Dear Valued Shareholders,

Caraustar has remained steadfast in our three primary objectives over the years:

1. Caraustar would become a primary force in the recycled paperboard business, both as a manufacturer of paperboard and as a converter of paperboard into a wide variety of industrial and consumer packaging products.

2. The company would add value to its businesses and establish a leadership position through investments in technology and through the experience, skill and dedication of its employees.

3. Primarily through acquisitions, Caraustar would expand into all the markets that prefer recycled paperboard, thereby helping to consolidate a slow growth industry.

Through this strategy, growth would be accomplished without adding excess capacity that could disturb the delicate balance of industry supply and demand.

As confirmation of Caraustar's steadfast commitment to our strategy, 2001 sales were $914 million, three and one-half times that of Caraustar ten years ago. Essentially all of that growth was accomplished through the acquisition of both multiple- and single-plant companies comprising 58 facilities. As we added businesses and capabilities that advanced the technology of our product mix, we also closed older, less productive facilities, assimilating their customer base into the revitalized system. Our position in recycled boxboard capacity ranks in the top five in all the markets we serve, with the opportunity to improve position merely by filling out our current system capacity.

We have aggressively pursued product development projects over the last two years. At the Sprague, Connecticut paperboard mill, which we acquired in April 1999, we have developed a unique, ultra-thin boxboard for the new generation of fluted folding cartons. As you walk through supermarkets or club stores, look for this material in the packaging of many beverage and bulk sales products. You will also find this high-graphics paperboard in the packaging of computer hardware and in overnight mailers, both envelopes and boxes.

An even larger project was the rebuilding of a large paper machine in Newport, Indiana that we renamed Premier Boxboard Limited (PBL). Caraustar manages the mill, a joint venture operation with Temple-Inland, for the manufacture of a most advanced paper for the outer surfaces of gypsum wallboard. Produced with technology that is a first in the U.S., the new, lightweight paper has all the strength of the standard paper product but at 30 percent less weight. This innovative product uses fewer raw materials in support of environmental objectives and reduces operating costs for the wallboard manufacturer. You might find it hard to distinguish our wallboard paper from that of other suppliers, but the development of lightweight paper for this very common household building material is a Caraustar specialty that provides savings and value to both the wallboard maker and the consumer.

Our investment in these two important facilities represented most of the capital spent during the 1999 to 2001 period. Significantly, when the markets for our products softened in 2000 and weakened further in 2001, the Sprague and PBL mills were a primary reason for the substantial decline in operating income. Combined operating profits from internal operations and joint ventures in 2001 were $34 million less than in 2000. Approximately half of the decline was the result of reduced operating time and unusual costs necessary to qualify the two new mills in their respective markets. The other half of the profit decline was caused by the diminished market demand for our basic products.

In 2001, the costs of the product development efforts at the Sprague and PBL mills were incurred at the same time that our markets were rapidly deteriorating. During the last half of the 1990s, our industry had grown in a pattern that closely followed the general economic growth rates. Over the past two years, however, instead of the average three percent growth rate, our industry has shrunk by ten percent. A loss of ten percent volume for Caraustar and the industry means a decline in operating rate equivalent to one month per year. In a capacity sensitive business, the loss of such volume is the difference between profit and loss.

Caraustar adopted a conservative fiscal policy when we realized in 2000 that our industry was deep into a recession. We have conserved cash and reduced capital spending to enable us to meet all our financial obligations. We have suspended the payment of dividends until we are back on the track of increased profitability. Early last spring we restructured our debt to provide the company with more financial flexibility. When interests rates fell in the summer, we took advantage of the lower rates to reduce our interest rate charges on our new bonds. As an additional measure, we have deferred salary increases for all corporate officers until such time as we have proved that we can sustain profitability.

The year 2002 offers the promise of a far better year for our company. We have earned the business of large customers in all the primary markets we serve by successfully demonstrating that we can help them reduce their costs while providing a superior product. We have proved our capabilities to make new products for evolving consumer demand and have sufficient manufacturing capacity to increase market penetration while returning improved earnings and value to you, the shareholder.

The year 2002 should prove to be a watershed year for us and, hopefully, for the U. S. economy. All of us at Caraustar thank you for your support and patience while we continue working to make your company the market leader envisioned in our strategy many years ago.

We give special thanks to John Munford for serving on the Caraustar board of directors for the past seven years. Always the gentleman, John generously shared with the board and management his keen insights and wealth of knowledge and experience in the paperboard and packaging industry. All of us at Caraustar extend our best wishes to him in his future endeavors.

Before closing, I want to share one other piece of information that I believe is a testament to the character of our employees. When the terrorists struck on September 11, our people responded with devotion and with dollars. Every one of our employee groups at all of our facilities in the U.S., Mexico, Canada and England, dug deep in their pockets to make whatever donation they could afford. Local unions and plant management alike gave up holiday parties for which they saved throughout the year and contributed that money to the recovery effort. The company matched the personal contributions of the employees for a total donation of $136,595.66, and I have never been so proud of our people.

Sincerely,