From a purely financial perspective, the first six months of 2000 differed remarkably from the second half. The first six months was a time of rapidly rising raw material costs and shrinking margins in all businesses. The second half saw raw material prices decline to more historically normal levels, but soaring energy costs and falling sales prices offset any margin gains. Irrespective of all these cost/price fluctuations, however, volume remains the primary issue for Caraustar as we look ahead to 2001.

Caraustar acquired a folding carton company in the fourth quarter, Crane Carton, and gained an excellent facility with talented, experienced and motivated management led by the company’s founder, Alan Crane. Crane Carton, renamed Chicago Carton Plant, has excellent relationships with its key customers and is a substantial user of clay coated recycled boxboard. Crane is a great fit with our Rittman and Sprague clay coated boxboard mills and supports our folding carton/clay coated boxboard mill strategy. In September 2000 we acquired a tube and core manufacturer in Michigan, Arrow Paper Products, now our Saginaw Tube Plant. Although relatively small, Arrow fits Caraustar’s geographic growth strategy for our Industrial & Consumer Products Group. Earlier in the year, Mil Pak, Inc. of Pine Brook, New Jersey was acquired to complement and expand our contract packaging capabilities. Renamed Pine Brook Primary Contract Packaging, Mil Pak provides blister packaging as well as cartoning and labeling to, primarily, the pharmaceutical industry.

In the third quarter of 2000 we started up Premier Boxboard Limited (PBL), the rebuilt Indiana mill joint venture with Temple-Inland. PBL is a key element of our gypsum wallboard facing paper strategy. Caraustar has been eminently successful in positioning ourselves as the premier supplier of facing paper to the independent wallboard producers of North America. The continuation of success in that product line depends on our manufacturing a new paper grade, lighter than the previous market standard and yet retaining the strength and conversion characteristics of the current product. PBL, when fully capable, will satisfy the present and future demands of a rapidly evolving North American wallboard market.

All of the above 2000 activities, along with the many other efforts throughout the history of Caraustar to put the right pieces together, have created a company built to thrive in its primary businesses: tubes, cores and composite containers; folding cartons; gypsum wallboard facing paper and other specialty products, such as the puzzle board represented on the cover of this report. The current business environment, however, has made it difficult for us as shareholders to realize the benefits of our aggressive positioning of Caraustar in these markets.

Although the present financial condition of the company is temporary and we remain optimistic about Caraustar’s future, we do not expect the marketplace to improve significantly in the near term. Caraustar’s management and board of directors recognize that recovery in our financial performance and regaining shareholder confidence are not market issues but management issues. We are fully committed to and actively engaged in restoring both.

Sincerely,

Thomas V. Brown
President and Chief Executive Officer

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