERS ENDED JUNE 30, 1998 AND 1997
 
The following tables set forth certain operating data regarding the Company's
volume and gross paper margins for the periods indicated:
 
<TABLE>
<CAPTION>
                                                           QUARTERS
                                                        ENDED JUNE 30,
                                                        ---------------              %
                                                         1998     1997    CHANGE   CHANGE
                                                        ------   ------   ------   ------
<S>                                                     <C>      <C>      <C>      <C>
Production source of paperboard tons sold (in
  thousands):
  From paperboard mill production.....................   236.1    230.7     5.4      2.3%
  Outside purchases...................................    22.8     20.8     2.0      9.6%
                                                        ------   ------    ----
          Total paperboard tonnage....................   258.9    251.5     7.4      2.9%
                                                        ======   ======    ====
Tons sold by market (in thousands):
  Tube, core and can volume...........................    67.1     67.8    (0.7)    -1.0%
  Folding carton volume...............................    75.3     66.5     8.8     13.2%
  Gypsum facing paper volume..........................    65.4     66.7    (1.3)    -1.9%
  Other specialty volume..............................    51.1     50.5     0.6      1.2%
                                                        ------   ------    ----
          Total paperboard tonnage....................   258.9    251.5     7.4      2.9%
                                                        ======   ======    ====
</TABLE>
 
<TABLE>
<CAPTION>
                                                            QUARTERS
                                                         ENDED JUNE 30,
                                                         --------------              %
                                                         1998     1997    CHANGE   CHANGE
                                                         -----    -----   ------   ------
<S>                                                      <C>      <C>     <C>      <C>
Gross paper margins ($/ton):
  Paperboard mill:
     Average same-mill net selling price.............    $413     $404     $ 9       2.2%
     Average same-mill recovered fiber cost..........      74       72       2       2.8%
                                                         ----     ----     ---
          Paperboard mill gross paper margin.........    $339     $332     $ 7       2.1%
                                                         ====     ====     ===
  Tube and core:
     Average net selling price.......................    $736     $713     $23       3.2%
     Average paperboard cost.........................     410      398      12       3.0%
                                                         ----     ----     ---
          Tube and core gross paper margin...........    $326     $315     $11       3.5%
                                                         ====     ====     ===
</TABLE>
 
Consolidated net sales for the quarter ended June 30, 1998 increased 18.0
percent to $189.7 million from $160.8 million for the same period last year.
Acquisitions completed since the second quarter of 1997 accounted for $31.5
million of sales during the second quarter of 1998. Excluding acquisitions from
the current quarter's sales, net sales decreased 1.6 percent.
 
Total paperboard tonnage in the quarter increased 2.9 percent to 258.9 thousand
tons from 251.5 thousand tons due to acquisitions made after the second quarter
of last year. Tons sold from paperboard mill production (consisting of sales to
outside customers and transfers to the Company's converting operations)
increased 2.3 percent (decreased 1.1 percent excluding acquisitions) in the
quarter versus the year-earlier quarter. Total tonnage converted increased 10.1
percent (decreased 5.1 percent excluding acquisitions) to 100.9 thousand tons in
the quarter versus 91.6 thousand tons in the second quarter last year. Excluding
acquisitions, tube, core
 
                                        8
<PAGE>   9
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
PART I, ITEM 2.
 
and can volume decreased 3.0 percent; folding carton volume increased 0.8
percent; and other specialty volume decreased 6.9 percent.
 
The Company's gross margin decreased to 27.0 percent of net sales from 29.7
percent in the second quarter of 1997. This margin decrease was due primarily to
the acquisition of operations with lower margins, as a percent of sales, than
the Company's other operations combined with lower margins at folding carton and
tube and core converting facilities. These lower margins were partially offset
by improved margins at the Company's paperboard mills.
 
Recovered fiber, which is derived from recycled paperstock, is the Company's
only significant raw material. Historically, the cost of recovered fiber has
fluctuated significantly due to market and industry conditions. For example, the
Company's 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 percent,
before dropping to $66 per ton in 1996. Recovered fiber cost per ton averaged
$83 during 1997 and $74 during the second quarter of 1998. Although the Company
raises its selling prices in response to increases in raw material costs, it
often is unable to maintain its operating margins in the face of such dramatic
cost increases, and it experiences short-term margin shrinkage during all
periods of price increases due to customary time lags in the implementation of
price increases. There can be no assurance that the Company will be able to
recoup any future increases in the cost of recovered fiber by raising the prices
of its products. There also can be no assurance that, even if the Company is
able to recoup such cost increases, its operating margins and results of
operations will not be materially and adversely affected by time delays in the
implementation of price increases.
 
