##### Table of Contents









UNITED STATES

SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549




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FORM 10-Q

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

Commission File Number: 0-20646



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Caraustar Industries, Inc.

(Exact name of registrant as specified in its
charter)


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

(770) 948-3101

(Registrants telephone number, including
area code)


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

Yes     
x
                    No     
o

Indicate the number of shares outstanding of each
of issuers classes of common stock, as of the latest
practicable date, November 9, 2001.

|                             |  |              
|---------------------------- |  | -------------
|Common Stock, $.10 par value |  | 27,856,527   
|                             |  |              
|(Class)                      |  | (Outstanding)



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TABLE OF CONTENTS



|                                                                                                                 |                                          |  |  |  |  |  |  | 
|---------------------------------------------------------------------------------------------------------------- | ---------------------------------------- |  |  |  |  |  |  | 
|CONDENSED CONSOLIDATED BALANCE SHEETS                                                                           
|CONDENSED CONSOLIDATED STATEMENTS OF INCOME                                                                     
|CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS                                                                 
|NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2001 (UNAUDITED)                             
|CARAUSTAR INDUSTRIES, INC. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|CARAUSTAR INDUSTRIES, INC. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                           
|PART II. OTHER INFORMATION                                                                                      
|                                                                                                                 | ITEM 1. LEGAL PROCEEDINGS               
|                                                                                                                 | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
|SIGNATURES                                                                                                      
|EXHIBIT INDEX                                                                                                   
|Amendment No. 1 to Credit Agreement                                                                             
|Computation of Earnings Per Share                                                                               



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##### Table of Contents



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

CARAUSTAR INDUSTRIES, INC.

TABLE OF CONTENTS

|              |  |                                                                                                                                                                                     |    |      |    | 
|------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -- | ---- | -- | 
|              |  |                                                                                                                                                                                     |    | Page
|              |  |                                                                                                                                                                                     |    |     
|PART I       |  | FINANCIAL INFORMATION                                                                                                                                                               |    |      |    | 
|             
|Item 1.       |  | Condensed Consolidated Financial Statements:                                                                                                                                        |    |      |    | 
|              |  | Condensed Consolidated Balance Sheets as of
	September 30, 2001 and December 31, 2000                                                                                               |    |      | 3  | 
|              |  | Condensed Consolidated Statements of Income for
	the three-month and nine-month periods ended September 30,
	2001 and September 30, 2000                                            |    |      | 4  | 
|              |  | Condensed Consolidated Statements of Cash Flows
	for the nine-month periods ended September 30, 2001 and
	September  30, 2000                                                       |    |      | 5  | 
|              |  | Notes to Condensed Consolidated Financial
	Statements                                                                                                                               |    |      | 6  | 
|             
|Item 2.       |  | Managements Discussion and Analysis of
	Financial Condition and Results of Operations for the
	three-month and nine-month periods ended September 30, 2001
	and September 30, 2000 |    |      | 14 | 
|             
|Item 3.       |  | Quantitative and Qualitative Disclosures About
	Market Risk                                                                                                                         |    |      | 29 | 
|             
|PART II      |  | OTHER INFORMATION                                                                                                                                                                   |    |      |    | 
|             
|Item 1.       |  | Legal Proceedings                                                                                                                                                                   |    |      | 30 | 
|             
|Item 6.       |  | Exhibits and Reports on Form 8-K                                                                                                                                                    |    |      | 30 | 
|Signatures    |  |                                                                                                                                                                                     | 31 |     
|Exhibit Index |  |                                                                                                                                                                                     | 32 |     

2



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##### Table of Contents



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

PART I, ITEM 1.


CARAUSTAR INDUSTRIES, INC. AND
SUBSIDIARIES




CONDENSED CONSOLIDATED BALANCE
SHEETS

(In thousands, except share data)


|                                                        |                                                                                                                                                                                  |                           |         |              |         |   |         |          |         | 
|------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------- | ------- | ------------ | ------- | - | ------- | -------- | ------- | 
|                                                        |                                                                                                                                                                                  | September 30,             |         | December 31,
|                                                        |                                                                                                                                                                                  | 2001                      |         | 2000*       
|                                                        |                                                                                                                                                                                  |                           |         |             
|                                                        |                                                                                                                                                                                  | (Unaudited)               |         |             
|ASSETS                                                 
|CURRENT ASSETS:                                         |                                                                                                                                                                                  |                           |         |              |         |   |         |         
|                                                        | Cash and cash equivalents                                                                                                                                                        |                           | $       | 50,245       |         |   | $       | 8,900    |        
|                                                        | Receivables, net of allowances                                                                                                                                                   |                           |         | 112,922      |         |   |         | 93,145   |        
|                                                        | Inventories                                                                                                                                                                      |                           |         | 103,343      |         |   |         | 111,560  |        
|                                                        | Refundable income taxes                                                                                                                                                          |                           |         | 1,553        |         |   |         | 3,913    |        
|                                                        | Other current assets                                                                                                                                                             |                           |         | 14,719       |         |   |         | 9,438    |        
|                                                        |                                                                                                                                                                                  |                           |         |              |         |   |         |         
|                                                        |                                                                                                                                                                                  | Total current assets      |         |              | 282,782 |   |         |          | 226,956 | 
|                                                        |                                                                                                                                                                                  |                           |         |              |         |   |         |         
|PROPERTY, PLANT AND EQUIPMENT:                          |                                                                                                                                                                                  |                           |         |              |         |   |         |         
|                                                        | Land                                                                                                                                                                             |                           |         | 12,620       |         |   |         | 12,663   |        
|                                                        | Buildings and improvements                                                                                                                                                       |                           |         | 133,487      |         |   |         | 127,816  |        
|                                                        | Machinery and equipment                                                                                                                                                          |                           |         | 624,413      |         |   |         | 620,418  |        
|                                                        | Furniture and fixtures                                                                                                                                                           |                           |         | 14,016       |         |   |         | 12,164   |        
|                                                        |                                                                                                                                                                                  |                           |         |              |         |   |         |         
|                                                        |                                                                                                                                                                                  |                           | 784,536 |              |         |   | 773,061 |         
|                                                        | Less accumulated depreciation                                                                                                                                                    |                           |         | (324,114     | )       |   |         | (289,752 | )      
|                                                        |                                                                                                                                                                                  |                           |         |              |         |   |         |         
|                                                        | Property, plant and equipment, net                                                                                                                                               |                           |         | 460,422      |         |   |         | 483,309  |        
|                                                        |                                                                                                                                                                                  |                           |         |              |         |   |         |         
|GOODWILL, net                                           |                                                                                                                                                                                  |                           | 147,594 |              |         |   | 150,894 |         
|                                                        |                                                                                                                                                                                  |                           |         |              |         |   |         |         
|INVESTMENT IN UNCONSOLIDATED AFFILIATES                 |                                                                                                                                                                                  |                           | 64,096  |              |         |   | 65,895  |         
|                                                        |                                                                                                                                                                                  |                           |         |              |         |   |         |         
|OTHER ASSETS                                            |                                                                                                                                                                                  |                           | 28,751  |              |         |   | 7,043   |         
|                                                        |                                                                                                                                                                                  |                           |         |              |         |   |         |         
|                                                        |                                                                                                                                                                                  | $                         | 983,645 |              |         | $ | 934,097 |         
|                                                        |                                                                                                                                                                                  |                           |         |              |         |   |         |         
|LIABILITIES AND SHAREHOLDERS
	EQUITY                  
|CURRENT LIABILITIES:                                    |                                                                                                                                                                                  |                           |         |              |         |   |         |         
|                                                        | Current maturities of debt                                                                                                                                                       |                           | $       | 398          |         |   | $       | 1,259    |        
|                                                        | Accounts payable                                                                                                                                                                 |                           |         | 58,618       |         |   |         | 63,752   |        
|                                                        | Accrued liabilities                                                                                                                                                              |                           |         | 55,299       |         |   |         | 56,531   |        
|                                                        | Dividends payable                                                                                                                                                                |                           |         | 833          |         |   |         | 4,702    |        
|                                                        |                                                                                                                                                                                  |                           |         |              |         |   |         |         
|                                                        |                                                                                                                                                                                  | Total current liabilities |         |              | 115,148 |   |         |          | 126,244 | 
|                                                        |                                                                                                                                                                                  |                           |         |              |         |   |         |         
|SENIOR CREDIT FACILITY (Note 4)                         |                                                                                                                                                                                  |                           | 0       |              |         |   | 194,000 |         
|                                                        |                                                                                                                                                                                  |                           |         |              |         |   |         |         
|OTHER LONG-TERM DEBT, less current maturities
	(Note 4) |                                                                                                                                                                                  |                           | 520,243 |              |         |   | 272,813 |         
|                                                        |                                                                                                                                                                                  |                           |         |              |         |   |         |         
|DEFERRED INCOME TAXES                                   |                                                                                                                                                                                  |                           | 54,361  |              |         |   | 50,949  |         
|                                                        |                                                                                                                                                                                  |                           |         |              |         |   |         |         
|DEFERRED COMPENSATION                                   |                                                                                                                                                                                  |                           | 1,875   |              |         |   | 2,315   |         
|                                                        |                                                                                                                                                                                  |                           |         |              |         |   |         |         
|OTHER LIABILITIES                                       |                                                                                                                                                                                  |                           | 5,912   |              |         |   | 6,853   |         
|                                                        |                                                                                                                                                                                  |                           |         |              |         |   |         |         
|MINORITY INTEREST                                       |                                                                                                                                                                                  |                           | 958     |              |         |   | 1,115   |         
|                                                        |                                                                                                                                                                                  |                           |         |              |         |   |         |         
|COMMITMENTS AND CONTINGENCIES (Note 8)                  |                                                                                                                                                                                  |                           |         |              |         |   |         |         
|SHAREHOLDERS EQUITY:                                   |                                                                                                                                                                                  |                           |         |              |         |   |         |         
|                                                        | Preferred stock, $.10 par value; 5,000,000 shares
	authorized; none issued                                                                                                       |                           |         | 0            |         |   |         | 0        |        
|                                                        | Common stock, $.10 par value; 60,000,000 shares
	authorized, 27,856,181 and 26,204,567 shares issued and
	outstanding at September 30, 2001 and December 31,
	2000, respectively |                           |         | 2,786        |         |   |         | 2,620    |        
|                                                        | Additional paid-in capital                                                                                                                                                       |                           |         | 179,723      |         |   |         | 160,824  |        
|                                                        | Retained earnings                                                                                                                                                                |                           |         | 103,430      |         |   |         | 117,117  |        
|                                                        | Accumulated other comprehensive income                                                                                                                                           |                           |         | (791         | )       |   |         | (753     | )      
|                                                        |                                                                                                                                                                                  |                           |         |              |         |   |         |         
|                                                        |                                                                                                                                                                                  |                           | 285,148 |              |         |   | 279,808 |         
|                                                        |                                                                                                                                                                                  |                           |         |              |         |   |         |         
|                                                        |                                                                                                                                                                                  | $                         | 983,645 |              |         | $ | 934,097 |         
|                                                        |                                                                                                                                                                                  |                           |         |              |         |   |         |         



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|  |                                                                                                                                                                                                                               
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|* | Condensed from audited financial statements and
	restated to reflect the change in the inventory costing method
	of accounting from LIFO to FIFO at one of the Companys
	subsidiaries. See Note 2 for additional information.

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

3



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##### Table of Contents



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


PART I, ITEM 1.


CARAUSTAR INDUSTRIES, INC. AND
SUBSIDIARIES




CONDENSED CONSOLIDATED STATEMENTS OF
INCOME

(In thousands, except per share
data)


