CARAUSTAR INDUSTRIES, INC.

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q/A

(Amendment No. 1)


(Mark One)
x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended March 31, 2002
		OR
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
		For the transition period from to

Commission File Number 0-20646

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, May 3, 2002.


Common Stock, $.10 par value		27,856,107

(Class)		(Outstanding)

TABLE OF CONTENTS


CONDENSED CONSOLIDATED BALANCE SHEETS
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2002 (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
SIGNATURES
CERTIFICATION
EXHIBIT INDEX
EX-11.01 COMPUTATION OF EARNINGS PER SHARE
EX-99.01 CERTIFICATION OF THE CEO
EX-99.02 CERTIFICATION OF THE CFO

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

CARAUSTAR INDUSTRIES, INC.

TABLE OF CONTENTS


		Page

PART I —	FINANCIAL INFORMATION
	Purpose of Amendment No. 1		3

Item 1.	Condensed Consolidated Financial Statements:
	Condensed Consolidated Balance Sheets as of March 31, 2002 and December 31, 2001		4
	Condensed Consolidated Statements of Operations for the three-month periods ended March 31, 2002 and March 31, 2001		5
	Condensed Consolidated Statements of Cash Flows for the three-month periods ended March 31, 2002 and March 31, 2001		6
	Notes to Condensed Consolidated Financial Statements		7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations for the three-month periods ended March 31, 2002 and March 31, 2001		26

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		46
Signatures			47
Exhibit Index			50

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I

EXPLANATORY NOTE

The purpose of this amendment on Form 10-Q/A (this “Amendment”) to our March 31, 2002 Form 10-Q for the three months ended March 31, 2002 (the “Original March 31, 2002 Form 10-Q”) is to amend and restate the financial statements included in Part I, Item I — Notes to Condensed Consolidated Financial Statements, to include footnote 11, “Guarantor Condensed Consolidated Financial Statements.” This footnote discloses the Financial Statements of our subsidiaries that guarantee our senior and senior subordinated indebtedness. In order to preserve the nature and character of the disclosures set forth in the March 31, 2002 Form 10-Q as originally filed, except as otherwise expressly stated herein, this amendment does not speak to, or reflect, events occurring after the original filing of our March 31, 2002 Form 10-Q on May 14, 2002.

The Items of our March 31, 2002 Form 10-Q which are amended and restated herein are:

1. Part I, Item I — Condensed Consolidated Financial Statements.

2. Part I, Item II — Management’s Discussion and Analysis of Financial Condition and Results Operations.

3. Part I, Item III — Quantitative and Qualitative Disclosure About Market Risk.

4. Signatures.

5. The certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 have been added.

6. The certifications required by Section 90G of the Sarbanes-Oxley Act of 2002 have been filed with the SEC as correspondence to this filing.

All information contained in the March 31, 2002 Form 10-Q, as amended hereby, shall be deemed updated or superseded, as applicable, by the reports (including any amendments to such reports) we have filed, and will file, with the SEC subsequent to the original filing of our March 31, 2002 Form 10-Q. You should read this amendment together with these subsequent reports, including our Annual Report on Form 10-K for the year ended December 31, 2002, for updated disclosures on matters discussed in our March 31, 2002 Form 10-Q.

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 1.

CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)


			March 31,			December 31,
			2002			2001

			(Unaudited)
ASSETS
CURRENT ASSETS:
	Cash and cash equivalents		$	67,450		$	64,244
	Receivables, net of allowances			102,710			86,297
	Inventories			97,970			101,823
	Refundable income taxes			17,563			17,949
	Prepaid pension			0			10,036
	Other current assets			20,047			6,420

		Total current assets		305,740			286,769

PROPERTY, PLANT AND EQUIPMENT:
	Land			12,620			12,620
	Buildings and improvements			137,438			135,727
	Machinery and equipment			628,542			625,691
	Furniture and fixtures			14,509			14,326

				793,109			788,364
	Less accumulated depreciation			(352,157	)		(337,988	)

	Property, plant and equipment, net			440,952			450,376

GOODWILL, net				146,465			146,465

INVESTMENT IN UNCONSOLIDATED AFFILIATES				61,289			62,285

OTHER ASSETS				14,486			15,086

			$	968,932		$	960,981

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
	Current maturities of debt		$	48		$	48
	Accounts payable			56,299			52,133
	Accrued liabilities			48,400			37,749
	Dividends payable			0			833

		Total current liabilities		104,747			90,763

LONG-TERM DEBT, less current maturities				497,848			508,691

DEFERRED INCOME TAXES				66,915			66,760

DEFERRED COMPENSATION				1,666			1,741

OTHER LIABILITIES				16,816			12,512

MINORITY INTEREST				913			935

COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY:
	Preferred stock, $.10 par value; 5,000,000 shares authorized, none issued			0			0
	Common stock, $.10 par value; 60,000,000 shares authorized, 27,856,839 and 27,853,897 shares issued and outstanding at March 31, 2002 and December 31, 2001, respectively			2,785			2,785
	Additional paid-in capital			180,120			180,116
	Retained earnings			97,987			97,488
	Accumulated other comprehensive loss			(865	)		(810	)

				280,027			279,579

			$	968,932		$	960,981

The accompanying notes are an integral part of these financial statements.