Operating income for the second quarter of 1998 was $24.7 million, essentially
unchanged from the year-earlier period. Excluding acquisitions, operating income
declined $1.7 million, or 6.9 percent, due primarily to lower margins at folding
carton and tube and core converting operations. Selling, general and
administrative expenses increased $3.4 million in the second quarter of 1998
compared with the year-earlier period due to acquisitions.
 
Interest expense increased 13.2 percent to $4.0 million in the second quarter
compared with $3.5 million in the same period last year due to higher average
outstanding borrowings under the revolving credit facility.
 
Equity income from unconsolidated affiliates for the second quarter of 1998 was
$1.3 million, up 262.5 percent from the year-earlier quarter due to improved
results from the Company's gypsum wallboard joint venture with Temple-Inland.
 
Net income increased 4.0 percent to $13.3 million in the second quarter from
$12.8 million in the second quarter last year. Diluted net income per common
share increased 2.0 percent to $0.52 from $0.51 in the second quarter of 1997.
 
                                        9
<PAGE>   10
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
PART I, ITEM 2.
 
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
 
The following tables set forth certain operating data regarding the Company's
volume and gross paper margins for the periods indicated:
 
<TABLE>
<CAPTION>
                                                          SIX MONTHS
                                                        ENDED JUNE 30,
                                                        ---------------              %
                                                         1998     1997    CHANGE   CHANGE
                                                        ------   ------   ------   ------
<S>                                                     <C>      <C>      <C>      <C>
Production source of paperboard tons sold (in
  thousands):
  From paperboard mill production.....................   462.2    458.5     3.7      0.8%
  Outside purchases...................................    46.4     39.2     7.2     18.4%
                                                        ------   ------   -----
          Total paperboard tonnage....................   508.6    497.7    10.9      2.2%
                                                        ======   ======   =====
Tons sold by market (in thousands):
  Tube, core and can volume...........................   133.8    129.7     4.1      3.2%
  Folding carton volume...............................   149.0    136.0    13.0      9.6%
  Gypsum facing paper volume..........................   128.4    131.9    (3.5)    -2.7%
  Other specialty volume..............................    97.4    100.1    (2.7)    -2.7%
                                                        ------   ------   -----
          Total paperboard tonnage....................   508.6    497.7    10.9      2.2%
                                                        ======   ======   =====
</TABLE>
 
<TABLE>
<CAPTION>
                                                           SIX MONTHS
                                                         ENDED JUNE 30,
                                                         --------------              %
                                                         1998     1997    CHANGE   CHANGE
                                                         -----    -----   ------   ------
<S>                                                      <C>      <C>     <C>      <C>
Gross paper margins ($/ton):
  Paperboard mill:
     Average same-mill net selling price.............    $415     $403     $12      3.0%
     Average same-mill recovered fiber cost..........      79       73       6      8.2%
                                                         ----     ----     ---
          Paperboard mill gross paper margin.........    $336     $330     $ 6      1.8%
                                                         ====     ====     ===
  Tube and core:
     Average net selling price.......................    $742     $707     $35      5.0%
     Average paperboard cost.........................     412      395      17      4.3%
                                                         ----     ----     ---
          Tube and core gross paper margin...........    $330     $312     $18      5.8%
                                                         ====     ====     ===
</TABLE>
 
Net sales for the six months ended June 30, 1998 increased 15.1 percent to
$366.5 million from $318.4 million in the same period last year. Acquisitions
accounted for $50.6 million of sales during the first half of 1998. Excluding
acquisitions, net sales declined 0.8 percent.
 
Total paperboard tonnage for the first half of 1998 increased 2.2 percent to
508.6 thousand tons compared with the first half of 1997. Excluding
acquisitions, total paperboard tonnage declined 1.4 percent to 490.8 thousand
tons. Tons sold from paperboard mill production increased 0.8 percent for the
first half of 1998 versus the first half of 1997 but declined 0.9 percent
excluding the Chesapeake Paperboard acquisition. Total tonnage converted
increased 15.4 percent (1.3 percent excluding acquisitions) in the first half of
1998 versus 1997. Excluding acquisitions, tube, core and can volume increased
0.5 percent; folding carton volume increased 2.0 percent; and other specialty
volume declined 6.8 percent.
 