|                                                                             |                                                       |                  |         |               |         |      |         |        |         |   |         |         |         |   |         |         |         | 
|---------------------------------------------------------------------------- | ----------------------------------------------------- | ---------------- | ------- | ------------- | ------- | ---- | ------- | ------ | ------- | - | ------- | ------- | ------- | - | ------- | ------- | ------- | 
|                                                                             |                                                       |                  |         |              
|                                                                             |                                                       | For the Three    |         | For the Nine 
|                                                                             |                                                       | Months Ended     |         | Months Ended 
|                                                                             |                                                       | September 30,    |         | September 30,
|                                                                             |                                                       |                  |         |              
|                                                                             |                                                       | 2001             |         | 2000*         |         | 2001 |         | 2000* 
|                                                                             |                                                       |                  |         |               |         |      |         |       
|                                                                             |                                                       |                  |         |              
|                                                                             |                                                       | (Unaudited)      |         | (Unaudited)  
|SALES                                                                        |                                                       | $                | 234,851 |               |         | $    | 249,592 |        |         | $ | 697,698 |         |         | $ | 779,073 |        
|FREIGHT                                                                      |                                                       |                  | 13,869  |               |         |      | 12,861  |        |         |   | 40,299  |         |         |   | 38,710  |        
|                                                                             |                                                       |                  |         |               |         |      |         |        |         |   |         |         |         |   |         |        
|                                                                             |                                                       | Net sales        |         |               | 220,982 |      |         |        | 236,731 |   |         |         | 657,399 |   |         |         | 740,363 | 
|COST OF SALES                                                                |                                                       |                  | 172,807 |               |         |      | 188,879 |        |         |   | 516,829 |         |         |   | 581,518 |        
|                                                                             |                                                       |                  |         |               |         |      |         |        |         |   |         |         |         |   |         |        
|                                                                             |                                                       | Gross profit     |         |               | 48,175  |      |         |        | 47,852  |   |         |         | 140,570 |   |         |         | 158,845 | 
|SELLING, GENERAL AND ADMINISTRATIVE                                          |                                                       |                  |         |               |         |      |         |        |         |   |         |         |         |   |         |        
|                                                                             | EXPENSES                                              |                  |         | 36,832        |         |      |         | 34,459 |         |   |         | 109,861 |         |   |         | 109,510 |        
|RESTRUCTURING COSTS (Note 7)                                                 |                                                       |                  | 0       |               |         |      | 8,564   |        |         |   | 7,083   |         |         |   | 15,477  |        
|                                                                             |                                                       |                  |         |               |         |      |         |        |         |   |         |         |         |   |         |        
|                                                                             |                                                       | Operating income |         |               | 11,343  |      |         |        | 4,829   |   |         |         | 23,626  |   |         |         | 33,858  | 
|OTHER (EXPENSE) INCOME:                                                      |                                                       |                  |         |               |         |      |         |        |         |   |         |         |         |   |         |        
|                                                                             | Interest expense                                      |                  |         | (10,393       | )       |      |         | (9,063 | )       |   |         | (31,159 | )       |   |         | (24,674 | )      
|                                                                             | Interest income                                       |                  |         | 319           |         |      |         | 59     |         |   |         | 624     |         |   |         | 316     |        
|                                                                             | Equity in income (loss) of unconsolidated
	affiliates |                  |         | 936           |         |      |         | 816    |         |   |         | (1,799  | )       |   |         | 7,186   |        
|                                                                             | Other, net                                            |                  |         | (98           | )       |      |         | (259   | )       |   |         | (611    | )       |   |         | (609    | )      
|                                                                             |                                                       |                  |         |               |         |      |         |        |         |   |         |         |         |   |         |        
|                                                                             |                                                       |                  | (9,236  | )             |         |      | (8,447  | )      |         |   | (32,945 | )       |         |   | (17,781 | )      
|                                                                             |                                                       |                  |         |               |         |      |         |        |         |   |         |         |         |   |         |        
|INCOME (LOSS) BEFORE MINORITY INTEREST,
	INCOME TAXES AND EXTRAORDINARY LOSS |                                                       |                  | 2,107   |               |         |      | (3,618  | )      |         |   | (9,319  | )       |         |   | 16,077  |        
|MINORITY INTEREST                                                            |                                                       |                  | 120     |               |         |      | (28     | )      |         |   | 157     |         |         |   | (161    | )      
|PROVISION (BENEFIT) FOR INCOME TAXES                                         |                                                       |                  | 1,272   |               |         |      | (1,104  | )      |         |   | (2,362  | )       |         |   | 6,811   |        
|                                                                             |                                                       |                  |         |               |         |      |         |        |         |   |         |         |         |   |         |        
|INCOME (LOSS) BEFORE EXTRAORDINARY LOSS                                      |                                                       | $                | 955     |               |         | $    | (2,542  | )      |         | $ | (6,800  | )       |         | $ | 9,105   |        
|                                                                             |                                                       |                  |         |               |         |      |         |        |         |   |         |         |         |   |         |        
|EXTRAORDINARY LOSS FROM EARLY EXTINGUISHMENT OF
	DEBT, NET OF TAX BENEFIT    |                                                       | $                | 0       |               |         | $    | 0       |        |         | $ | (2,695  | )       |         | $ | 0       |        
|                                                                             |                                                       |                  |         |               |         |      |         |        |         |   |         |         |         |   |         |        
|NET INCOME (LOSS)                                                            |                                                       | $                | 955     |               |         | $    | (2,542  | )      |         | $ | (9,495  | )       |         | $ | 9,105   |        
|                                                                             |                                                       |                  |         |               |         |      |         |        |         |   |         |         |         |   |         |        
|BASIC                                                                        |                                                       |                  |         |               |         |      |         |        |         |   |         |         |         |   |         |        
|EARNINGS (LOSS) PER COMMON SHARE BEFORE                                      |                                                       |                  |         |               |         |      |         |        |         |   |         |         |         |   |         |        
|                                                                             | EXTRAORDINARY LOSS                                    |                  |         | 0.03          |         |      |         | (0.10  | )       |   |         | (0.24   | )       |   |         | 0.35    |        
|                                                                             |                                                       |                  |         |               |         |      |         |        |         |   |         |         |         |   |         |        
|EXTRAORDINARY LOSS PER COMMON SHARE                                          |                                                       | $                | 0.00    |               |         | $    | 0.00    |        |         | $ | (0.10   | )       |         | $ | 0.00    |        
|                                                                             |                                                       |                  |         |               |         |      |         |        |         |   |         |         |         |   |         |        
|NET INCOME (LOSS) PER COMMON SHARE                                           |                                                       | $                | 0.03    |               |         | $    | (0.10   | )      |         | $ | (0.34   | )       |         | $ | 0.35    |        
|                                                                             |                                                       |                  |         |               |         |      |         |        |         |   |         |         |         |   |         |        
|Weighted average number of shares outstanding                                |                                                       |                  | 27,856  |               |         |      | 25,932  |        |         |   | 27,841  |         |         |   | 25,780  |        
|                                                                             |                                                       |                  |         |               |         |      |         |        |         |   |         |         |         |   |         |        
|DILUTED                                                                      |                                                       |                  |         |               |         |      |         |        |         |   |         |         |         |   |         |        
|EARNINGS (LOSS) PER COMMON SHARE BEFORE                                      |                                                       |                  |         |               |         |      |         |        |         |   |         |         |         |   |         |        
|                                                                             | EXTRAORDINARY LOSS                                    |                  | $       | 0.03          |         |      | $       | (0.10  | )       |   | $       | (0.24   | )       |   | $       | 0.35    |        
|                                                                             |                                                       |                  |         |               |         |      |         |        |         |   |         |         |         |   |         |        
|EXTRAORDINARY LOSS PER COMMON SHARE                                          |                                                       | $                | 0.00    |               |         | $    | 0.00    |        |         | $ | (0.10   | )       |         | $ | 0.00    |        
|                                                                             |                                                       |                  |         |               |         |      |         |        |         |   |         |         |         |   |         |        
|NET INCOME (LOSS) PER COMMON SHARE                                           |                                                       | $                | 0.03    |               |         | $    | (0.10   | )      |         | $ | (0.34   | )       |         | $ | 0.35    |        
|                                                                             |                                                       |                  |         |               |         |      |         |        |         |   |         |         |         |   |         |        
|Diluted weighted average number of shares
	outstanding                       |                                                       |                  | 27,856  |               |         |      | 25,932  |        |         |   | 27,841  |         |         |   | 25,791  |        
|                                                                             |                                                       |                  |         |               |         |      |         |        |         |   |         |         |         |   |         |        



---

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

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

4



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##### Table of Contents



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


PART I, ITEM 1.


CARAUSTAR INDUSTRIES, INC. AND
SUBSIDIARIES






CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS


(In thousands)


|                           |                                                  |                                                                      |   |        |          |   |   |         |         |  
|-------------------------- | ------------------------------------------------ | -------------------------------------------------------------------- | - | ------ | -------- | - | - | ------- | ------- | -
|                           |                                                  |                                                                     
|                           |                                                  | For the Nine Months Ended                                           
|                           |                                                  | September 30,                                                       
|                           |                                                  |                                                                     
|                           |                                                  | 2001                                                                 |   | 2000* 
|                           |                                                  |                                                                      |   |       
|                           |                                                  |                                                                     
|                           |                                                  | (Unaudited)                                                         
|Cash provided by (used in) |                                                  |                                                                      |   |        |          |   |   |        
|                           | Operating activities:                            |                                                                      |   |        |          |   |   |         |        
|                           |                                                  | Net (loss) income                                                    |   | $      | (9,495   | ) |   | $       | 9,105   |  
|                           |                                                  | Extraordinary loss from early extinguishment of
	debt                |   |        | 4,305    |   |   |         | 0       |  
|                           |                                                  | Depreciation and amortization                                        |   |        | 46,986   |   |   |         | 45,170  |  
|                           |                                                  | Restructuring costs                                                  |   |        | 3,987    |   |   |         | 12,588  |  
|                           |                                                  | Other noncash adjustments                                            |   |        | 3,424    |   |   |         | 8,620   |  
|                           |                                                  | Equity in income of unconsolidated affiliates,
	net of distributions |   |        | 1,799    |   |   |         | 314     |  
|                           |                                                  | Changes in current assets and liabilities                            |   |        | (4,361   | ) |   |         | (34,970 | )
|                           |                                                  |                                                                      |   |        |          |   |   |        
|                           |                                                  | Net cash provided by operating activities                            |   |        | 46,645   |   |   |         | 40,827  |  
|                           |                                                  |                                                                      |   |        |          |   |   |        
|                           | Investing activities:                            |                                                                      |   |        |          |   |   |         |        
|                           |                                                  | Purchases of property, plant and equipment                           |   |        | (22,500  | ) |   |         | (47,110 | )
|                           |                                                  | Acquisitions of businesses, net of cash acquired                     |   |        | (34      | ) |   |         | (4,007  | )
|                           |                                                  | Investment in unconsolidated affiliates                              |   |        | 0        |   |   |         | (50,809 | )
|                           |                                                  | Other                                                                |   |        | 572      |   |   |         | 3,318   |  
|                           |                                                  |                                                                      |   |        |          |   |   |        
|                           |                                                  | Net cash used in investing activities                                |   |        | (21,962  | ) |   |         | (98,608 | )
|                           |                                                  |                                                                      |   |        |          |   |   |        
|                           | Financing activities:                            |                                                                      |   |        |          |   |   |         |        
|                           |                                                  | Proceeds from senior credit facility                                 |   |        | 18,000   |   |   |         | 144,000 |  
|                           |                                                  | Repayments of senior credit facility                                 |   |        | (212,000 | ) |   |         | (90,000 | )
|                           |                                                  | 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                         |   |        | (67,110  | ) |   |         | (115    | )
|                           |                                                  | 7.74% senior notes prepayment penalty                                |   |        | (3,565   | ) |   |         | 0       |  
|                           |                                                  | Dividends paid                                                       |   |        | (8,037   | ) |   |         | (13,831 | )
|                           |                                                  | Proceeds from issuance of stock                                      |   |        | 0        |   |   |         | 460     |  
|                           |                                                  | Other                                                                |   |        | (1,826   | ) |   |         | (649    | )
|                           |                                                  |                                                                      |   |        |          |   |   |        
|                           |                                                  | Net cash provided by financing activities                            |   |        | 16,662   |   |   |         | 39,865  |  
|                           |                                                  |                                                                      |   |        |          |   |   |        
|                           | Net change in cash and cash equivalents          |                                                                      |   | 41,345 |          |   |   | (17,916 | )      
|                           | Cash and cash equivalents at beginning of period |                                                                      |   | 8,900  |          |   |   | 18,771  |        
|                           |                                                  |                                                                      |   |        |          |   |   |        
|                           | Cash and cash equivalents at end of period       |                                                                      | $ | 50,245 |          |   | $ | 855     |        
|                           |                                                  |                                                                      |   |        |          |   |   |        
|                           | Supplemental Disclosures:                        |                                                                      |   |        |          |   |   |         |        
|                           |                                                  | Cash payments for interest                                           |   | $      | 14,629   |   |   | $       | 17,229  |  
|                           |                                                  |                                                                      |   |        |          |   |   |        
|                           |                                                  | Cash payments for income taxes                                       |   | $      | 1,276    |   |   | $       | 8,939   |  
|                           |                                                  |                                                                      |   |        |          |   |   |        
|                           |                                                  | Stock issued for acquisitions                                        |   | $      | 18,799   |   |   | $       | 10,547  |  
|                           |                                                  |                                                                      |   |        |          |   |   |        



---



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

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

5



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##### Table of Contents



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


PART I, ITEM 1.







NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS

SEPTEMBER 30, 2001


(UNAUDITED)




|         |                      
|-------- | ---------------------
|Note  1. | Basis of Presentation



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



|         |          
|-------- | ---------
|Note  2. | Inventory



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Prior to June 30, 2001, the Company
	completed a restructuring within the carton and custom packaging
	segment whereby certain subsidiaries were merged into an
	existing subsidiary in that segment. The restructuring was
	completed to simplify reporting and facilitate the management of
	segment operations. In connection with this restructuring, the
	Company changed, effective June 30, 2001, its inventory
	costing method of accounting for one of the merged subsidiaries
	from LIFO to FIFO in order to conform with the methodologies of
	the surviving subsidiary and all other Company-owned
	subsidiaries. The accompanying financial statements have been
	restated for this change. The effect of the change was to
	increase net assets as of June 30, 2001 and
	December 31, 2000 by $794,000 and $758,000, respectively,
	and increase net income for the three-month period ended
	September 30, 2000 by $19,000. The effect on net income for
	the nine-month periods ended September 30, 2001 and
	September 30, 2000, was $36,000,and $57,000,
	respectively.



|         |                            
|-------- | ---------------------------
|Note  3. | Comprehensive Income (Loss)



| |                                                                                                                                                                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Total comprehensive income (loss), consisting of
	net income (loss) plus other nonowner changes in equity,
	for the three months ended September 30, 2001 and 2000 was
	$1,041,000 and ($2,568,000), respectively. For the nine months
	ended September 30, 2001 and 2000 total comprehensive
	(loss) income was ($9,533,000) and $8,881,000, respectively.