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 1.

CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)



			For the Three Months
			Ended March 31,

			2002			2001


			(Unaudited)
SALES			$	222,163		$	233,088
COST OF SALES				165,480			178,407

		Gross profit		56,683			54,681
FREIGHT COSTS				13,021			12,986
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES				33,995			36,717
RESTRUCTURING COSTS				0			7,083

		Operating income (loss)		9,667			(2,105	)
OTHER (EXPENSE) INCOME:
	Interest expense			(9,302	)		(9,210	)
	Interest income			376			88
	Equity in income (loss) of unconsolidated affiliates			3			(1,585	)
	Other, net			(32	)		278

				(8,955	)		(10,429	)

INCOME (LOSS) BEFORE MINORITY INTEREST, INCOME TAXES AND EXTRAORDINARY LOSS				712			(12,534	)
MINORITY INTEREST				23			(28	)
PROVISION (BENEFIT) FOR INCOME TAXES				236			(4,431	)

INCOME (LOSS) BEFORE EXTRAORDINARY LOSS				499			(8,131	)
EXTRAORDINARY LOSS FROM EARLY EXTINGUISHMENT OF DEBT, NET OF TAX BENEFIT				0			(2,695	)

NET INCOME (LOSS)			$	499		$	(10,826	)

BASIC
INCOME (LOSS) PER COMMON SHARE BEFORE EXTRAORDINARY LOSS			$	0.02		$	(0.29	)
EXTRAORDINARY LOSS PER COMMON SHARE			$	0.00		$	(0.10	)

NET INCOME (LOSS) PER COMMON SHARE			$	0.02		$	(0.39	)

Weighted average number of shares outstanding				27,857			27,815

DILUTED
INCOME (LOSS) PER COMMON SHARE BEFORE EXTRAORDINARY LOSS			$	0.02		$	(0.29	)
EXTRAORDINARY LOSS PER COMMON SHARE			$	0.00		$	(0.10	)

NET INCOME (LOSS) PER COMMON SHARE			$	0.02		$	(0.39	)

Diluted weighted average number of shares outstanding				27,888			27,815

The accompanying notes are an integral part of these financial statements.

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 1.

CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)



			For the Three Months
			Ended March 31,

			2002			2001


			(Unaudited)
Cash provided by (used in)
	Operating activities:
		Net income (loss)	$	499		$	(10,826	)
		Extraordinary loss from early extinguishment of debt		0			4,305
		Depreciation and amortization		15,492			15,398
		Restructuring costs		0			3,987
		Other noncash adjustments		189			(6,320	)
		Equity in income or loss of unconsolidated affiliates, net of distributions		997			1,585
		Changes in current assets and liabilities		(1,145	)		(2,735	)

		Net cash provided by operating activities		16,032			5,394

	Investing activities:
		Purchases of property, plant and equipment		(5,832	)		(11,826	)
		Acquisition of businesses, net of cash acquired		0			(34	)
		Other		967			(716	)

		Net cash used in investing activities		(4,865	)		(12,576	)

	Financing activities:
		Proceeds from senior credit facility		0			18,000
		Repayments of senior credit facility		0			(212,000	)
		Proceeds from the issuance of the 7 1/4% and 9 7/8% notes		0			291,200
		Repayments of other long and short-term debt		(6,581	)		(67,051	)
		7.74% senior notes prepayment penalty		0			(3,565	)
		Dividends paid		(833	)		(4,698	)
		Other		(547	)		(1,375	)

		Net cash (used in) provided by financing activities		(7,961	)		20,511

	Net increase in cash and cash equivalents			3,206			13,329
	Cash and cash equivalents at beginning of period			64,244			8,900

	Cash and cash equivalents at end of period		$	67,450		$	22,229

	Supplemental Disclosures:
		Cash payments for interest	$	3,167		$	7,092

		Cash payments for income taxes	$	22		$	628

		Stock issued for acquisitions	$	0		$	18,799

The accompanying notes are an integral part of these financial statements.

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 1.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2002

(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. Certain notes and other information have been condensed or omitted from the interim financial statements, therefore, these financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2001. The results of operations for the three months ended March 31, 2002 are not necessarily indicative of the results to be expected for the full year.


Note 2.	*Inventory*

During the second quarter of 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 March 31, 2001 by $776,000. The effect on net income for the three months ended March 31, 2001 was $18,000.

Inventories are carried at the lower of cost or market. Cost includes materials, labor and overhead. Market, with respect to all inventories, is replacement cost or net realizable value. As described above, all inventories are valued using the first-in, first-out method.