Gross margin for the first six months of 1998 decreased to 27.6 percent of net
sales from 28.8 percent for the same period of 1997. This margin decrease was
due primarily to the acquisition of operations with lower margins, as a percent
of sales, than the Company's other operations combined with lower margins at the
Company's converting operations. These lower margins were partially offset by
improved margins at the Company's paperboard mills.
 
                                       10
<PAGE>   11
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
PART I, ITEM 2.
 
Operating income increased $2.9 million, or 6.1 percent, to $49.7 million from
$46.8 million for the first half of 1997. Operating income at comparable
facilities declined by $569 thousand, or 1.2 percent. This decline was due
primarily to lower margins at converting operations partially offset by improved
margins at paperboard mills. Selling, general and administrative expenses
increased $6.5 million in the first half of 1998 versus the year-earlier period.
Excluding acquisitions, these expenses were essentially unchanged.
 
Interest expense increased to $7.7 million in the first half of 1998 from $6.8
million in the same period of 1997 due to higher average borrowings under the
revolving credit facility.
 
Equity income from unconsolidated affiliates was $1.9 million, up 61.0 percent
from the first half of 1997 due to improved results for the Company's gypsum
wallboard joint venture with Temple-Inland.
 
Net income increased 7.9 percent from $24.6 million in the first half of 1997 to
$26.5 million. Diluted net income per common share increased 6.1 percent to
$1.04 for the first six months of 1998 from $0.98 for the year-earlier period.
 
LIQUIDITY AND CAPITAL RESOURCES
 
On June 30, 1998, the Company had loans of $149.0 million outstanding under its
revolving credit facility versus $116.0 million on June 30, 1997 and $129.0
million on December 31, 1997. Loans under the revolving credit facility bear
interest, payable monthly, at the Eurodollar rate plus a margin based upon the
Company's consolidated leverage ratio, as defined in the revolving credit
agreement. For the six months ended June 30, 1998 and 1997 and for the year
ended December 31, 1997, the weighted average borrowings outstanding under the
revolving credit facility during such periods bore interest at 5.92 percent,
5.87 percent and 5.86 percent, respectively. Other long-term debt, less current
maturities, primarily the Company's 7.74 percent senior notes, was $83.1 million
at June 30, 1998 versus $83.2 million and $83.1 million at June 30, 1997 and
December 31, 1997, respectively.
 
The Company has a $400 million, five-year bank revolving credit facility which
may be increased up to $500 million and its maturity extended by up to three
additional years, subject to certain conditions and approvals. The Company can
use the facility to fund ongoing working capital needs and for general corporate
purposes, including acquisitions. Interest under the facility is computed using
the Company's choice of: (a) the Eurodollar rate plus a margin; or (b) the
higher of the Federal Funds Rate plus a margin or the bank's prime lending rate.
The Company can also choose the basis for determining the margin above the
Eurodollar rate as either: (a) its consolidated leverage ratio; or (b) its
investment grade rating, should it attain such a rating in the future. The
credit agreement contains certain restrictive covenants regarding, among other
matters, the incurrence of additional indebtedness and the maintenance of
certain leverage and interest coverage ratios, as defined in the agreement.
 
Cash generated from operations was $41.8 million for the six months ended June
30, 1998 compared with $31.2 million for the same period last year. The increase
in 1998 compared to the same period last year was due to higher net income and
decreased working capital needs.
 
Capital expenditures, excluding acquisitions, were $19.1 million in the first
six months of 1998 versus $21.0 million for the same period last year. Aggregate
capital expenditures of approximately $45.0 million are anticipated for 1998.
 
In March 1998, the Company acquired all of the outstanding common stock of
Chesapeake Paperboard Company and its wholly owned subsidiary, Chesapeake Fiber
Packaging Corporation, for approximately $21.0 million, including approximately
$8.2 million of Chesapeake's debt, which was repaid by the Company. Chesapeake
Paperboard, located in Baltimore, Maryland, produces recycled paperboard used
primarily in the folding carton and other specialty markets. Chesapeake Fiber
Packaging, located in Hunt Valley, Maryland, manufactures folding cartons and
specialty corrugated products.
 
                                       11
<PAGE>   12
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
PART I, ITEM 2.
 