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



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On March 29, 2001, the Company obtained a
	new credit facility that provides for a revolving line of credit
	in the aggregate principal amount of $75,000,000 for a term of
	three years, including subfacilities of $10,000,000 for
	swingline loans and $15,000,000 for letters of credit, usage of
	which reduces availability under the facility. No borrowings
	were outstanding under the facility as of September 30,
	2001, although an aggregate of $9,838,000 in letter of credit
	obligations were outstanding. The Company intends to use the
	facility for working capital, capital expenditures and other
	general corporate purposes. Although the facility is unsecured,
	the Companys obligations under the facility are
	unconditionally guaranteed, on a joint and several basis, by all
	of its existing and subsequently acquired wholly owned domestic
	subsidiaries.
|
| | Borrowings under the facility bear interest at a
	rate equal to, at the Companys option, either (1) the
	base rate (which is equal to the greater of the prime rate most
	recently announced by Bank of America, N.A., the administrative
	agent under the facility, or the federal funds rate plus
	one-half of 1%) or (2) the adjusted Eurodollar Interbank
	Offered Rate, in each case plus an applicable margin determined
	by reference to the Companys leverage ratio (which is
	defined under the facility as the ratio of the Companys
	total debt to its total capitalization). Based on the
	Companys leverage ratio at September 30, 2001, the
	current margins are 2.0% for Eurodollar rate loans and 0.75% for
	base                                                                                                                                                       

6



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##### Table of Contents



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


PART I, ITEM 1.




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | rate loans. Additionally, the undrawn portion of
	the facility is subject to a facility fee at an annual rate that
	is currently set at 0.5% based on the Companys leverage
	ratio at September 30, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | The facility contains covenants that restrict,
	among other things, the Companys ability and its
	subsidiaries ability to create liens, merge or
	consolidate, dispose of assets, incur indebtedness and
	guarantees, pay dividends, repurchase or redeem capital stock
	and indebtedness, make certain investments or acquisitions,
	enter into certain transactions with affiliates, make capital
	expenditures or change the nature of the Companys
	business. The facility also contains several financial
	maintenance covenants, including covenants establishing a
	maximum leverage ratio (as described above), minimum tangible
	net worth and a minimum interest coverage ratio.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | The facility contains events of default
	including, but not limited to, nonpayment of principal or
	interest, violation of covenants, incorrectness of
	representations and warranties, cross-default to other
	indebtedness, bankruptcy and other insolvency events, material
	judgments, certain ERISA events, actual or asserted invalidity
	of loan documentation and certain changes of control of the
	Company.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | During the third quarter of 2001, the Company
	amended the senior credit facility agreement. The amendment
	allows the Company to acquire up to $30,000,000 of its senior
	subordinated notes so long as no default or event of default
	exists on the date of the transaction, or will result from the
	transaction.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | On March 22, 2001, the Company obtained
	commitments and executed an agreement for the issuance of
	$285,000,000 of 9  7/8% senior subordinated notes due
	April 1, 2011 and $29,000,000 of 7  1/4% senior notes
	due May 1, 2010. These senior subordinated notes and senior
	notes were issued at a discount to yield effective interest
	rates of 10.5% and 9.4%, respectively. Under the terms of the
	agreement, the Company received aggregate proceeds, net of
	issuance costs, of approximately $291,200,000 on March 29,
	2001. These proceeds were used to repay borrowings outstanding
	under the Companys former senior credit facility and its
	7.74% senior notes. In connection with the repayment of the
	7.74% senior notes, the Company incurred a prepayment penalty of
	approximately $3,600,000. The difference between issue price and
	principal amount at maturity of the Companys 7  1/4%
	senior and 9  7/8% senior subordinated notes will be
	accreted each year as interest expense in its financial
	statements. These 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.
|
| | During the second and third quarters of 2001, the
	Company entered into four interest rate swap agreements in
	notional amounts totaling $285,000,000. The agreements, which
	have payment and expiration dates that correspond to the terms
	of the note obligations they cover, effectively converted
	$185,000,000 of the Companys fixed rate 9  7/8%
	senior subordinated notes and $100,000,000 of the Companys
	fixed rate 7  3/8% senior notes into variable rate
	obligations. The variable rates are based on LIBOR plus a fixed
	margin.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | The Company has assumed no ineffectiveness with
	respect to its four interest rate swap agreements, as it
	believes that the conditions for such an assumption are met
	under the guidelines of Statement of Financial Accounting
	Standards No. 133, Accounting for Derivative
	Instruments and Hedging Activities. The fair value of the
	swap agreements of approximately $13,698,000 as of
	September 30, 2001 has been reflected in other long-term
	assets and long-term debt in the accompanying balance sheet. As
	described below in Note 9, the Company unwound one of its
	swap agreements in October 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               

7



---



##### Table of Contents



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


PART I, ITEM 1.




|         |                              
|-------- | -----------------------------
|Note  5. | New Accounting Pronouncements



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In June 1998, the Financial Accounting Standards
	Board (FASB) issued Statement of Financial
	Accounting Standards (SFAS) No. 133,
	Accounting for Derivative Instruments and Hedging
	Activities. SFAS No. 133 established accounting and
	reporting standards for derivative instruments, including
	certain derivative instruments embedded in other contracts
	(collectively referred to as derivatives), and for hedging
	activities. It also requires that an entity recognize all
	derivatives as either assets or liabilities in the statement of
	financial position and measure those instruments at fair value.
	In June 1999, the FASB issued SFAS No. 137,
	Accounting for Derivative Instruments and Hedging
	Activities  Deferral of the Effective Date of FASB
	Statement 133. This statement deferred the effective
	date of SFAS No. 133 until the fiscal year ending
	December  31, 2001. In June 2000, the FASB issued SFAS
	No. 138, Accounting for Certain Derivative
	Instruments and Certain Hedging Activities (an Amendment of FASB
	No. 133). This statement amends the accounting and
	reporting standards of SFAS No. 133 for certain derivative
	instruments and hedging activities. The Company adopted SFAS
	No. 133, as amended, on January 1, 2001. This
	pronouncement did not have a material impact on the
	Companys financial statements upon adoption.
|
| | In June 2001, the FASB issued SFAS No. 141,
	Business Combinations (SFAS
	No. 141) and SFAS No. 142, Goodwill and
	Other Intangible Assets (SFAS No. 142).
	SFAS No. 141 supercedes Accounting Principles Board
	(APB) Opinion No. 16 Business
	Combinations and SFAS No. 38, Accounting for
	Preacquisition Contingencies for Purchased Enterprises.
	This statement prescribes the accounting principles for business
	combination and requires that all business combinations be
	accounted for using the purchase method of accounting. This
	statement is effective for all business combinations after
	June 30, 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | SFAS No. 142 supercedes APB Opinion
	No. 17, Intangible Assets. This statement
	prescribes the accounting practices for goodwill and other
	intangible assets. Under this statement, goodwill will no longer
	be amortized to earnings, but instead will be reviewed
	periodically (at least annually) for impairment. As of
	September 30, 2001, the Company had $147,594,000 of
	recorded net goodwill, which will be subject to this new
	standard. During fiscal year 2001, the Company expects
	approximately $2,800,000 of goodwill amortization expense, net
	of taxes. The Company expects to adopt this standard effective
	January  1, 2002. The Company is currently evaluating this
	new pronouncement and has not yet determined the impact on its
	consolidated financial statements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    



|         |                    
|-------- | -------------------
|Note  6. | Segment Information



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

8



---



##### Table of Contents



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


PART I, ITEM 1.




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

|                                                                             |                                                       |                     |        |                     |         |      |        |        |         |   |        |         |         |   |         |         |         | 
|---------------------------------------------------------------------------- | ----------------------------------------------------- | ------------------- | ------ | ------------------- | ------- | ---- | ------ | ------ | ------- | - | ------ | ------- | ------- | - | ------- | ------- | ------- | 
|                                                                             |                                                       |                     |        |                    
|                                                                             |                                                       | Three Months        |        | Nine Months        
|                                                                             |                                                       | Ended September 30, |        | Ended September 30,
|                                                                             |                                                       |                     |        |                    
|                                                                             |                                                       | 2001                |        | 2000                |         | 2001 |        | 2000  
|                                                                             |                                                       |                     |        |                     |         |      |        |       
|Net sales (external customers):                                              |                                                       |                     |        |                     |         |      |        |        |         |   |        |         |         |   |         |        
|                                                                             | Paperboard                                            |                     | $      | 74,637              |         |      | $      | 96,714 |         |   | $      | 222,398 |         |   | $       | 313,997 |        
|                                                                             | Tube, core and composite container                    |                     |        | 62,689              |         |      |        | 67,583 |         |   |        | 191,229 |         |   |         | 201,230 |        
|                                                                             | Carton and custom packaging                           |                     |        | 83,656              |         |      |        | 72,434 |         |   |        | 243,772 |         |   |         | 225,136 |        
|                                                                             |                                                       |                     |        |                     |         |      |        |        |         |   |        |         |         |   |         |        
|                                                                             |                                                       | Total               |        | $                   | 220,982 |      |        | $      | 236,731 |   |        | $       | 657,399 |   |         | $       | 740,363 | 
|                                                                             |                                                       |                     |        |                     |         |      |        |        |         |   |        |         |         |   |         |        
|Net sales (intersegment):                                                    |                                                       |                     |        |                     |         |      |        |        |         |   |        |         |         |   |         |        
|                                                                             | Paperboard                                            |                     | $      | 39,245              |         |      | $      | 39,716 |         |   | $      | 102,737 |         |   | $       | 106,836 |        
|                                                                             | Tube, core and composite container                    |                     |        | 1,046               |         |      |        | 994    |         |   |        | 3,001   |         |   |         | 3,372   |        
|                                                                             | Carton and custom packaging                           |                     |        | 123                 |         |      |        | 243    |         |   |        | 424     |         |   |         | 793     |        
|                                                                             |                                                       |                     |        |                     |         |      |        |        |         |   |        |         |         |   |         |        
|                                                                             |                                                       | Total               |        | $                   | 40,414  |      |        | $      | 40,953  |   |        | $       | 106,162 |   |         | $       | 111,001 | 
|                                                                             |                                                       |                     |        |                     |         |      |        |        |         |   |        |         |         |   |         |        
|Operating income:                                                            |                                                       |                     |        |                     |         |      |        |        |         |   |        |         |         |   |         |        
|                                                                             | Paperboard(A)                                         |                     | $      | 11,094              |         |      | $      | 1,320  |         |   | $      | 24,247  |         |   | $       | 20,403  |        
|                                                                             | Tube, core and composite container                    |                     |        | 1,653               |         |      |        | 4,576  |         |   |        | 6,874   |         |   |         | 14,784  |        
|                                                                             | Carton and custom packaging(B)                        |                     |        | 1,565               |         |      |        | 2,664  |         |   |        | 2,206   |         |   |         | 8,697   |        
|                                                                             |                                                       |                     |        |                     |         |      |        |        |         |   |        |         |         |   |         |        
|                                                                             |                                                       | Total               |        |                     | 14,312  |      |        |        | 8,560   |   |        |         | 33,327  |   |         |         | 43,884  | 
|Corporate expense                                                            |                                                       |                     | (2,969 | )                   |         |      | (3,731 | )      |         |   | (9,701 | )       |         |   | (10,026 | )      
|                                                                             |                                                       |                     |        |                     |         |      |        |        |         |   |        |         |         |   |         |        
|Operating income                                                             |                                                       |                     | 11,343 |                     |         |      | 4,829  |        |         |   | 23,626 |         |         |   | 33,858  |        
|                                                                             | Interest expense                                      |                     |        | (10,393             | )       |      |        | (9,063 | )       |   |        | (31,159 | )       |   |         | (24,674 | )      
|                                                                             | Interest income                                       |                     |        | 319                 |         |      |        | 59     |         |   |        | 624     |         |   |         | 316     |        
|                                                                             | Equity in income (loss) of unconsolidated
	Affiliates |                     |        | 936                 |         |      |        | 816    |         |   |        | (1,799  | )       |   |         | 7,186   |        
|                                                                             | Other, net                                            |                     |        | (98                 | )       |      |        | (259   | )       |   |        | (611    | )       |   |         | (609    | )      
|                                                                             |                                                       |                     |        |                     |         |      |        |        |         |   |        |         |         |   |         |        
|Income (loss) before income taxes, minority
	interest and extraordinary loss |                                                       | $                   | 2,107  |                     |         | $    | (3,618 | )      |         | $ | (9,319 | )       |         | $ | 16,077  |        
|                                                                             |                                                       |                     |        |                     |         |      |        |        |         |   |        |         |         |   |         |        





| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (A) | Results include first quarter 2000 charges to
	operations of $6,913,000 for restructuring costs related to the
	closing of the Baltimore, Maryland paperboard mill. During the
	third quarter of 2000, the Company also recorded a charge to
	operations of approximately $8,564,000 in restructuring costs
	related to the closing of the Camden, New Jersey paperboard
	mill. Results include first quarter 2001 charges to operations
	of $4,447,000 for restructuring costs related to the closing of
	the Chicago, Illinois paperboard mill (See Note 7). Results
	also include a $3,854,000 and $1,635,000 reduction in reserves
	in the second and third quarters of 2001, respectively, related
	to expiring unfavorable supply contracts acquired with the
	Sprague paperboard mill. All of these items are related to the
	paperboard segment and are reflected in the segments
	operating income.



| |     |                                                                                                                                                                                            
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (B) | Results include first quarter 2001 charges to
	operations of $2,636,000 related to the consolidation of the
	operations of the Salt Lake City, Utah carton plant into the
	Denver, Colorado

9



---



##### Table of Contents



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


PART I, ITEM 1.




| |  |                                                                                                                                                      
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------
| |  | carton plant. These costs were related to the
	carton and custom packaging segment and are reflected in the
	segments operating income (See Note 7).



|         |                    
|-------- | -------------------
|Note  7. | Restructuring Costs



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In February 2000, the Company initiated a plan to
	close its paperboard mill located in Baltimore, Maryland and
	recorded a charge to operations of approximately $6,913,000. The
	plan to close the mill was adopted in conjunction with the
	Companys ongoing efforts to increase manufacturing
	efficiency and reduce costs in its mill system. The $6,913,000
	charge included a $5,696,000 noncash asset impairment charge to
	write-down machinery and equipment to net realizable value. The
	charge also included a $604,000 accrual for severance and
	termination benefits for 21 salaried and 83 hourly employees
	terminated in connection with this plan and a $613,000 accrual
	for other exit costs. All exit costs were paid as of
	December 31, 2000. As of September 30, 2001, one
	employee remained to assist in marketing the land and building.
	The Company will complete the exit plan upon the sale of the
	property, which is anticipated to occur prior to
	December 31, 2001. The Company does not expect the mill
	closure to have a material impact on future operations.                                                                                                                                                                                                                                                                                                                                    
|
| | In September 2000, the Company initiated a plan
	to close its paperboard mill located in Camden, New Jersey and
	recorded a pretax charge to operations of approximately
	$8,564,000. The mill experienced a slowdown in gypsum facing
	paper shipments during the third quarter of 2000, and the shut
	down was precipitated by the refusal of the Companys
	largest gypsum facing paper customer to continue purchasing
	facing paper under a long-term supply agreement. The $8,564,000
	charge included a $7,038,000 noncash asset impairment write down
	of fixed assets to estimated net realizable value and a $558,000
	accrual for severance and termination benefits for 19 salaried
	and 46 hourly employees terminated in connection with this plan
	as well as a $968,000 accrual for other exit costs. As of
	September 30, 2001, one part-time employee remained to
	assist in the closing of the mill. The remaining severance and
	termination benefits and other exit costs will be paid by
	December 31, 2001. The Company is marketing the property
	and will complete the exit plan upon the sale of the property,
	which it anticipates will occur prior to December 31, 2002.
	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.