Inventories at March 31, 2002 and December 31, 2001 were as follows (in thousands):


	March 31,		December 31,
	2002		2001

Raw materials and supplies	$	37,536	$	40,357
Finished goods and work in process		60,434		61,466

Total inventory	$	97,970	$	101,823


Note 3.	*Comprehensive Income or Loss*

Total comprehensive income or loss, consisting of net income or loss plus changes in foreign currency translation adjustment for the three months ended March 31, 2002 and 2001 was income of $444,000 and a loss of $10,964,000, respectively.

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 1.


Note 4.	*Senior Credit Facility and Other Long Term Debt*

At March 31, 2002 and December 31, 2001, total long-term debt consisted of the following (in thousands):


	March 31,			December 31,
	2002			2001

Senior credit facility	$	—		$	—
7 1/4 percent senior notes		25,520			25,449
7 3/8 percent senior notes		189,472			197,716
9 7/8 percent senior subordinated notes		274,656			277,326
Other notes payable		8,248			8,248

Total debt		497,896			508,739
Less current maturities		(48	)		(48	)

Total long-term debt	$	497,848		$	508,691

On March 29, 2001, the Company obtained a 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 March 31, 2002, although an aggregate of $10,000,000 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 percent) 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 March 31, 2002, the current margins are 2.0 percent for Eurodollar rate loans and 0.75 percent 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 percent based on the Company’s leverage ratio at March 31, 2002.

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.

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 1.

During the third and fourth quarters of 2001 and the first quarter of 2002, the Company completed three amendments to its senior credit facility agreement. The first amendment, dated September 10, 2001, 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.

The second amendment, dated November 30, 2001, provides for the issuance of letters of credit under the senior credit facility having an original expiration date more than one year from the date of issuance, if required under related industrial revenue bond documents and agreed to by the issuing lender.

The third amendment was completed on January 22, 2002 with an effective date of September 30, 2001. The Company obtained this amendment in order to avoid the occurrence of an event of default under its senior credit facility agreement resulting from a violation of the interest coverage ratio covenant contained in this agreement. This amendment modified the definitions of “Interest Expense”, “Premier Boxboard Interest Expense” and “Standard Gypsum Interest Expense” to include interest income and the benefit or expense derived from interest rate swap agreements or other interest hedge agreements. Additionally, the amendment lowered the minimum allowable interest coverage ratio for the fourth quarter of 2001 from 2.5:1.0 to 2.25:1.0, the first quarter of 2002 from 2.75:1.0 to 2.25:1.0, and the second quarter of 2002 from 2.75:1.0 to 2.50:1.0.

See the “Subsequent Events” footnote for additional amendments related to the Company’s joint venture debt agreements and the senior credit facility.

On March 22, 2001, the Company obtained commitments and executed an agreement for the issuance of $285,000,000 of 9 7/8 percent senior subordinated notes due April 1, 2011 and $29,000,000 of 7 1/4 percent 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 percent and 9.4 percent, 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 percent senior notes. In connection with the repayment of the 7.74 percent senior notes, the Company incurred a prepayment penalty of approximately $3,600,000. The Company recorded an extraordinary loss of $2,695,000, which included the prepayment penalty and unamortized issuance costs of $705,000, net of tax benefit of $1,610,000. The difference between issue price and principal amount at maturity of the Company’s 7 1/4 percent senior and 9 7/8 percent 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. Management considers this nonguarantor domestic subsidiary immaterial to investors, therefore, separate financial statements are not presented.

During 1998, the Company registered with the Securities and Exchange Commission a total of $300,000,000 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, the Company issued $200,000,000 in aggregate principal amount of its 7 3/8 percent notes due June 1, 2009. The 7 3/8 percent notes were issued at a discount to yield an effective interest rate of 7.473 percent and pay interest semiannually. The 7 3/8 percent notes are unsecured obligations of the Company.

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 percent senior subordinated notes and $100,000,000 of the Company’s fixed rate 7 3/8 percent senior notes into variable rate obligations. The variable rates are based on the three-month LIBOR plus a fixed margin.

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 1.

The following table identifies the debt instrument hedged, the notional amount, the fixed spread and the three-month LIBOR at March 31, 2002 for each of the Company’s interest rate swaps. The March 31, 2002 three-month LIBOR is presented for informational purposes only and does not represent the Company’s actual effective rates in place at March 31, 2002.


						Three-Month
	Notional					LIBOR at
	Amount		Fixed			March 31,			Total
Debt Instrument	(000’s)		Spread			2002			Variable Rate

7 3/8 percent senior notes	$	50,000		2.365	%		2.031	%		4.396	%
7 3/8 percent senior notes		25,000		1.445			2.031			3.476
7 3/8 percent senior notes		25,000		1.775			2.031			3.806
9 7/8 percent senior subordinated notes		185,000		4.400			2.031			6.431

In October 2001, the Company unwound its $185,000,000 interest rate swap agreement related to the 9 7/8 percent senior subordinated notes and received $9,093,000 from the bank counter-party. Simultaneously, the Company 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 $9,093,000 gain, which is classified as a component of debt, 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 market conditions.

