Dear Fellow Shareholders,

In 2003 the recycled boxboard industry experienced its first increase in volume (a modest 0.9 percent) after three consecutive years of decline. Caraustar volume was up 4.3 percent even though we closed or idled three paper machines, one folding carton plant, one specialty products plant, and eight tube and core converting facilities during the year. The full-year impact of the Smurfit Industrial Products Division acquisition and a 5.2 percent growth in gypsum facing paper more than offset a 6.2 percent decline in folding carton volume.

Our rationalization program was primarily responsible for $15 million in restructuring and $24 million in other transition charges that we recorded in 2003 and was a major contributor to the reported net loss of $27 million ($0.97 per share). Over 70 percent of these charges were non-cash. We expect these moves to generate $22 million per year in ongoing cash savings. Our year-end cash balance was $51 million higher than a year ago, driven by the implementation of our four major initiatives stated on the inside cover of this annual report.

The U.S. recovers more recyclable fiber from stores, supermarkets, homes, and businesses than ever before, but we are producing fewer products and less packaging than five years ago. Fiber recovered today is of lower quality and more costly than five years ago. In order to compete, American companies have cut prices and costs and idled capacity throughout the paperboard industry. It was not so long ago that the only time anyone idled a paper mill was to replace it with a new facility at higher production rates. Although in the last five years U.S. industry has idled, or closed and dismantled, more than 100 paper machines, the number of replacement facilities can be counted on one hand.

Caraustar has actively participated in the consolidation process, both at the mill and the converting level. As you read further through the pages of this report, recognize that we are not, as a matter of fact, becoming a smaller company. We are realigning our capabilities with those markets and customers who are key to success in the recycled paperboard and packaging markets of today and tomorrow, while accentuating our core competencies and focusing our assets on the new world economy. Your management team and board of directors are committed to making and implementing these decisions expeditiously and fairly to all of our stakeholders.

Along with getting Caraustar "right" with the new products and new markets of today, we are reducing costs to drive stronger cash flow, and we are leveraging our scale to take advantage of best procurement practices. We are centralizing and consolidating our finance management system, necessitating the move of our primary accounting workforce to Austell. This will promote compliance with recent changes in legal and regulatory requirements and will also allow for better internal controls without increasing SG&A costs.

While much is changing at Caraustar, some things will never change. Our commitment to safety, to integrity, to product quality, to value, and to customer service is ingrained in our culture. The company is well positioned to benefit from the difficult, though necessary, steps taken in 2003.