10



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##### Table of Contents



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


PART I, ITEM 1.




| |                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------
| | The following is a summary of Camden
	Paperboards restructuring activity from plan adoption to
	September 30, 2001:

|                                              |         |            |           |               |  |            |          |         |  |   |          |         |  |   |           |           | 
|--------------------------------------------- | ------- | ---------- | --------- | ------------- |  | ---------- | -------- | ------- |  | - | -------- | ------- |  | - | --------- | --------- | 
|                                              |         |            |           | Severance and |  |            |          |        
|                                              |         |            |           | Other         |  |            |          |        
|                                              |         | Asset      |           | Termination   |  | Other Exit |          |        
|                                              |         | Impairment |           | Benefits      |  | Costs      |          | Total  
|                                              |         |            |           |               |  |            |          |        
|2000 provision                                |         | $          | 7,038,000 |               |  | $          | 558,000  |         |  | $ | 968,000  |         |  | $ | 8,564,000 |          
|                                              | Noncash |            |           | 7,038,000     |  |            |          | 0       |  |   |          | 0       |  |   |           | 7,038,000 | 
|                                              |         |            |           |               |  |            |          |         |  |   |          |         |  |   |           |          
|                                              | Cash    |            |           | 0             |  |            |          | 558,000 |  |   |          | 968,000 |  |   |           | 1,526,000 | 
|2000 cash activity                            |         |            | 0         |               |  |            | (380,000 | )       |  |   | (346,000 | )       |  |   | (726,000  | )        
|                                              |         |            |           |               |  |            |          |         |  |   |          |         |  |   |           |          
|Balance as of December 31, 2000               |         |            | 0         |               |  |            | 178,000  |         |  |   | 622,000  |         |  |   | 800,000   |          
|First quarter 2001 cash activity (unaudited)  |         |            | 0         |               |  |            | (31,000  | )       |  |   | (266,000 | )       |  |   | (297,000  | )        
|                                              |         |            |           |               |  |            |          |         |  |   |          |         |  |   |           |          
|Balance as of March 31, 2001 (unaudited)      |         |            | 0         |               |  |            | 147,000  |         |  |   | 356,000  |         |  |   | 503,000   |          
|Second quarter 2001 cash activity (unaudited) |         |            | 0         |               |  |            | 0        |         |  |   | (114,000 | )       |  |   | (114,000  | )        
|                                              |         |            |           |               |  |            |          |         |  |   |          |         |  |   |           |          
|Balance as of June 30, 2001 (unaudited)       |         |            | 0         |               |  |            | 147,000  |         |  |   | 242,000  |         |  |   | 389,000   |          
|Third quarter 2001 cash activity (unaudited)  |         |            | 0         |               |  |            | (21,000  | )       |  |   | (146,000 | )       |  |   | (167,000  | )        
|                                              |         |            |           |               |  |            |          |         |  |   |          |         |  |   |           |          
|Balance as of September 30, 2001 (unaudited)  |         | $          | 0         |               |  | $          | 126,000  |         |  | $ | 96,000   |         |  | $ | 222,000   |          
|                                              |         |            |           |               |  |            |          |         |  |   |          |         |  |   |           |          



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In January 2001, the Company initiated a plan to
	close its paperboard mill located in Chicago, Illinois and
	recorded a pretax charge to operations of approximately
	$4,447,000. The mill was profitable through 1998, but declining
	sales resulted in losses of approximately $2,600,000 and
	$1,500,000 in 1999 and 2000, respectively. The $4,447,000 charge
	included a $2,237,000 noncash asset impairment write down of
	fixed assets to estimated net realizable value and a $1,221,000
	accrual for severance and termination benefits for 16 salaried
	and 59 hourly employees terminated in connection with this plan
	as well as a $989,000 accrual for other exit costs. As of
	September 30, 2001, one employee remains to assist in the
	closing of the mill. The remaining other exit costs will be paid
	by March 31, 2002. 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 March 31, 2002.
|
| | The following is a summary of Chicago
	Paperboards restructuring activity from plan adoption to
	September 30, 2001 (unaudited):                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

|                                  |         |            |           |               |  |            |            |           |  |   |          |         |  |   |            |           | 
|--------------------------------- | ------- | ---------- | --------- | ------------- |  | ---------- | ---------- | --------- |  | - | -------- | ------- |  | - | ---------- | --------- | 
|                                  |         |            |           | Severance and |  |            |            |          
|                                  |         |            |           | Other         |  |            |            |          
|                                  |         | Asset      |           | Termination   |  | Other Exit |            |          
|                                  |         | Impairment |           | Benefits      |  | Costs      |            | Total    
|                                  |         |            |           |               |  |            |            |          
|First quarter 2001 provision      |         | $          | 2,237,000 |               |  | $          | 1,221,000  |           |  | $ | 989,000  |         |  | $ | 4,447,000  |          
|                                  | Noncash |            |           | 2,237,000     |  |            |            | 0         |  |   |          | 0       |  |   |            | 2,237,000 | 
|                                  |         |            |           |               |  |            |            |           |  |   |          |         |  |   |            |          
|                                  | Cash    |            |           | 0             |  |            |            | 1,221,000 |  |   |          | 989,000 |  |   |            | 2,210,000 | 
|First quarter 2001 cash activity  |         |            | 0         |               |  |            | (1,172,000 | )         |  |   | (246,000 | )       |  |   | (1,418,000 | )        
|                                  |         |            |           |               |  |            |            |           |  |   |          |         |  |   |            |          
|Balance as of March 31, 2001      |         |            | 0         |               |  |            | 49,000     |           |  |   | 743,000  |         |  |   | 792,000    |          
|Second quarter 2001 cash activity |         |            | 0         |               |  |            | (49,000    | )         |  |   | (208,000 | )       |  |   | (257,000   | )        
|                                  |         |            |           |               |  |            |            |           |  |   |          |         |  |   |            |          
|Balance as of June 30, 2001       |         |            | 0         |               |  |            | 0          |           |  |   | 535,000  |         |  |   | 535,000    |          
|Third quarter 2001 cash activity  |         |            | 0         |               |  |            | 0          |           |  |   | (58,000  | )       |  |   | (58,000    | )        
|                                  |         |            |           |               |  |            |            |           |  |   |          |         |  |   |            |          
|Balance as of September 30, 2001  |         | $          | 0         |               |  | $          | 0          |           |  | $ | 477,000  |         |  | $ | 477,000    |          
|                                  |         |            |           |               |  |            |            |           |  |   |          |         |  |   |            |          



| |                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In March 2001, the Company initiated a plan to
	consolidate the operations of the Salt Lake City, Utah carton
	plant into the Denver, Colorado carton plant and recorded a
	pretax charge to operations of approximately $2,636,000. The
	$2,636,000 charge included a $1,750,000 noncash asset impair-

11



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##### Table of Contents



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


PART I, ITEM 1.




| |                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | ment 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 September 30, 2001, one
	employee remained to assist in the closing of the plant. The
	remaining other exit costs will be paid by December 31,
	2001.
|
| | The following is a summary of Salt Lake City
	Cartons restructuring activity from plan adoption to
	September 30, 2001 (unaudited):                                                                                                                                                                                                                                                                                              

|                                  |         |            |           |               |  |            |          |         |  |   |          |         |  |   |           |           | 
|--------------------------------- | ------- | ---------- | --------- | ------------- |  | ---------- | -------- | ------- |  | - | -------- | ------- |  | - | --------- | --------- | 
|                                  |         |            |           | Severance and |  |            |          |        
|                                  |         |            |           | Other         |  |            |          |        
|                                  |         | Asset      |           | Termination   |  | Other Exit |          |        
|                                  |         | Impairment |           | Benefits      |  | Costs      |          | Total  
|                                  |         |            |           |               |  |            |          |        
|First quarter 2001 provision      |         | $          | 1,750,000 |               |  | $          | 464,000  |         |  | $ | 422,000  |         |  | $ | 2,636,000 |          
|                                  | Noncash |            |           | 1,750,000     |  |            |          | 0       |  |   |          | 0       |  |   |           | 1,750,000 | 
|                                  |         |            |           |               |  |            |          |         |  |   |          |         |  |   |           |          
|                                  | Cash    |            |           | 0             |  |            |          | 464,000 |  |   |          | 422,000 |  |   |           | 886,000   | 
|First quarter 2001 cash activity  |         |            | 0         |               |  |            | (170,000 | )       |  |   | (134,000 | )       |  |   | (304,000  | )        
|                                  |         |            |           |               |  |            |          |         |  |   |          |         |  |   |           |          
|Balance as of March 31, 2001      |         |            | 0         |               |  |            | 294,000  |         |  |   | 288,000  |         |  |   | 582,000   |          
|Second quarter 2001 cash activity |         |            | 0         |               |  |            | (288,000 | )       |  |   | (120,000 | )       |  |   | (408,000  | )        
|                                  |         |            |           |               |  |            |          |         |  |   |          |         |  |   |           |          
|Balance as of June 30, 2001       |         |            | 0         |               |  |            | 6,000    |         |  |   | 168,000  |         |  |   | 174,000   |          
|Third quarter 2001 cash activity  |         |            | 0         |               |  |            | (6,000   | )       |  |   | (120,000 | )       |  |   | (126,000  | )        
|                                  |         |            |           |               |  |            |          |         |  |   |          |         |  |   |           |          
|Balance as of September 30, 2001  |         | $          | 0         |               |  | $          | 0        |         |  | $ | 48,000   |         |  | $ | 48,000    |          
|                                  |         |            |           |               |  |            |          |         |  |   |          |         |  |   |           |          

Note 
8.     Litigation



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On May 9, 2001, the Company and a
	significant customer jointly announced a tentative settlement
	regarding the litigation over the terms of the long-term supply
	contract the parties entered in April 1996. The pending
	litigation relating to that contract has been previously
	reported in the Companys annual report on Form 10-K
	for the year ended December 31, 2000 and in the previous
	quarterly reports on Form 10-Q. Under the terms of the
	tentative settlement, the Company and a wholly owned subsidiary
	of the customer have entered into a new ten-year agreement under
	which the Company would supply a minimum of 50,000 tons of
	gypsum facing paper per year to the customer. Implementation of
	the new agreement, and settlement of the pending litigation over
	the 1996 agreement, is subject to satisfactory completion of a
	transition period. The transition period initially was to expire
	no later than August 6, 2001. As described below, however,
	the parties have recently agreed to extend the outside
	termination date of the transition period to December 31,
	2001. During the transition period, the Company is supplying the
	customer with such facing paper as it requests to enable it to
	evaluate the papers compliance with its specifications for
	quality and end-use suitability. Once the customer is satisfied
	with the paper, it is to notify the Company that the transition
	period has ended, and at that time the term of the new
	agreement, including the annual minimum quantity requirement
	described above, is to commence. If and when the new agreement
	commences, the parties will dismiss all pending litigation
	relating to the 1996 agreement. Under the terms of the tentative
	settlement, either party may terminate its obligations under the
	new agreement during the transition period without cause and
	without liability to the other party.
|
| | During the second quarter of 2001, ongoing
	discussions with the customer led to a mutual agreement to
	extend the outside expiration date of the transition period to
	December 31, 2001. The extension was the result of the
	customers recent curtailment of a significant portion of
	its gypsum wallboard manufacturing capacity because of adverse
	market conditions. This curtailment, along with the
	customers stated reservations about committing to the
	minimum tonnage requirement                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

12



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##### Table of Contents



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


PART I, ITEM 1.




| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | under the new agreement in light of current
	market conditions, led the parties to agree to the extension of
	the transition period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | Although the Company believes that it will be
	able to satisfy the customers product requirements, the
	Company can give no assurance that the new agreement will be
	implemented in accordance with its terms or that the pending
	litigation will be dismissed. Specifically, the Company cannot
	predict whether the customers recent curtailment of gypsum
	wallboard manufacturing capacity will further affect whether,
	when or how a new agreement is implemented, including whether
	such curtailment will result in modifications to the ultimate
	volume requirements under any new contract that may be
	implemented. Accordingly, the Company believes that its
	operating results and financial condition will continue to be
	materially and adversely affected by the loss of contract volume
	from the customer unless and until a new supply agreement is
	implemented with significant volume requirements, and until a
	new supply agreement has been effective long enough to generate
	a substantial volume of required purchases from the customer.
|
| | The Company is involved in certain other
	litigation arising in the ordinary course of business. In the
	opinion of management, the ultimate resolution of these matters
	will not have a material adverse effect on the Companys
	financial condition or results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

Note 
9.     Subsequent
Events



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | In October 2001, the Company unwound its
	$185.0 million interest rate swap agreement on its 9 
	7/8% senior subordinated notes and received $9.1 million from
	the bank counter-party. Simultaneously, the Company executed a
	new swap agreement with a fixed margin 85 basis points higher
	than the original swap agreement. The new swap agreement is the
	same notional amount, has the same terms and covers the same
	notes as the original agreement. The $9.1 million gain will
	be accreted to interest expense over the life of the notes and
	will partially offset the increase in interest expense. The
	Company executed these transactions in order to take advantage
	of the current market conditions.