See the “Subsequent Events” footnote regarding transactions related to our interest rate swap agreements.

Under the provisions of SFAS No. 133, the Company has designated and accounted for its interest rate swap agreements as fair value hedges. The Company has assumed no ineffectiveness with regard to these agreements as they qualify for the short-cut method of accounting for fair value hedges of debt obligations, as prescribed by SFAS No. 133. The aggregate fair value of the swap agreements of approximately $11,669,000 as of March 31, 2002 and $7,418,000 as of December 31, 2001 are classified as a component of other long-term liabilities.


Note 5.	*New Accounting Pronouncements*

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 pronouncement is effective for all business combinations after June 30, 2001.

SFAS No. 142 supercedes APB Opinion No. 17, “Intangible Assets.” This pronouncement prescribes the accounting practices for goodwill and other intangible assets. Under this pronouncement, goodwill will no longer be amortized to earnings, but instead will be reviewed periodically (at least annually) for impairment. The Company adopted this pronouncement effective January 1, 2002. The Company was required to complete the initial impairment test within six months of adoption of SFAS 142. The Company has completed its initial impairment test and has determined that no impairment of goodwill exists.

In July 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations” (“SFAS no. 143”). This pronouncement requires entities to record the fair value of a liability for an

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 1.

asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes the cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, the entity either settles the obligation for the amount recorded or incurs a gain or loss. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. The Company is currently evaluating this pronouncement and does not expect the adoption of this pronouncement to have a material impact on its consolidated financial statements.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”). This pronouncement addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supercedes SFAS No. 121. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. The Company adopted SFAS No. 144 as of January 1, 2002. This pronouncement did not have a material impact on the Company’s consolidated financial statements upon adoption.


Note 6.	*Segment Information*

The Company operates principally in three business segments based on its 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.

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



			Three Months
			Ended March 31,

			2002		2001

Sales (external customers):
	Paperboard		$	77,829	$	82,798
	Tube, core, and composite container			64,858		68,146
	Carton and custom packaging			79,476		82,144

		Total	$	222,163	$	233,088

Sales (intersegment):
	Paperboard		$	32,258	$	35,643
	Tube, core, and composite container			879		1,002
	Carton and custom packaging			157		135

		Total	$	33,294	$	36,780

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 1.



			Three Months
			Ended March 31,

			2002			2001

Operating income (loss):
	Paperboard(A)		$	9,291		$	(212	)
	Tube, core, and composite container			3,273			3,028
	Carton and custom packaging(B)			1,092			(978	)

		Total		13,656			1,838
Corporate expense				(3,989	)		(3,943	)

Operating income (loss)				9,667			(2,105	)
Interest expense				(9,302	)		(9,210	)
Interest income				376			88
Equity in income (loss) of unconsolidated affiliates				3			(1,585	)
Other, net				(32	)		278

Income (loss) before income taxes, minority interest and extraordinary loss			$	712		$	(12,534	)

(A) Results for 2001 include a charge to operations of $4,447,000 for restructuring costs related to the closing of the Chicago, Illinois paperboard mill. This charge was related to the paperboard segment and is reflected in the segment’s operating income. (Note 8)

(B) Results for 2001 include a charge 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 carton plant. This charge was related to the carton and custom packaging segment and is reflected in the segment’s operating income. (Note 8)


Note 7.	*Goodwill Accounting*

Effective January 1, 2002, the Company adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 142 requires that goodwill no longer be amortized, but instead tested for impairment at least annually. The Company has completed the required transitional impairment test as of January 1, 2002 and found no impairment of goodwill. On an ongoing basis (absent any impairment indicators), the Company will perform its impairment tests during the fourth quarter.

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 1.

Loss before extraordinary item, net loss and related losses per share for the first quarter of 2001 adjusted to exclude goodwill amortization expense are as follows (in thousands, except per share information):



			Three Months			Loss Per Share
			Ended
			March 31, 2001			Basic			Diluted

Loss before extraordinary item:
	Reported loss before extraordinary item		$	(8,131	)	$	(0.29	)	$	(0.29	)
	Goodwill amortization			702			0.02			0.02

		Adjusted loss before extraordinary item	$	(7,429	)	$	(0.27	)	$	(0.27	)

Net loss:
	Reported net loss		$	(10,826	)	$	(0.39	)	$	(0.39	)
	Goodwill amortization			702			0.02			0.02

		Adjusted net loss	$	(10,124	)	$	(0.37	)	$	(0.37	)

As of January 1, 2002, goodwill of $146,500,000 (net of $20,500,000 of amortization) was attributable to the Company’s segments as follows: $77,700,000 for Paperboard, $25,600,000 for Tube, Core and Composite Container and $43,200,000 for Carton and Custom Packaging. During the first quarter of 2002, no goodwill was acquired, impaired or written off.