In May 1998, the Company acquired all of the outstanding stock of Etowah
Recycling, Inc. in exchange for approximately 140,000 shares of the Company's
common stock, valued at $4.7 million. Simultaneously, the Company repaid
Etowah's debt of approximately $2.1 million. Etowah operates two recovered fiber
facilities, located in Canton, Georgia and Hardeeville, South Carolina.
 
In June 1998, the Company acquired Tenneco Packaging, Inc.'s 20 percent interest
in the CPI partnership for $27.4 million. The CPI Partnership had operated as a
joint venture of the Company and TPI since July of 1996. As a result of this
transaction, the Company now owns 100 percent of CPI's operations which include
clay-coated recycled paperboard mills located in Rittman, Ohio and Tama, Iowa
and recovered fiber recycling and brokerage operations located in Rittman and
Cleveland, Ohio. The purchase price consisted of $1.4 million in cash paid at
closing and a note payable to TPI for the remaining $26.0 million due in June of
1999.
 
Cash dividends of $8.1 million were paid in the first half of 1998 versus $7.0
million in the same period last year. The Company's senior notes agreement
contains a provision which limits the payment of dividends, on a cumulative
basis, to a base amount plus 33 percent of the Company's cumulative consolidated
net income since October 1992. The Company does not believe that this provision
will limit its ability to pay dividends at its current rate or limit its ability
to increase dividends in the future. The revolving credit agreement contains no
specific limitations on the payment of dividends.
 
During the first quarter of 1998, the Company purchased and retired 66,000
shares of its common stock at a market price of $33.00 per share totaling $2.2
million. The Company has cumulatively purchased 2,258,000 shares since January
1996. The Company's board of directors has authorized purchases of up to
1,742,000 additional shares.
 
The Company anticipates that it will be able to meet its funding needs for the
possible acquisition of additional facilities, working capital, capital
expenditures and additional stock purchases through internally generated cash
and borrowings under its revolving credit facility.
 
The Company uses software and related information technologies throughout its
businesses that may be affected by the date change in the year 2000. The Company
has a plan to address the year 2000 issue and is working to ensure that its
systems continue to meet both its internal needs and those of its customers.
Costs to resolve the year 2000 issue will be incurred during 1998 and 1999.
These costs are not expected to materially impact the Company's financial
condition or results of operations.
 
FORWARD-LOOKING INFORMATION
 
This 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 "anticipate," "estimate," "expect," and similar
expressions may identify forward-looking statements. Although the Company
believes that the expectations reflected in any such forward-looking statements
are reasonable, it can give no assurance that such expectations will prove to be
correct. 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, the Company's actual financial
results, performance or condition may vary materially from those anticipated,
estimated or expected. Among the key factors that may have a direct bearing on
the Company's actual financial results, performance or condition are
fluctuations in raw material prices and the economy in general, the degree and
nature of competition, demand for the Company's products, changes in government
regulations, the Company's ability to complete acquisitions and integrate the
operations of acquired businesses and other matters discussed in this Report and
the Company's other filings with the Securities and Exchange Commission.
 
                                       12
<PAGE>   13
 
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
PART II, ITEM 2.
 
                           CARAUSTAR INDUSTRIES, INC.
 
ITEM 2.  CHANGES IN SECURITIES
 
On May 4, 1998, the Company acquired all of the outstanding stock of Etowah
Recycling, Inc. in exchange for approximately 140,000 shares of the Company's
common stock, valued at $4.7 million. Simultaneously, the Company repaid
Etowah's debt of approximately $2.1 million. The shares were issued to the
holders of the outstanding capital stock of Etowah in a transaction not
involving a public offering in reliance on the exemption from registration
provided by Section 4(2) of the Securities Act of 1933 and Regulation D
promulgated thereunder.
 
                                       13
<PAGE>   14
 
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
PART II, ITEM 6.
 
                           CARAUSTAR INDUSTRIES, INC.
 
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
 
     The Company filed no current reports on Form 8-K during the quarter ended
June 30, 1998.
 