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##### Table of Contents



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

PART I, ITEM 2.





CARAUSTAR INDUSTRIES, INC.

MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION

AND RESULTS OF OPERATIONS


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

General

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

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

Recovered fiber, which is derived from recycled
paper stock, is our most significant raw material. Historically,
the cost of recovered fiber has fluctuated significantly due to
market and industry conditions. For example, our average
recovered fiber cost per ton of paperboard produced increased
from $43 per ton in 1993 to $144 per ton in 1995, an increase of
235%, before dropping to $66 per ton in 1996. Same-mill
recovered fiber cost per ton averaged $104 during 2000 and $65
during the first nine months 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. Energy costs in the first
nine months of 2001 averaged $60 per ton compared to $49 per ton
in the same period last year. Until recently, our business had
not been significantly affected by fluctuations in energy costs,
and we historically have not passed increases in energy costs
through to our customers. Consequently, we were not able to pass
through to our customers all of the energy cost increases we
incurred in 2000 and the first nine months of 2001. As a result,
our operating margins were adversely affected. We continue to
evaluate our energy costs and consider ways to factor energy
costs into our pricing. However, we cannot assure you that our
operating margins and results of operations will not continue to
be adversely affected by rising energy costs.

14



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##### Table of Contents



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


PART I, ITEM 2.


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

We are a holding company that operates our
business through 19 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 September 30, 2001 and
2000

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

|                                                           |                                                        |                                |                                           |       |      |        |  |        |      |       |  |       |      |      |   |       |       |       |  
|---------------------------------------------------------- | ------------------------------------------------------ | ------------------------------ | ----------------------------------------- | ----- | ---- | ------ |  | ------ | ---- | ----- |  | ----- | ---- | ---- | - | ----- | ----- | ----- | -
|                                                           |                                                        |                                |                                           |       |      |       
|                                                           |                                                        | Three Months                   |                                           |       |      |       
|                                                           |                                                        | Ended                          |                                           |       |      |       
|                                                           |                                                        | September 30,                  |                                           |       |      |       
|                                                           |                                                        |                                |                                           |       |      | %     
|                                                           |                                                        | 2001                           |                                           | 2000  |      | Change |  | Change
|                                                           |                                                        |                                |                                           |       |      |        |  |       
|Production source of paperboard tons sold (in
	thousands): |                                                        |                                |                                           |       |      |        |  |        |      |       |  |       |      |      |   |      
|                                                           | From paperboard mill production                        |                                |                                           | 231.4 |      |        |  | 242.0  |      |       |  | (10.6 | )    |      |   | -4.4  | %    
|                                                           | Outside purchases                                      |                                |                                           | 30.9  |      |        |  | 28.9   |      |       |  | 2.0   |      |      |   | 6.9   | %    
|                                                           |                                                        |                                |                                           |       |      |        |  |        |      |       |  |       |      |      |   |      
|                                                           |                                                        |                                | Total paperboard tonnage                  |       |      | 262.3  |  |        |      | 270.9 |  |       |      | (8.6 | ) |       |       | -3.2  | %
|                                                           |                                                        |                                |                                           |       |      |        |  |        |      |       |  |       |      |      |   |      
|                                                           | Tons sold by market (in thousands):                    |                                |                                           |       |      |        |  |        |      |       |  |       |      |      |   |       |      
|                                                           | Tube, core and composite container volume              |                                |                                           |       |      |        |  |        |      |       |  |       |      |      |   |       |      
|                                                           |                                                        | Paperboard (internal)          |                                           |       | 47.2 |        |  |        | 52.6 |       |  |       | (5.4 | )    |   |       | -10.3 | %    
|                                                           |                                                        | Outside purchases              |                                           |       | 5.9  |        |  |        | 6.3  |       |  |       | (0.4 | )    |   |       | -6.3  | %    
|                                                           |                                                        |                                |                                           |       |      |        |  |        |      |       |  |       |      |      |   |      
|                                                           | Tube, core and composite container converted
	products |                                |                                           | 53.1  |      |        |  | 58.9   |      |       |  | (5.8  | )    |      |   | -9.8  | %    
|                                                           | Unconverted paperboard                                 |                                |                                           | 8.5   |      |        |  | 11.1   |      |       |  | (2.6  | )    |      |   | -23.4 | %    
|                                                           |                                                        |                                |                                           |       |      |        |  |        |      |       |  |       |      |      |   |      
|                                                           |                                                        |                                | Tube, core and composite container volume |       |      | 61.6   |  |        |      | 70.0  |  |       |      | (8.4 | ) |       |       | -12.0 | %
|                                                           | Folding carton volume                                  |                                |                                           |       |      |        |  |        |      |       |  |       |      |      |   |       |      
|                                                           |                                                        | Paperboard (internal)          |                                           |       | 23.9 |        |  |        | 15.6 |       |  |       | 8.3  |      |   |       | 53.2  | %    
|                                                           |                                                        | Outside purchases              |                                           |       | 23.9 |        |  |        | 20.4 |       |  |       | 3.5  |      |   |       | 17.2  | %    
|                                                           |                                                        |                                |                                           |       |      |        |  |        |      |       |  |       |      |      |   |      
|                                                           | Folding carton converted products                      |                                |                                           | 47.8  |      |        |  | 36.0   |      |       |  | 11.8  |      |      |   | 32.8  | %    
|                                                           | Unconverted paperboard                                 |                                |                                           | 60.0  |      |        |  | 67.5   |      |       |  | (7.5  | )    |      |   | -11.1 | %    
|                                                           |                                                        |                                |                                           |       |      |        |  |        |      |       |  |       |      |      |   |      
|                                                           |                                                        |                                | Folding carton volume                     |       |      | 107.8  |  |        |      | 103.5 |  |       |      | 4.3  |   |       |       | 4.2   | %
|                                                           | Gypsum wallboard facing paper volume                   |                                |                                           |       |      |        |  |        |      |       |  |       |      |      |   |       |      
|                                                           |                                                        | Unconverted paperboard         |                                           |       | 42.8 |        |  |        | 44.3 |       |  |       | (1.5 | )    |   |       | -3.4  | %    
|                                                           |                                                        | Outside purchases (for resale) |                                           |       | 0.0  |        |  |        | 0.0  |       |  |       | 0.0  |      |   |       | 0.0   | %    
|                                                           |                                                        |                                |                                           |       |      |        |  |        |      |       |  |       |      |      |   |      
|                                                           |                                                        |                                | Gypsum wallboard facing paper volume      |       |      | 42.8   |  |        |      | 44.3  |  |       |      | (1.5 | ) |       |       | -3.4  | %
|                                                           | Other specialty products volume                        |                                |                                           |       |      |        |  |        |      |       |  |       |      |      |   |       |      
|                                                           |                                                        | Paperboard (internal)          |                                           |       | 16.6 |        |  |        | 22.9 |       |  |       | (6.3 | )    |   |       | -27.5 | %    
|                                                           |                                                        | Outside purchases              |                                           |       | 1.1  |        |  |        | 2.2  |       |  |       | (1.1 | )    |   |       | -50.0 | %    
|                                                           |                                                        |                                |                                           |       |      |        |  |        |      |       |  |       |      |      |   |      
|                                                           | Other specialty converted products                     |                                |                                           | 17.7  |      |        |  | 25.1   |      |       |  | (7.4  | )    |      |   | -29.5 | %    
|                                                           | Unconverted paperboard                                 |                                |                                           | 32.4  |      |        |  | 28.0   |      |       |  | 4.4   |      |      |   | 15.7  | %    
|                                                           |                                                        |                                |                                           |       |      |        |  |        |      |       |  |       |      |      |   |      
|                                                           |                                                        |                                | Other specialty products volume           |       |      | 50.1   |  |        |      | 53.1  |  |       |      | (3.0 | ) |       |       | -5.6  | %
|                                                           |                                                        |                                |                                           |       |      |        |  |        |      |       |  |       |      |      |   |      
|                                                           |                                                        |                                | Total paperboard tonnage                  |       |      | 262.3  |  |        |      | 270.9 |  |       |      | (8.6 | ) |       |       | -3.2  | %
|                                                           |                                                        |                                |                                           |       |      |        |  |        |      |       |  |       |      |      |   |      

15



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##### Table of Contents



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


PART I, ITEM 2.


|                             |                  |                                        |                                    |      |     |        |  |        |     |     |  |   |     |     |   |  |       |      |  
|---------------------------- | ---------------- | -------------------------------------- | ---------------------------------- | ---- | --- | ------ |  | ------ | --- | --- |  | - | --- | --- | - |  | ----- | ---- | -
|                             |                  |                                        |                                    |      |     |       
|                             |                  | Three Months                           |                                    |      |     |       
|                             |                  | Ended                                  |                                    |      |     |       
|                             |                  | September 30,                          |                                    |      |     |       
|                             |                  |                                        |                                    |      |     | %     
|                             |                  | 2001                                   |                                    | 2000 |     | Change |  | Change
|                             |                  |                                        |                                    |      |     |        |  |       
|Gross paper margins ($/ton): |                  |                                        |                                    |      |     |        |  |        |     |     |  |   |     |     |   | 
|                             | Paperboard mill: |                                        |                                    |      |     |        |  |        |     |     |  |   |     |     |   |  |      
|                             |                  | Average same-mill net selling price    |                                    | $    | 411 |        |  | $      | 455 |     |  | $ | (44 | )   |   |  | -9.7  | %   
|                             |                  | Average same-mill recovered fiber cost |                                    |      | 63  |        |  |        | 101 |     |  |   | (38 | )   |   |  | -37.6 | %   
|                             |                  |                                        |                                    |      |     |        |  |        |     |     |  |   |     |     |   | 
|                             |                  |                                        | Paperboard mill gross paper margin |      | $   | 348    |  |        | $   | 354 |  |   | $   | (6  | ) |  |       | -1.7 | %
|                             |                  |                                        |                                    |      |     |        |  |        |     |     |  |   |     |     |   | 
|                             | Tube and core:   |                                        |                                    |      |     |        |  |        |     |     |  |   |     |     |   |  |      
|                             |                  | Average net selling price              |                                    | $    | 778 |        |  | $      | 797 |     |  | $ | (19 | )   |   |  | -2.4  | %   
|                             |                  | Average paperboard cost                |                                    |      | 446 |        |  |        | 455 |     |  |   | (9  | )   |   |  | -2.0  | %   
|                             |                  |                                        |                                    |      |     |        |  |        |     |     |  |   |     |     |   | 
|                             |                  |                                        | Tube and core gross paper margin   |      | $   | 332    |  |        | $   | 342 |  |   | $   | (10 | ) |  |       | -2.9 | %
|                             |                  |                                        |                                    |      |     |        |  |        |     |     |  |   |     |     |   | 

Net Sales.Our
consolidated net sales for the quarter ended September 30,
2001 decreased 6.7% to $221.0 million from
$236.7 million in the same quarter of 2000. Acquisitions
completed during 2000 accounted for $11.2 million of net
sales during the third quarter of 2001. These acquisitions
included Arrow Paper Products Company and Crane Carton Company,
LLC. These acquisitions were all accounted for using the
purchase method of accounting, and their results of operations
were included only from and after the date of the acquisition.
Excluding 2000 acquisitions, net sales decreased 11.4% during
the third quarter of 2001. This decrease was due to lower
selling prices and volume from the paperboard segment, partially
attributable to the dispute with Georgia-Pacific (see
Georgia-Pacific Litigation below), and lower selling
prices and volume from the tube, core and composite container
segment, partially offset by increased volume from the carton
and custom packaging segment.

Total paperboard tonnage for the quarter
decreased 3.2% to 262.3 thousand tons from 270.9 thousand tons
in the third quarter of 2000. Excluding 2000 acquisitions, total
paperboard tonnage decreased 5.9% to 255.0 thousand tons. This
decrease was primarily due to lower shipments of unconverted
paperboard to external customers combined with lower internal
conversion by our converting operations caused primarily by a
decline in industry demand. Excluding 2000 acquisitions, outside
purchases decreased 18.6% to 23.5 thousand tons compared to
prior year. Tons sold from paperboard mill production decreased
4.4% for the quarter to 231.4 thousand tons compared with 242.0
thousand tons in the third quarter of last year. Total tonnage
converted decreased 1.2% in the third quarter to 118.6 thousand
tons compared to 120.0 thousand tons last year, and decreased
8.8% from third quarter last year excluding 2000 acquisitions.
Excluding 2000 acquisitions, volumes in the tube, core and
composite container and the folding carton end-use markets
decreased 12.3% and 2.8%, respectively.