Note 8.	*Restructuring Costs*

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. The remaining other exit costs were paid by December 31, 2002. As of December 31, 2002, one employee remained to assist in the closing of the mill. The Company is currently marketing the property.

The following is a summary of restructuring activity from plan adoption to March 31, 2002 (in thousands):


				Severance and
				Other
		Asset		Termination			Other Exit
		Impairment		Benefits			Costs			Total

2001 provision		$	2,237	$	1,221		$	989		$	4,447
	Noncash		2,237		—			—			2,237

	Cash		—		1,221			989			2,210
2001 cash activity			—		(1,221	)		(597	)		(1,818	)

Balance as of December 31, 2001			—		—			392			392
First quarter 2002 cash activity			—		—			(177	)		(177	)

Balance as of March 31, 2002		$	—	$	—		$	215		$	215

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-

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

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. All exit costs were paid as of December 31, 2001, and the exit plan was completed.


Note 9.	*Litigation*

On March 26, 2002, the Company reached a final settlement with a significant customer concerning the dispute regarding the terms of the long-term supply agreement that had been the subject of the Company’s previously reported litigation with the customer. The Company and a wholly-owned subsidiary of the customer have resolved the dispute by entering into a new five-year paperboard supply agreement that provides that the Company will produce and sell to the customer between 0.378 and 0.756 billion square feet (10,000 to 20,000 tons) of paper per year to be used in their ToughRock wallboard. This new paperboard supply agreement supersedes the terms of the tentative settlement previously announced on May 9, 2001 and the agreement and transition period that had been a part of that tentative settlement. As a result of the final settlement, the Company’s previously filed suit against the customer in the General Court of Justice, Superior Court Division of Mecklenburg County, North Carolina (Case No. 00-CVS-12302), and the customer’s previously reported separate action filed in the Superior Court of Fulton County, Georgia (Case No. 2000-CV-27684), were each dismissed with prejudice on April 1 and 2, 2002, respectively.


Note 10.	*Income (Loss) Per Share*

The following is a reconciliation of the numerators and denominators of the basic and diluted income (loss) per share computations for income (loss) before extraordinary item (in thousands, except per share information):



	March 31,

	2002		2001

Calculation of Basic Income (Loss) Per Share:
Income (loss) before extraordinary item	$	499	$	(8,131	)
Weighted average number of common shares outstanding		27,857		27,815

Basic income (loss) per share	$	0.02	$	(0.29	)

Calculation of Diluted Income (Loss) Per Share:
Income (loss) before extraordinary item	$	499	$	(8,131	)
Weighted average number of common shares outstanding		27,857		27,815
Effect of dilutive stock options		31		0

Weighted average number of common shares outstanding assuming dilution		27,888		27,815

Diluted income (loss) per share	$	0.02	$	(0.29	)

Approximately 1,756,000 and 1,771,000 common stock equivalents are excluded from the three month periods ended March 31, 2002 and 2001, respectively, diluted income (loss) per common share calculation because such are anti-dilutive.

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 1.


Note 11.	*Guarantor Condensed Consolidating Financial Statements*

These condensed consolidating financial statements reflect Caraustar Industries Inc. and Subsidiary Guarantors, which consist of all of the Company’s wholly-owned subsidiaries other than foreign subsidiaries and two domestic subsidiaries that are not wholly-owned. These nonguarantor subsidiaries are herein referred to as “Nonguarantor Subsidiaries.” Separate financial statements of the Subsidiary Guarantors are not presented because the subsidiary guarantees are joint and several and full and unconditional and the Company believes the condensed consolidating financial statements presented are more meaningful in understanding the financial position of the Subsidiary Guarantors.

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 1.

CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

CONDENSED CONSOLIDATING BALANCE SHEET

(In thousands)



			As of March 31, 2002

						Guarantor			Nonguarantor
			Parent			Subsidiaries			Subsidiaries			Eliminations			Total

ASSETS
CURRENT ASSETS:
	Cash and cash equivalents		$	66,223		$	799		$	428		$	—		$	67,450
	Intercompany funding			118,370			(111,261	)		(7,109	)		—			—
	Receivables, net of allowances			7,629			91,897			3,184			—			102,710
	Intercompany accounts receivable			—			299			109			(408	)		—
	Inventories			—			94,446			3,524			—			97,970
	Refundable income taxes			17,295			148			120			—			17,563
	Other current assets			14,760			4,837			450			—			20,047

		Total current assets		224,277			81,165			706			(408	)		305,740

PROPERTY, PLANT AND EQUIPMENT				10,396			757,004			25,709			—			793,109
	Less accumulated depreciation			(4,982	)		(331,382	)		(15,793	)		—			(352,157	)