                                       14
<PAGE>   15
 
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
 
                                   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: August 12, 1998
 
                                       15
<PAGE>   16
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
 
                               INDEX TO EXHIBITS
 
<TABLE>
<CAPTION>
EXHIBIT                                                                    FILED
NUMBER                            DESCRIPTION                           HEREWITH(*)
-------                           -----------                           -----------
<C>       <S>                                                           <C>
  2.01    Contribution Agreement between Tenneco Packaging Inc. and
          Caraustar Industries, Inc. regarding the formation of a
          Partnership, dated as of June 21, 1996 (including Annex A,
          Form of Partnership Agreement), as amended by Amendment to
          Contribution Agreement dated July 15, 1996 (Incorporated by
          reference  -- Exhibit 2 to Current Report on Form 8-K dated
          July 15, 1996 [SEC File No. 0-20646])
  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 Annual Report
          for 1992 on Form 10-K [SEC File No. 0-20646])
  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    Rights Agreement, dated as of April 19, 1995, between
          Caraustar Industries, Inc. and First Union National Bank of
          North Carolina, as Rights Agent (Incorporated by
          reference -- Exhibit 1 to Current Report on Form 8-K dated
          April 19, 1995 [SEC File No. 0-20646])
 10.01    Note Agreement, dated as of October 1, 1992, between the
          Company and the Prudential Insurance Company of America,
          regarding the Company's 7.89% Senior Subordinated Notes
          (Incorporated by reference -- Exhibit 10.02 to Annual Report
          for 1992 on Form 10-K [SEC File No. 0-20646])
 10.02    Amendment Agreement, dated as of June 2, 1995, between the
          Company and the Prudential Insurance Company of America
          regarding the Company's 7.89% Senior Subordinated Notes
          (Incorporated by reference -- Exhibit 10.03 to Report on
          Form 10-Q for the quarter ended September 30, 1995 [SEC File
          No. 0-20646])
 10.03    Amendment Agreement, dated as of July 23, 1997, between the
          Company and the Prudential Insurance Company of America
          regarding the Company's 7.89% Senior Subordinated Notes
          (Incorporated by reference -- Exhibit 10.03 to Report on
          Form 10-Q for the quarter ended June 30, 1997 [SEC File No.
          0-20646])
 10.04    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])
 10.05    Asset Purchase Agreement, dated August 7, 1992, between the
          Company and Domtar Gypsum Inc. (Incorporated by
          reference -- Exhibit 10.07 to Registration Statement on Form
          S-1 [SEC File No. 33-50582])
 10.06    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])
</TABLE>
 
                                       16
<PAGE>   17
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1998
 
<TABLE>
<CAPTION>
EXHIBIT                                                                    FILED
NUMBER                            DESCRIPTION                           HEREWITH(*)
-------                           -----------                           -----------
<C>       <S>                                                           <C>
 10.07    1987 Executive Stock Option Plan (Incorporated by
          reference -- Exhibit 10.09 to Registration Statement on Form
          S-1 [SEC File No. 33-50582])
 10.08    1993 Key Employees' Share Ownership Plan (Incorporated by
          reference -- Exhibit 10.10 to Registration Statement on Form
          S-1 [SEC File No. 33-50582])
 10.09    Energy Purchase Agreement, dated December 18, 1989, between
          Camden Paperboard Corporation and Camden Cogen, L.P.
          (Incorporated by reference -- Exhibit 10.11 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    Agreement and Plan of Merger, dated as of September 13,
          1995, among the Company, CSAR Acquisition, Inc., GAR Holding
          Company and each of the stockholders, warrantholders and
          optionees of GAR Holding Company, as amended by Amendment
          No. 1 to Agreement and Plan of Merger dated as of October
          31, 1995 (Incorporated by reference -- Exhibit 10.11 to
          Report on Form 10-Q for the quarter ended September 30, 1995
          [SEC File No. 0-20646])
 10.12    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])
 10.13    Credit Agreement, dated as of July 23, 1997, by and among
          the Company, as Borrower, the banks listed therein, Bankers
          Trust Company, as Administrative Agent, NationsBank, N.A.,
          as Syndication Agent, SunTrust Bank, Atlanta, as
          Documentation Agent, First Union National Bank, as Managing
          Agent and each of Credit Lyannais, The Bank of New York, The
          Bank of Nova Scotia, The Bank of Tokyo -- Mitsubishi, Ltd.,
          and Wachovia Bank, as Co-Agents (Incorporated by
          Reference -- Exhibit 10.13 to Report on Form 10-Q for the
          Quarter Ended June 30, 1997 [SEC File No. 0-20646])
 10.14    1998 Key Employee Incentive Compensation Plan (Incorporated
          by reference -- Exhibit 10.14 to Annual Report for 1997 on
          Form 10-K [SEC File No. 0-20646]
 11.01    Computation of Earnings per Share                                  *
 27.01    Financial Data Schedule (For SEC purposes only)                    *
</TABLE>
 
                                       17