Gross Margin.Gross
margin for the third quarter of 2001 increased to 21.8% of net
sales from 20.2% in 2000. This margin increase was partially due
to the $1.6 million reduction in reserves related to
expiring unfavorable supply contracts at the Sprague paperboard
mill. Excluding this reduction in reserves, gross margin was
21.1% in the third quarter of 2001. The increase in gross margin
from the third quarter of 2000 was primarily due to improved
margins in the paperboard segment, partially offset by lower
margins in the tube, core and composite container and carton and
custom packaging segments. The improvement in the paperboard
segment was the result of cost-cutting efforts related to repair
and maintenance expenses, labor costs and chemical expenses.
These cost-cutting efforts were partially offset by higher
energy costs. The decrease in margins in the tube, core and
composite container and the carton and custom packaging segments
was the result of lower selling prices due to competitive price
pressures and a decline in demand.

Operating Income.Operating income for the third quarter
of 2001 was $11.3 million, an increase of $6.5 million
from the third quarter of 2000 operating income of
$4.8 million. Operating income excluding the Sprague
reserve reduction and 2000 acquisitions was $9.1 million
for the third quarter of 2001, a decrease of $4.3 million,
or 31.9%, from operating income of $13.4 million in the
prior year, excluding restructuring

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##### Table of Contents



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


PART I, ITEM 2.


charges. This decline was due primarily to lower
margins and volume from the tube, core and composite container
segment and lower margins in the carton and custom packaging
segment. Selling, general and administrative expenses increased
by $2.4 million, or 6.9%, in the third quarter of 2001
compared to 2000. This increase was primarily due to 2000
acquisitions.

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. Spragues third quarter 2001
operating loss was $3.4 million (excluding the
$1.6 million pretax reduction in reserves noted above)
compared with a $5.1 million operating loss in the third
quarter of 2000. The losses were attributable to a combination
of unfavorable fixed price contracts, low capacity utilization
and higher fiber costs that we were unable to pass through to
our customers. Our primary objectives at Sprague have been to
improve quality, reduce costs and increase sales volume. Based
on improvements we have made since the acquisition, we now
believe Sprague is competitive in terms of cost and quality, and
we expect Spragues financial performance to improve with
increases in sale volume. Although we expect losses at Sprague
to decline, in light of current difficult industry conditions,
we do not expect Sprague to become profitable for the balance of
2001 and the first six months of 2002.

Other Income (Expense).Interest expense increased 14.7% to
$10.4 million for the third quarter of 2001 from
$9.1 million in 2000. This increase was due to higher
outstanding debt balances at higher interest rates, partially
offset by savings from interest rate swap agreements which
effectively converted portions of our fixed rate notes into
variable rate obligations. See Liquidity and Capital
Resources for additional information regarding our debt,
interest expense and interest rate swap agreements.

Equity in income from unconsolidated affiliates
for the third quarter of 2001 was $936 thousand, an increase of
$120 thousand from $816 thousand in the third quarter of 2000.
This increase was primarily due to improved operating results
for Premier Boxboard Limited LLC, our paper mill joint venture,
which began operations in the third quarter of 2000, partially
offset by lower operating income at Standard Gypsum, L.P., our
gypsum wallboard joint venture. 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 third quarter of 2001
included the Sprague reserve reduction relating to expiring
unfavorable supply contracts at the Sprague paperboard mill. The
reserve reduction was $1.6 million ($1.0 million, net of
tax provision, or $0.03 per common share on a diluted basis).
Excluding the Sprague reserve reduction, net loss for the third
quarter of 2001 was $69 thousand, or $0.00 per common share on a
diluted basis compared to net income before restructuring
charges of $2.8 million, or $0.11 net income per common
share on a diluted basis for the same period last year.
Including the Sprague reserve reduction and restructuring
charges, net income was $955 thousand, or $0.03 per common share
on a diluted basis, in the third quarter of 2001 compared to a
net loss of $2.5 million, or $0.10 loss per common share on
a diluted basis, in the third quarter of 2000.

Events of September 11,
2001.The horrific terrorist attacks
against the United States and their aftermath did not, during
the third quarter of 2001, and are not currently expected to,
have a direct material effect on our operations. However, to the
extent that those events, other terrorist activities, the U.S.
military response and the resulting uncertainties adversely
affect the United States economy in general, sectors on which we
depend in particular, and the U.S. capital markets, our results
of operations, financial condition and stock price could be
adversely affected.

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##### Table of Contents



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


PART I, ITEM 2.


Nine Months Ended September 30, 2001 and
2000

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

|                                                           |                                                        |                                        |                                    |                                           |       |        |       |        |       |     |       |        |       |    |       |       |        |      |       |  
|---------------------------------------------------------- | ------------------------------------------------------ | -------------------------------------- | ---------------------------------- | ----------------------------------------- | ----- | ------ | ----- | ------ | ----- | --- | ----- | ------ | ----- | -- | ----- | ----- | ------ | ---- | ----- | -
|                                                           |                                                        |                                        |                                    |                                           |       |       
|                                                           |                                                        | Nine Months                            |                                    |                                           |       |       
|                                                           |                                                        | Ended                                  |                                    |                                           |       |       
|                                                           |                                                        | September 30,                          |                                    |                                           |       |       
|                                                           |                                                        |                                        |                                    |                                           |       | %     
|                                                           |                                                        | 2001                                   |                                    | 2000                                      |       | Change |       | Change
|                                                           |                                                        |                                        |                                    |                                           |       |        |       |       
|Production source of paperboard tons sold (in
	thousands): |                                                        |                                        |                                    |                                           |       |        |       |        |       |     |       |        |       |    |       |      
|                                                           | From paperboard mill production                        |                                        |                                    | 673.0                                     |       |        |       | 776.9  |       |     |       | (103.9 | )     |    |       | -13.4 | %     
|                                                           | Outside purchases                                      |                                        |                                    | 95.3                                      |       |        |       | 89.8   |       |     |       | 5.5    |       |    |       | 6.1   | %     
|                                                           |                                                        |                                        |                                    |                                           |       |        |       |        |       |     |       |        |       |    |       |      
|                                                           |                                                        |                                        |                                    | Total paperboard tonnage                  |       |        | 768.3 |        |       |     | 866.7 |        |       |    | (98.4 | )     |        |      | -11.4 | %
|                                                           |                                                        |                                        |                                    |                                           |       |        |       |        |       |     |       |        |       |    |       |      
|                                                           | Tons sold by market (in thousands):                    |                                        |                                    |                                           |       |        |       |        |       |     |       |        |       |    |       |       |       
|                                                           | Tube, core and composite container volume              |                                        |                                    |                                           |       |        |       |        |       |     |       |        |       |    |       |       |       
|                                                           |                                                        | Paperboard (internal)                  |                                    |                                           | 141.9 |        |       |        | 155.8 |     |       |        | (13.9 | )  |       |       | -8.9   | %   
|                                                           |                                                        | Outside purchases                      |                                    |                                           | 19.3  |        |       |        | 18.8  |     |       |        | 0.5   |    |       |       | 2.7    | %   
|                                                           |                                                        |                                        |                                    |                                           |       |        |       |        |       |     |       |        |       |    |       |      
|                                                           | Tube, core and composite container converted
	products |                                        |                                    | 161.2                                     |       |        |       | 174.6  |       |     |       | (13.4  | )     |    |       | -7.7  | %     
|                                                           | Unconverted paperboard                                 |                                        |                                    | 24.7                                      |       |        |       | 29.4   |       |     |       | (4.7   | )     |    |       | -16.0 | %     
|                                                           |                                                        |                                        |                                    |                                           |       |        |       |        |       |     |       |        |       |    |       |      
|                                                           |                                                        |                                        |                                    | Tube, core and composite container volume |       |        | 185.9 |        |       |     | 204.0 |        |       |    | (18.1 | )     |        |      | -8.9  | %
|                                                           | Folding carton volume                                  |                                        |                                    |                                           |       |        |       |        |       |     |       |        |       |    |       |       |       
|                                                           |                                                        | Paperboard (internal)                  |                                    |                                           | 62.7  |        |       |        | 51.4  |     |       |        | 11.3  |    |       |       | 22.0   | %   
|                                                           |                                                        | Outside purchases                      |                                    |                                           | 71.9  |        |       |        | 64.4  |     |       |        | 7.5   |    |       |       | 11.6   | %   
|                                                           |                                                        |                                        |                                    |                                           |       |        |       |        |       |     |       |        |       |    |       |      
|                                                           | Folding carton converted products                      |                                        |                                    | 134.6                                     |       |        |       | 115.8  |       |     |       | 18.8   |       |    |       | 16.2  | %     
|                                                           | Unconverted paperboard                                 |                                        |                                    | 170.8                                     |       |        |       | 209.2  |       |     |       | (38.4  | )     |    |       | -18.4 | %     
|                                                           |                                                        |                                        |                                    |                                           |       |        |       |        |       |     |       |        |       |    |       |      
|                                                           |                                                        |                                        |                                    | Folding carton volume                     |       |        | 305.4 |        |       |     | 325.0 |        |       |    | (19.6 | )     |        |      | -6.0  | %
|                                                           | Gypsum wallboard facing paper volume                   |                                        |                                    |                                           |       |        |       |        |       |     |       |        |       |    |       |       |       
|                                                           |                                                        | Unconverted paperboard                 |                                    |                                           | 117.7 |        |       |        | 155.9 |     |       |        | (38.2 | )  |       |       | -24.5  | %   
|                                                           |                                                        | Outside purchases (for resale)         |                                    |                                           | 0.0   |        |       |        | 0.5   |     |       |        | (0.5  | )  |       |       | -100.0 | %   
|                                                           |                                                        |                                        |                                    |                                           |       |        |       |        |       |     |       |        |       |    |       |      
|                                                           |                                                        |                                        |                                    | Gypsum wallboard facing paper volume      |       |        | 117.7 |        |       |     | 156.4 |        |       |    | (38.7 | )     |        |      | -24.7 | %
|                                                           | Other specialty products volume                        |                                        |                                    |                                           |       |        |       |        |       |     |       |        |       |    |       |       |       
|                                                           |                                                        | Paperboard (internal)                  |                                    |                                           | 52.6  |        |       |        | 90.6  |     |       |        | (38.0 | )  |       |       | -41.9  | %   
|                                                           |                                                        | Outside purchases                      |                                    |                                           | 4.1   |        |       |        | 6.1   |     |       |        | (2.0  | )  |       |       | -32.8  | %   
|                                                           |                                                        |                                        |                                    |                                           |       |        |       |        |       |     |       |        |       |    |       |      
|                                                           | Other specialty converted products                     |                                        |                                    | 56.7                                      |       |        |       | 96.7   |       |     |       | (40.0  | )     |    |       | -41.4 | %     
|                                                           | Unconverted paperboard                                 |                                        |                                    | 102.6                                     |       |        |       | 84.6   |       |     |       | 18.0   |       |    |       | 21.3  | %     
|                                                           |                                                        |                                        |                                    |                                           |       |        |       |        |       |     |       |        |       |    |       |      
|                                                           |                                                        |                                        |                                    | Other specialty products volume           |       |        | 159.3 |        |       |     | 181.3 |        |       |    | (22.0 | )     |        |      | -12.1 | %
|                                                           |                                                        |                                        |                                    |                                           |       |        |       |        |       |     |       |        |       |    |       |      
|                                                           |                                                        |                                        |                                    | Total paperboard tonnage                  |       |        | 768.3 |        |       |     | 866.7 |        |       |    | (98.4 | )     |        |      | -11.4 | %
|                                                           |                                                        |                                        |                                    |                                           |       |        |       |        |       |     |       |        |       |    |       |      
|Gross paper margins ($/ton):                               |                                                        |                                        |                                    |                                           |       |        |       |        |       |     |       |        |       |    |       |      
|                                                           | Paperboard mill:                                       |                                        |                                    |                                           |       |        |       |        |       |     |       |        |       |    |       |       |       
|                                                           |                                                        | Average same-mill net selling price    |                                    | $                                         | 416   |        |       | $      | 448   |     |       | $      | (32   | )  |       |       | -7.1   | %   
|                                                           |                                                        | Average same-mill recovered fiber cost |                                    |                                           | 65    |        |       |        | 113   |     |       |        | (48   | )  |       |       | -42.5  | %   
|                                                           |                                                        |                                        |                                    |                                           |       |        |       |        |       |     |       |        |       |    |       |      
|                                                           |                                                        |                                        | Paperboard mill gross paper margin |                                           | $     | 351    |       |        | $     | 335 |       |        | $     | 16 |       |       |        | 4.8  | %    
|                                                           |                                                        |                                        |                                    |                                           |       |        |       |        |       |     |       |        |       |    |       |      
|                                                           | Tube and core:                                         |                                        |                                    |                                           |       |        |       |        |       |     |       |        |       |    |       |       |       
|                                                           |                                                        | Average net selling price              |                                    | $                                         | 791   |        |       | $      | 781   |     |       | $      | 10    |    |       |       | 1.3    | %   
|                                                           |                                                        | Average paperboard cost                |                                    |                                           | 450   |        |       |        | 437   |     |       |        | 13    |    |       |       | 3.0    | %   
|                                                           |                                                        |                                        |                                    |                                           |       |        |       |        |       |     |       |        |       |    |       |      
|                                                           |                                                        |                                        | Tube and core gross paper margin   |                                           | $     | 341    |       |        | $     | 344 |       |        | $     | (3 | )     |       |        | -0.9 | %    
|                                                           |                                                        |                                        |                                    |                                           |       |        |       |        |       |     |       |        |       |    |       |      

18



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##### Table of Contents



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


PART I, ITEM 2.