	Property, plant and equipment, net			5,414			425,622			9,916			—			440,952

INVESTMENT IN CONSOLIDATED SUBSIDIARIES				522,958			126,773			—			(649,731	)		—

GOODWILL, net				—			145,550			915			—			146,465

INVESTMENT IN UNCONSOLIDATED AFFILIATES				59,213			2,076			—			—			61,289

OTHER ASSETS				12,567			1,566			353			—			14,486

			$	824,429		$	782,752		$	11,890		$	(650,139	)	$	968,932

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
	Current maturities of debt		$	—		$	48		$	—		$	—		$	48
	Accounts payable			12,736			41,377			2,186			—			56,299
	Intercompany accounts payable			—			109			299			(408	)		—
	Accrued liabilities			21,371			26,194			835			—			48,400
	Dividends payable			—			—			—			—			—

		Total current liabilities		34,107			67,728			3,320			(408	)		104,747

LONG-TERM DEBT, less current maturities				489,648			8,200			—			—			497,848

DEFERRED INCOME TAXES				53,521			12,244			1,150			—			66,915

DEFERRED COMPENSATION				1,612			54			—			—			1,666

OTHER LIABILITIES				12,726			4,090			—			—			16,816

MINORITY INTEREST				—			—			—			913			913

SHAREHOLDERS’ EQUITY:
	Common stock			2,738			883			142			(978	)		2,785
	Additional paid-in capital			207,245			598,597			5,227			(630,949	)		180,120
	Retained earnings			22,832			90,956			2,916			(18,717	)		97,987
	Accumulated other comprehensive loss			—			—			(865	)		—			(865	)

				232,815			690,436			7,420			(650,644	)		280,027

			$	824,429		$	782,752		$	11,890		$	(650,139	)	$	968,932

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 1.

CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

CONDENSED CONSOLIDATING BALANCE SHEET

(In thousands)



			As of December 31, 2001

						Guarantor			Nonguarantor
			Parent			Subsidiaries			Subsidiaries			Eliminations			Total

ASSETS
CURRENT ASSETS:
	Cash and cash equivalents		$	63,277		$	432		$	535		$	—		$	64,244
	Intercompany funding			139,496			(132,948	)		(6,548	)		—			—
	Receivables, net of allowances			1,817			81,669			2,811			—			86,297
	Intercompany accounts receivable			—			270			288			(558	)		—
	Inventories			—			98,063			3,760			—			101,823
	Refundable income taxes			17,689			140			120			—			17,949
	Prepaid pension			10,036			—			—			—			10,036
	Other current assets			2,132			3,648			640			—			6,420

		Total current assets		234,447			51,274			1,606			(558	)		286,769

PROPERTY, PLANT AND EQUIPMENT				9,830			753,133			25,401			—			788,364
	Less accumulated depreciation			(4,523	)		(318,010	)		(15,455	)		—			(337,988	)

	Property, plant and equipment, net			5,307			435,123			9,946			—			450,376

INVESTMENT IN CONSOLIDATED SUBSIDIARIES				522,958			126,774			—			(649,732	)		—

GOODWILL, net				—			145,515			950			—			146,465

INVESTMENT IN UNCONSOLIDATED AFFILIATES				60,134			2,151			—			—			62,285

OTHER ASSETS				12,289			2,754			43			—			15,086

			$	835,135		$	763,591		$	12,545		$	(650,290	)	$	960,981

LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
	Current maturities of debt		$	—		$	48		$	—		$	—		$	48
	Accounts payable			16,861			32,866			2,406			—			52,133
	Intercompany accounts payable			—			288			270			(558	)		—
	Accrued liabilities			8,371			28,596			782			—			37,749
	Dividends payable			833			—			—			—			833

		Total current liabilities		26,065			61,798			3,458			(558	)		90,763

LONG-TERM DEBT, less current maturities				500,491			8,200			—			—			508,691

DEFERRED INCOME TAXES				53,366			12,244			1,150			—			66,760

DEFERRED COMPENSATION				1,687			54			—			—			1,741

OTHER LIABILITIES				8,475			4,037			—			—			12,512

MINORITY INTEREST				—			—			—			935			935

SHAREHOLDERS’ EQUITY:
	Common stock			2,738			883			142			(978	)		2,785
	Additional paid-in capital			207,241			598,597			5,227			(630,949	)		180,116
	Retained earnings			35,072			77,778			3,378			(18,740	)		97,488
	Accumulated other comprehensive loss			—			—			(810	)		—			(810	)

				245,051			677,258			7,937			(650,667	)		279,579

			$	835,135		$	763,591		$	12,545		$	(650,290	)	$	960,981

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 1.

CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(In thousands)



			For The Three Months Ended March 31, 2002

						Guarantor			Nonguarantor
			Parent			Subsidiaries			Subsidiaries			Eliminations			Total

SALES			$	—		$	255,098		$	5,254		$	(38,189	)	$	222,163
COST OF SALES				—			199,484			4,185			(38,189	)		165,480

		Gross profit		—			55,614			1,069			—			56,683
FREIGHT COSTS				—			12,806			215			—			13,021
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES				3,408			29,365			1,222			—			33,995
RESTRUCTURING COSTS				—			—			—			—			—

		Operating (loss) income		(3,408	)		13,443			(368	)		—			9,667
OTHER (EXPENSE) INCOME:
	Interest expense			(9,220	)		(79	)		(100	)		97			(9,302	)
	Interest income			458			13			2			(97	)		376
	Equity in income (loss) of unconsolidated affiliates			79			(76	)		—			—			3
	Other, net			87			(123	)		4			—			(32	)

				(8,596	)		(265	)		(94	)		—			(8,955	)

(LOSS) INCOME BEFORE MINORITY INTEREST, INCOME TAXES AND EXTRAORDINARY LOSS				(12,004	)		13,178			(462	)		—			712
MINORITY INTEREST				—			—			—			23			23
PROVISION FOR INCOME TAXES				236			—			—			—			236

(LOSS) INCOME BEFORE EXTRAORDINARY LOSS				(12,240	)		13,178			(462	)		23			499
EXTRAORDINARY LOSS FROM EARLY EXTINGUISHMENT OF DEBT, NET OF TAX BENEFIT				—			—			—			—			—

NET (LOSS) INCOME			$	(12,240	)	$	13,178		$	(462	)	$	23		$	499

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 1.

CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

(In thousands)



			For The Three Months Ended March 31, 2001

						Guarantor			Nonguarantor
			Parent			Subsidiaries			Subsidiaries			Eliminations			Total

SALES			$	—		$	264,980		$	6,081		$	(37,973	)	$	233,088
COST OF SALES				—			211,818			4,562			(37,973	)		178,407

		Gross profit		—			53,162			1,519			—			54,681
FREIGHT COSTS				—			12,785			201			—			12,986
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES				3,537			31,919			1,261			—			36,717
RESTRUCTURING COSTS				—			7,083			—			—			7,083

		Operating (loss) income		(3,537	)		1,375			57			—			(2,105	)
OTHER (EXPENSE) INCOME:
	Interest expense			(9,098	)		(321	)		(5	)		214			(9,210	)
	Interest income			59			235			8			(214	)		88
	Equity in (loss) income of unconsolidated affiliates			(1,574	)		(11	)		—			—			(1,585	)
	Other, net			—			298			(20	)		—			278

				(10,613	)		201			(17	)		—			(10,429	)

(LOSS) INCOME BEFORE MINORITY INTEREST, INCOME TAXES AND EXTRAORDINARY LOSS				(14,150	)		1,576			40			—			(12,534	)
MINORITY INTEREST				—			—			—			(28	)		(28	)
BENEFIT FOR INCOME TAXES				(4,431	)		—			—			—			(4,431	)

(LOSS) INCOME BEFORE EXTRAORDINARY LOSS				(9,719	)		1,576			40			(28	)		(8,131	)
EXTRAORDINARY LOSS FROM EARLY EXTINGUISHMENT OF DEBT, NET OF TAX BENEFIT				(2,695	)		—			—			—			(2,695	)

NET (LOSS) INCOME			$	(12,414	)	$	1,576		$	40		$	(28	)	$	(10,826	)

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 1.

CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(In thousands)



		For The Three Months Ended March 31, 2002

					Guarantor			Nonguarantor
		Parent			Subsidiaries			Subsidiaries			Eliminations		Total

Net cash provided by operating activities		$	11,694		$	3,804		$	534		$	—	$	16,032

Investing activities:
	Purchases of property, plant and equipment		(565	)		(5,002	)		(265	)		—		(5,832	)
	Acquisitions of businesses, net of cash acquired		—			—			—			—		—
	Other		(222	)		1,565			(376	)		—		967

	Net cash used in investing activities		(787	)		(3,437	)		(641	)		—		(4,865	)

Financing activities:
	Proceeds from senior credit facility		—			—			—			—		—
	Repayments of senior credit facility		—			—			—			—		—
	Proceeds from the issuance of the 7 1/4% and 9 7/8% notes		—			—			—			—		—
	Repayments of other long and short-term debt		(6,581	)		—			—			—		(6,581	)
	7.74% senior notes prepayment penalty		—			—			—			—		—
	Dividends paid		(833	)		—			—			—		(833	)
	Other		(547	)		—			—			—		(547	)

	Net cash used in financing activities		(7,961	)		—			—			—		(7,961	)

Net change in cash and cash equivalents			2,946			367			(107	)		—		3,206
Cash and cash equivalents at beginning of period			63,277			432			535			—		64,244

Cash and cash equivalents at end of period		$	66,223		$	799		$	428		$	—	$	67,450

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 1.