Net Sales.Our
consolidated net sales for the nine months ended
September 30, 2001 decreased 11.2% to $657.4 million
from $740.4 million in the same period last year.
Acquisitions completed during 2000 accounted for
$33.3 million of net sales during the first nine months of
2001. These acquisitions included MilPak, Inc., Arrow Paper
Products Company and Crane Carton Company, LLC. These
acquisitions were all accounted for using the purchase method of
accounting, and their results of operations were included only
from and after the date of the acquisition. Excluding 2000
acquisitions, net sales decreased 15.7% during the first nine
months of 2001. This decrease was due to lower selling prices
and volume from the paperboard segment, partially attributable
to the dispute with Georgia-Pacific, lower volume from the tube,
core and composite container segment and lower selling prices
from the carton and custom packaging segment. The decline in
volume from the tube, core and composite container segment was
primarily attributable to the downturn in the textile industry.

Total paperboard tonnage for the first nine
months of 2001 decreased 11.4% to 768.3 thousand tons from 866.7
thousand tons. Excluding 2000 acquisitions, total paperboard
tonnage decreased 13.8% to 747.1 thousand tons. This decrease
was primarily due to lower shipments of unconverted paperboard
to external customers combined with lower internal conversion by
our converting operations. The decrease in volume was due
primarily to a decline in industry demand and partially
attributable to the contract dispute with Georgia-Pacific.
Excluding 2000 acquisitions, outside purchases decreased 17.6%
to 74.0 thousand tons compared to prior year. Tons sold from
paperboard mill production decreased 13.4% for the first nine
months of 2001 to 673.0 thousand tons compared with 776.9
thousand tons last year. Total tonnage converted decreased 9.0%
for the first nine months of 2001 to 352.5 thousand tons
compared to 387.1 thousand tons last year and decreased 15.2%
excluding 2000 acquisitions. Excluding 2000 acquisitions,
volumes in the folding carton and the tube, core and composite
container end-use markets decreased 12.3% and 9.3%, respectively.

Gross Margin.Gross
margin for the first nine months of 2001 decreased to 21.4% of
net sales from 21.5% in 2000. Excluding the $5.5 million
reduction in reserves related to expiring unfavorable supply
contracts at the Sprague paperboard mill, gross margin was 20.5%
in the first nine months of 2001. This margin decrease was due
primarily to lower margins in the tube, core and composite
container and the carton and custom packaging segments,
partially offset by improved margins in the paperboard segment.
The lower margins in the carton and custom packaging and the
tube, core and composite container segments were the result of
competitive pressures. The improved margins in the paperboard
segment were the result of cost-cutting efforts to reduce repair
and maintenance expenses, labor costs and chemical expenses,
partially offset by higher energy costs.

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 nine months of 2001,
we paid $1.2 million in severance and termination benefits
and $512 thousand in other exit costs. As of September 30,
2001, one employee remained to assist in the closing of the
mill. The remaining other exit costs will be paid by
March 31, 2002. We are marketing the property and will
complete the exit plan upon the sale of the property, which we
anticipate will occur prior to March 31, 2002.

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 nine months of 2001, we paid $464 thousand in
severance and termination benefits and $374

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


PART I, ITEM 2.


thousand in other exit costs. As of
September 30, 2001, one employee remained to assist in the
closing of the plant. The remaining other exit costs will be
paid by December 31, 2001.

Operating Income.Operating income for the first nine
months of 2001 was $23.6 million, a decrease of
$10.2 million from the year-earlier period. Operating
income excluding the Sprague reserve reduction, restructuring
charges and 2000 acquisitions was $23.7 million for the
first nine months of 2001, a decrease of $25.7 million, or
52.1%, from operating income of $49.3 million in the prior
year, excluding restructuring charges. This decline was due
primarily to lower volume, partially attributable to the dispute
with Georgia-Pacific, 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 were essentially
unchanged in the first nine months of 2001 compared to the same
period last year, but decreased $900 thousand, or 0.8%, on a
comparable facility basis.

Other Income (Expense).Interest expense increased 26.3% to
$31.2 million for the first nine months of 2001 from
$24.7 million in 2000. This increase was due to higher
outstanding debt balances at higher interest rates, partially
offset by savings from interest rate swap agreements which
effectively converted portions of our fixed rate notes into
variable rate obligations. See Liquidity and Capital
Resources for additional information regarding our debt,
interest expense and interest rate swap agreements.

Equity in loss from unconsolidated affiliates for
the first nine months of 2001 was $1.8 million, down
$9.0 million from equity income of $7.2 million in the
first nine months of 2000. This decrease was primarily due to
lower operating results for Standard Gypsum, L.P., our gypsum
wallboard joint venture, partially offset by improved results
from Premier Boxboard Limited LLC, our paper 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 nine months of 2001
included restructuring charges recorded in conjunction with the
closing of our Chicago, Illinois paperboard mill and the
consolidation of operations of our Salt Lake City, Utah carton
plant into our Denver, Colorado carton plant. These charges were
$7.0 million in the aggregate ($4.4 million, net of
tax benefit, or $0.16 per common share on a diluted basis). Also
included in the results for the first nine months of 2001 was an
extraordinary loss of $4.3 million related to the early
extinguishment of debt ($2.7 million, net of tax benefit,
or $0.10 per common share on a diluted basis). Partially
offsetting these charges was the $5.5 million reduction in
reserves related to expiring unfavorable supply contracts at the
Sprague paperboard mill ($3.4 million, net of tax
provision, or $0.13 per common share on a diluted basis).
Excluding the extraordinary loss, restructuring charges and the
Sprague reserve reduction, net loss for the first nine months of
2001 was $5.8 million, or $0.21 net loss per common share
on a diluted basis compared to net income before restructuring
costs of $18.8 million, or $0.73 per common share on a diluted
basis for the same period last year. Including the extraordinary
loss, restructuring charges and the Sprague reserve reduction,
net loss was $9.5 million for the first nine months of
2001, or $0.34 per common share on a diluted basis, compared
with net income of $9.1 million, or $0.35 per common share on a
diluted basis last year.

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


PART I, ITEM 2.


Liquidity and Capital Resources

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

|                                 |  |               |         |              |  |      |         |  |  |   |         | 
|-------------------------------- |  | ------------- | ------- | ------------ |  | ---- | ------- |  |  | - | ------- | 
|                                 |  |               |         |             
|                                 |  | September 30, |         |             
|                                 |  |               |         | December 31,
|                                 |  | 2001          |         | 2000         |  | 2000
|                                 |  |               |         |              |  |     
|Senior credit facility           |  | $             | 0       |              |  | $    | 194,000 |  |  | $ | 194,000 | 
|9 7/8% senior subordinated notes |  |               | 285,869 |              |  |      | 0       |  |  |   | 0       | 
|7 1/4% senior notes              |  |               | 25,378  |              |  |      | 0       |  |  |   | 0       | 
|7 3/8% senior notes              |  |               | 201,146 |              |  |      | 198,766 |  |  |   | 198,791 | 
|7.74% senior notes               |  |               | 0       |              |  |      | 82,750  |  |  |   | 66,200  | 
|Other notes payable              |  |               | 8,248   |              |  |      | 4,797   |  |  |   | 9,081   | 
|                                 |  |               |         |              |  |      |         |  |  |   |         | 
|                                 |  | $             | 520,641 |              |  | $    | 480,313 |  |  | $ | 468,072 | 
|                                 |  |               |         |              |  |      |         |  |  |   |         | 

On March 29, 2001, we completed a series of
financing transactions pursuant to which we (i) issued
$29.0 million in aggregate principal amount of 7  1/4%
senior notes due May 1, 2010 and $285.0 million in
aggregate principal amount of 9  7/8% senior subordinated
notes due April 1, 2011, (ii) used the proceeds from
these notes to repay in full our former senior credit facility
and 7.74% senior notes, and (iii) obtained a new
$75.0 million senior credit facility. The 7  1/4%
senior notes and 9  7/8% senior subordinated notes were
issued at a discount to yield effective interest rates of 9.4%
and 10.5%, respectively. Aggregate proceeds from the sale of
these notes, net of issuance costs, was approximately
$291.2 million. In connection with the repayment of the
7.74% senior notes, we incurred a prepayment penalty of
approximately $3.6 million. The difference between issue
price and principal amount at maturity of our 7  1/4%
senior and 9  7/8% senior subordinated notes will be
accreted each year as interest expense in our financial
statements. These 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 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 September 30, 2001, versus
$194.0 million outstanding on our former senior credit
facility on both September 30, 2000 and December 31,
2000; however, an aggregate of $9.8 million in letter of
credit obligations were outstanding on September 30, 2001.
We intend to use the facility for working capital, capital
expenditures and other general corporate purposes. Although the
facility is unsecured, our obligations under the facility are
unconditionally guaranteed, on a joint and several basis, by all
of our existing and subsequently acquired wholly owned domestic
subsidiaries.

Borrowings under the 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 facility as
the ratio of our total debt to our total capitalization). Based
on our leverage ratio at September 30, 2001, the current
margins are 2.0% for Eurodollar rate loans and 0.75% for base
rate loans. Additionally, the undrawn portion of the facility is
subject to a facility fee at an annual rate that is currently
set at 0.5% based on our leverage ratio at September 30,
2001.

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

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


PART I, ITEM 2.


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

The 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.

During the third quarter of 2001, we amended our
senior credit facility agreement. The amendment allows us to
acquire up to $30.0 million of our senior subordinated
notes so long as no default or event of default exists on the
date of the transaction or will result from the transaction.

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 September 30, 2001,
approximately $78.2 million of indebtedness under the joint
venture credit agreements was outstanding, of which we have
guaranteed one-half (approximately $39.1 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, nine months ended
September 30, 2000 and for the year ended December 31,
2000, the weighted average borrowings outstanding under our
former senior credit facility during such periods bore interest
at 6.95%, 6.28% 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.

During the second and third quarters of 2001, we
entered into four interest rate swap agreements in notional
amounts totaling $285.0 million. The agreements, which have
payment and expiration dates that correspond to the terms of the
note obligations they cover, effectively converted
$185.0 million of our fixed rate 9  7/8% senior
subordinated notes and $100.0 million of our fixed rate
7  3/8% senior notes into variable rate obligations. The
variable rates are based on LIBOR plus a fixed margin. These
swap agreements lowered our interest expense by approximately
$1.3 million in the third quarter of 2001 and
$1.8 million for the first nine months of 2001. We expect
our swap agreements to continue to lower our interest expense;
however, if LIBOR increases significantly, our interest expense
could be adversely affected. As described below under
Subsequent Events we unwound one of our swap
agreements in October 2001.

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


PART I, ITEM 2.


Cash generated from operations was
$46.6 million for the nine months ended September 30,
2001 compared with $40.8 million for the same period last
year. The increase in the first nine months of 2001 compared to
the same period last year was due primarily to the receipt of a
$10.0 million tax refund and favorable changes in working
capital, partially offset by lower net income and a decrease in
distributions from joint ventures.

Capital expenditures were $22.5 million in
the first nine months of 2001 versus $47.1 million for the
same period last year. Aggregate capital expenditures of
approximately $29.0 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,
productivity improvement and replacement projects.

We paid cash dividends of $8.0 million in
the first nine months of 2001 versus $13.8 million in the
same period last year. In February 2001, we reduced our first
quarter dividend from $0.18 to $0.09 per issued and outstanding
common share. In June 2001, we reduced our second and third
quarter dividend from $0.09 to $0.03 per issued and outstanding
common share. We made these decisions to reduce the quarterly
dividends to preserve our financial flexibility in light of
difficult industry conditions. Although our former debt
agreements contained no specific limitations on the payment of
dividends, our current debt agreements contain certain
limitations on the payment of future dividends. We intend to
continue assessing our ability to pay quarterly dividends in
light of difficult industry conditions, our need to preserve
financial flexibility and the limitations on dividends in our
financial covenants.

We did not purchase any shares of our common
stock during the first nine 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 9  7/8%
senior subordinated notes and our credit facility limit our
ability to repurchase our common stock.

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

Georgia-Pacific Litigation

On May 9, 2001, we and Georgia-Pacific
Corporation jointly announced a tentative settlement regarding
the litigation over the terms of the long-term supply contract
the parties entered in April 1996. The pending litigation
relating to that contract has been previously reported in our
annual report on Form 10-K for the year ended
December 31, 2000 and in our previous quarterly reports on
Form 10-Q. Under the terms of the tentative settlement, we
and G-P Gypsum Corporation, a wholly owned subsidiary of
Georgia-Pacific, entered into a new ten-year agreement under
which we would supply a minimum of 50,000 tons of gypsum facing
paper per year to G-P Gypsum. Implementation of the new
agreement, and settlement of the pending litigation over the
1996 agreement, is subject to satisfactory completion of a
transition period. The transition period initially was to expire
no later than August 6, 2001. As described below, however,
the parties have recently agreed to extend the outside
termination date of the transition period to December 31,
2001. During the transition period, we are supplying G-P Gypsum
with such facing paper as it requests to enable it to evaluate
the papers compliance with its specifications for quality
and end-use suitability. Once G-P Gypsum is satisfied with the
paper, it is to notify us that the transition period has ended,
and at that time the term of the new agreement, including the
annual minimum quantity requirement described above, is to
commence. If and when the new agreement commences, the parties
will dismiss all pending litigation relating to the 1996
agreement. Under the terms of the tentative settlement, either
party may terminate its obligations under the new agreement
during the transition period without cause and without liability
to the other party.

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

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


PART I, ITEM 2.


committing to the minimum tonnage requirement
under the new agreement in light of current market conditions,
led the parties to agree to the extension of the transition
period.

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

Subsequent Events

In October 2001, we unwound our
$185.0 million interest rate swap agreement on the 9 
7/8% senior subordinated notes and received $9.1 million
from the bank counter-party. Simultaneously, we executed a new
swap agreement with a fixed margin that was 85 basis points
higher than the original swap agreement. The new swap agreement
is the same notional amount, has the same terms and covers the
same notes as the original agreement. The $9.1 million gain
will be accreted to interest expense over the life of the notes
and will partially offset the increase in interest expense. We
executed these transactions in order to take advantage of the
current market conditions.

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. We adopted SFAS
No. 133, as amended, on January 1, 2001. This
pronouncement did not have a material impact on our financial
statements upon adoption.

In June 2001, the FASB issued SFAS No. 141,
Business Combinations (SFAS
No. 141) and SFAS No. 142, Goodwill and
Other Intangible Assets (SFAS No. 142).
SFAS No. 141 supercedes Accounting Principles Board
(APB) Opinion No. 16 Business
Combinations and SFAS No. 38, Accounting for
Preacquisition Contingencies for Purchased Enterprises.
SFAS No. 141 prescribes the accounting principles for
business combinations and requires that all business
combinations be accounted for using the purchase method of
accounting. This statement is effective for all business
combinations after June 30, 2001.

SFAS No. 142 supercedes APB Opinion
No. 17, Intangible Assets. This statement
prescribes the accounting practices for goodwill and other
intangible assets. Under this statement, goodwill will no longer
be amortized to earnings, but instead will be reviewed
periodically (at least annually) for impairment. As of
September 30, 2001, we had $147.6 million of recorded net
goodwill, which will be subject to this new standard. During
fiscal year 2001, we expect approximately $2.8 million of
goodwill amortization expense, net

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


PART I, ITEM 2.


of taxes. We expect to adopt this standard
effective January 1, 2002. We are currently evaluating this
new pronouncement and have not yet determined the impact on our
consolidated financial statements.

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.

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FORM 10-Q FOR THE QUARTER ENDED
SEPTEMBER 30, 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.

In addition, the September 11, 2001
terrorist attacks and the uncertainties surrounding those events
have contributed to the general slowdown in U.S. economic
activity. To the extent that the sectors above are adversely
affected by such events and uncertainties, our business will
also be adversely affected.

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

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

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

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

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##### Table of Contents



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


PART I, ITEM 2.


materially and adversely affected by the loss of
contract volume from Georgia-Pacific unless and until a new
supply agreement is implemented with significant volume
requirements, and until the new supply agreement has been
effective long enough to generate a substantial volume of
required purchases from Georgia-Pacific.

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

Historically, we have grown our business,
revenues and production capacity to a significant degree through
acquisitions. In the current difficult operating climate facing
our industry, we anticipate that the pace of our acquisition
activity will slow significantly as we focus on conserving cash
and maximizing the productivity of our existing facilities.
However, we expect to continue evaluating and pursuing
acquisition opportunities on a selective basis, subject to
available funding and credit flexibility. Growth through
acquisitions involves risks, many of which may continue to
affect us based on acquisitions we have completed in the past.
For example, we have suffered significant unexpected losses at
our Sprague mill in Versailles, Connecticut, which we acquired
from International Paper Company in 1999, resulting from
unfavorable fixed price contracts, low capacity utilization and
higher recovered fiber costs that we were unable to pass through
to our customers. Sprague incurred operating losses of
$17.2 million in 2000 and $3.4 million and
$11.6 million in the third quarter and first nine months of
2001, respectively. See Managements Discussion and
Analysis of Financial Condition and Results of Operations.
We cannot assure you that our acquired businesses will achieve
the same levels of 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.
Existing weaknesses in the U.S. capital markets have been, and
may continue to be, aggravated by the September 11, 2001
terrorist attacks and their aftermath. In addition, our
financial performance and the conditions of the capital markets
will also affect the

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##### Table of Contents



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


PART I, ITEM 2.


value of our common stock, which could make it a
less attractive form of consideration in making acquisitions.
All of these factors could also make it difficult or impossible
for us to expand in the future.

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

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



|  |                                                                                                                                                                                                                                                           
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | make it more difficult for us to satisfy our
	obligations with respect to our indebtedness;                                                                                                                                                               
| 
| | increase our vulnerability to general adverse
	economic and industry conditions;                                                                                                                                                                          
| 
| | limit our ability to obtain additional financing;                                                                                                                                                                                                         
| 
| | require us to dedicate a substantial portion of
	our cash flow from operations to payments on our indebtedness,
	reducing the amount of our cash flow available for other
	purposes, including capital expenditures and other general
	corporate purposes;
| 
| | require us to sell debt or equity securities or
	to sell some of our core assets, possibly on unfavorable terms,
	to meet payment obligations;                                                                                                            
| 
| | restrict us from making strategic acquisitions,
	introducing new technologies or exploiting business
	opportunities;                                                                                                                                      
| 
| | limit our flexibility in planning for, or
	reacting to, changes in our business and our industry;                                                                                                                                                         
| 
| | place us at a possible competitive disadvantage
	compared to our competitors that have less debt; and                                                                                                                                                     
| 
| | adversely affect the value of our common stock.                                                                                                                                                                                                           

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

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

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##### Table of Contents



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

PART I, ITEM 3.





CARAUSTAR INDUSTRIES, INC.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK

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

During the second and third quarters of 2001, we
entered into four interest rate swap agreements in notional
amounts totaling $285.0 million. The agreements, which have
payment and expiration dates that correspond to the terms of the
note obligations they cover, effectively converted
$185.0 million of our fixed rate 9  7/8% senior
subordinated notes and $100.0 million of our fixed rate
7  3/8% senior notes into variable rate obligations. The
variable rates are based on LIBOR plus a fixed margin. These
swap agreements lowered our interest expense by approximately
$1.3 million in the third quarter of 2001 and
$1.8 million for the first nine months of 2001. We expect
our swap agreements to continue to lower our interest expense;
however, if LIBOR increases significantly, our interest expense
could be adversely affected.

In October 2001, we unwound our
$185.0 million interest rate swap agreement on the 9 
7/8% senior subordinated notes and received $9.1 million
from the bank counter-party. Simultaneously, we executed a new
swap agreement with a fixed margin 85 basis points higher than
the original swap agreement. The new swap agreement is the same
notional amount, has the same terms and covers the same notes as
the original agreement. The $9.1 million gain will be
accreted to interest expense over the life of the notes and will
partially offset the increase in interest expense. We executed
these transactions in order to take advantage of the current
market conditions.

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##### Table of Contents



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


PART I, ITEM 3.







PART II. OTHER INFORMATION






|        |                  
|------- | -----------------
|ITEM 1. | LEGAL PROCEEDINGS

As previously reported, we have been in
litigation with Georgia-Pacific Corporation over the terms of a
long-term supply contract the parties entered in April 1996. The
pending litigation relating to that contract has been reported
in previous quarterly reports on Form 10-Q, including the
report on Form 10-Q for the quarters ended March 31,
2001 and June 30, 2001 and in the annual report on
Form 10-K for the year ended December 31, 2000. For a
discussion of developments regarding the litigation and the
previously announced tentative settlement of that litigation,
see Managements Discussion and Analysis of Financial
Condition and Results of Operations  Georgia-Pacific
Litigation above.






|         |                                  
|-------- | ---------------------------------
|ITEM  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 one current report on Form 8-K
during the quarter ended September 30, 2001. The report,
filed on July 24, 2001, incorporated by reference the
contents of our press release announcing our financial results
for the period ended June 30, 2001.

30



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##### Table of Contents



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


PART I, ITEM 3.







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: November 13, 2001


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##### Table of Contents






EXHIBIT INDEX

|        |        |             |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- | ------ | ----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |            
|No.     |        | Description
|        |        |            
|        | 3.01   |             |  | Amended and Restated Articles of Incorporation of
        the Company (Incorporated by reference 
        Exhibit 3.01 to Annual Report for 1992 on Form 10-K
        [SEC File No. 0-20646])                                                                                                                                                                                                                                                                                                                                                                                        
|        | 3.02   |             |  | Second Amended and Restated Bylaws of the Company
        (Incorporated by reference  Exhibit 3.02 to
        Registration Statement on Form S-4 [SEC File
        No. 333-29937])                                                                                                                                                                                                                                                                                                                                                                                                   
|        | 4.01   |             |  | Specimen Common Stock Certificate (Incorporated
        by reference  Exhibit 4.01 to Registration
        Statement on Form S-1 [SEC File No. 33-50582])                                                                                                                                                                                                                                                                                                                                                                                                                            
|        | 4.02   |             |  | Articles 3 and 4 of the Companys Amended
        and Restated Articles of Incorporation (included in
        Exhibit 3.01)                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 4.03   |             |  | Article II of the Companys Second
        Amended and Restated Bylaws (included in Exhibit 3.02)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 4.04   |             |  | Amended and Restated Rights Agreement, dated as
        of May 24, 1999, between Caraustar Industries, Inc. and The
        Bank of New York as Rights Agent (Incorporated by
        reference  Exhibit 10.1 to current report on
        Form 8-K dated June 1, 1999 [SEC File No. 020646])                                                                                                                                                                                                                                                                                        
|        | 4.05   |             |  | Indenture, dated as of June 1, 1999, between
        Caraustar Industries, Inc. and The Bank of New York, as Trustee,
        regarding the Companys 7 3/8% Notes due 2009
        (Incorporated by reference  Exhibit 4.05 to
        report on Form 10-Q for the quarter ended June 30,
        1999 [SEC File No. 0-20646])                                                                                                                                                                                                                                                      
|        | 4.06   |             |  | First Supplemental Indenture, dated as of
        June 1, 1999, between Caraustar Industries, Inc. and The
        Bank of New York, as Trustee (Incorporated by
        reference  Exhibit 4.06 to report on
        Form 10-Q for the quarter ended June 30, 1999 [SEC
        File No. 0-20646])                                                                                                                                                                                                                                                                                  
|        | 4.07   |             |  | Second Supplemental Indenture, dated as of
        March 29, 2001, between the Company, the Subsidiary
        Guarantors and The Bank of New York, as Trustee, regarding the
        Companys 7 3/8% Notes due 2009 (Incorporated by
        reference  Exhibit 4.07 to report on
        Form 10-K for the year ended December 31, 2000 [SEC
        File No. 0-20646])                                                                                                                                                                                                           
|        | 10.01  |             |  | Indenture, dated as of March 29, 2001,
        between the Company, the Guarantors and The Bank of New York, as
        Trustee, regarding the Companys 7 1/4% Senior Notes
        due 2010 (Incorporated by reference 
        Exhibit 10.01 to report on Form 10-K for the year
        ended December 31, 2000 [SEC File No. 0-20646])                                                                                                                                                                                                                                          
|        | 10.02  |             |  | Indenture, dated as of March 29, 2001,
        between the Company, the Guarantors and The Bank of New York, as
        Trustee, regarding the Companys 9 7/8% Senior
        Subordinated Notes due 2011 (Incorporated by
        reference  Exhibit 10.02 to report on
        Form 10-K for the year ended December 31, 2000 [SEC
        File No. 0-20646])                                                                                                                                                                                                                     
|        | 10.03  |             |  | Credit Agreement, dated as of March 29,
        2001, among the Company, certain subsidiaries of the Company,
        various lenders, Bank of America, N.A., as Administrative Agent,
        Banc of America Securities LLC and Deutsche Banc Alex. Brown
        Inc. as Joint Lead Arrangers and Joint Book Managers and Credit
        Suisse, First Boston and Credit Lyonnais New York Branch as
        Co-Documentation Agents (Incorporated by reference 
        Exhibit 10.03 to report on Form 10-K for the year
        ended December 31, 2000 [SEC File No. 0-20646])
|        | 10.04 |             |  | Amendment No. 1 to Credit Agreement, dated
        as of September  10, 2001, by and among the Company, as
        borrower, certain subsidiaries of the Company identified as
        guarantors listed therein, the banks listed therein, and Bank of
        America, N.A., as Administrative Agent.                                                                                                                                                                                                                                                                               
|        | 10.05  |             |  | 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])                                                                                                                                                                           
|        | 10.06  |             |  | 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])                                                                                                                   

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##### Table of Contents



|        |        |             |  |                                                                                                                                                                                                                                                                                                                        
|------- | ------ | ----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |        |            
|No.     |        | Description
|        |        |            
|        | 10.07  |             |  | 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])                                                                                               
|        | 10.08  |             |  | 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])                                                                     
|        | 10.09  |             |  | 1987 Executive Stock Option Plan (Incorporated by
        reference  Exhibit 10.09 to Registration
        Statement on Form S-1 [SEC File No. 33-50582])                                                                                                                                                             
|        | 10.10  |             |  | 1993 Key Employees Share Ownership Plan
        (Incorporated by reference  Exhibit 10.10 to
        Registration Statement on Form S-1 [SEC File
        No. 33-50582])                                                                                                                                             
|        | 10.11  |             |  | 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])                                                                                                                                                          
|        | 10.12  |             |  | 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  |             |  | 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])                                                                                     
|        | 10.14  |             |  | Second Amended and Restated 1998 Key Employee
        Incentive Compensation Plan (Incorporated by
        reference  Exhibit 10.13 to report on Form 10-Q
        for the quarter ended March  31, 2001 [SEC File
        No. 0-20646])                                                                              
|        | 10.15  |             |  | 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])
|        | 10.16  |             |  | Paperboard Agreement, dated as of April 10,
        1996 between the Company and Georgia-Pacific Corporation.
        (Incorporated by reference  Exhibit 10.06 to
        report on Form 10-Q for the quarter ended
        September 30, 2000 [SEC File No.  0-20646])                                              
|        | 11.01 |             |  | Computation of Earnings Per Share                                                                                                                                                                                                                                                                                      
|        | 18.01  |             |  | Accountants preferability letter regarding
        the change in inventory costing method from LIFO to FIFO at one
        of the Companys subsidiaries (Incorporated by
        reference  Exhibit 18.01 to report on
        Form 10-Q for the quarter ended June 30, 2001)                                       



---



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

33