CARAUSTAR INDUSTRIES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS

(In thousands)



		For The Three Months Ended March 31, 2001

					Guarantor			Nonguarantor
		Parent			Subsidiaries			Subsidiaries			Eliminations		Total

Net cash (used in) provided by operating activities		$	(8,954	)	$	13,591		$	757		$	—	$	5,394

Investing activities:
	Purchases of property, plant and equipment		(236	)		(10,456	)		(1,134	)		—		(11,826	)
	Acquisitions of businesses, net of cash acquired		—			(34	)		—			—		(34	)
	Other		991			(1,565	)		(142	)		—		(716	)

	Net cash provided by (used in) investing activities		755			(12,055	)		(1,276	)		—		(12,576	)

Financing activities:
	Proceeds from senior credit facility		18,000			—			—			—		18,000
	Repayments of senior credit facility		(212,000	)		—			—			—		(212,000	)
	Proceeds from the issuance of the 7 1/4% and 9 7/8% notes		291,200			—			—			—		291,200
	Repayments of other long and short-term debt		(66,200	)		(851	)		—			—		(67,051	)
	7.74% senior notes prepayment penalty		(3,565	)		—			—			—		(3,565	)
	Dividends paid		(4,698	)		—			—			—		(4,698	)
	Other		(1,375	)		—			—			—		(1,375	)

	Net cash provided by (used in) financing activities		21,362			(851	)		—			—		20,511

Net change in cash and cash equivalents			13,163			685			(519	)		—		13,329
Cash and cash equivalents at beginning of period			7,338			536			1,026			—		8,900

Cash and cash equivalents at end of period		$	20,501		$	1,221		$	507		$	—	$	22,229


Note 12.	*Subsequent Events*

In January 2002, the Company completed a third amendment to its senior credit facility that modified the definitions of “Interest Expense”, “Premier Boxboard Interest Expense” and “Standard Gypsum Interest Expense” to include interest income and the benefit or expense derived from interest rate swap agreements or other interest hedge agreements. Additionally, the amendment lowered the minimum allowable interest coverage ratio for the fourth quarter of 2001 from 2.5:1.0 to

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 1.

2.25:1.0, the first quarter of 2002 from 2.75:1.0 to 2.25:1.0, and the second quarter of 2002 from 2.75:1.0 to 2.50:1.0.

Also in January 2002, the Company entered into agreements with the PBL and Standard Gypsum lenders that correspond to the amendments made in the third amendment to the senior credit facility described above, in order to avoid events of default under those guarantees resulting from a violation of the interest ratio coverage covenants.

In June 2002, the Company recorded a $985 thousand noncash, pretax restructuring charge related to the permanent closure of the Company’s Camden and Chicago paperboard mills, which were shut down in 2000 and 2001, respectively. The $985 thousand charge represents a revised estimate of fixed asset disposals at these mills. The Chicago mill recorded a $1.5 million additional provision while the Camden mill overestimated the fixed asset write-off and recorded a credit of $500 thousand.

In August 2002, the Company unwound its $185.0 million interest rate swap agreement related to the 9 7/8% senior subordinated notes and received $5.5 million from the bank counter-party. Simultaneously, the Company executed a new swap agreement with a fixed spread that was 17 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. In September 2002, the Company repaid the $5.5 million and entered into a new swap agreement that lowered the fixed spread by 7.5 basis points from the August 2002 swap.

On September 30, 2002, the Company acquired certain operating assets (excluding accounts receivable) of the Smurfit Industrial Packaging Group, a business unit of Jefferson Smurfit Corporation (U.S.), for approximately $67.1 million, and assumed $1.7 million of indebtedness outstanding under certain industrial revenue bonds. The acquisition was funded with cash on hand. Goodwill of approximately $31.9 million and intangible assets of approximately $8.7 million were recorded in conjunction with the Smurfit Industrial Packaging Group acquisition. The intangible asset is associated with the value of acquired customer relationships and will be amortized over 15 years.

Smurfit Industrial Packaging Group operations included 17 paper tube and core plants, 3 uncoated recycled paperboard mills and 3 partition manufacturing plants. These facilities are located in 16 states across the U.S. and in Canada.

In September 2002, in connection with the Company’s acquisition of the Smurfit Industrial Packaging Group, the Company entered into a fourth amendment to its senior credit facility. The purpose of this amendment was to obtain the required lender consent under the senior credit facility for the consummation of the acquisition (and the incurrence of up to $60.0 million in subordinated debt financing to refinance borrowings under the credit facility and restore cash used to fund a portion of the acquisition price), to lower the minimum allowable tangible net worth for all periods after the effective date of the amendment, and to increase the maximum permitted leverage ratio covenant to 70.0% for the fiscal quarters ending December 31, 2002, March 31, 2003 and June 30, 2003, and 67.5% for the fiscal quarter ending September 30, 2003. Additionally, the minimum interest coverage ratio covenant was replaced with a minimum fixed charge coverage ratio covenant beginning with the third quarter of 2002. These modifications, in addition to increasing the Company’s flexibility to finance the acquisition, were necessary to enable the Company to avoid violations of the leverage ratio and interest coverage ratio covenants for the third quarter of 2002 and violations of the leverage ratio covenant in future periods.

In exchange for these modifications, the Company’s lenders required an increase in the applicable margin component of the interest rates applicable to borrowings under the facility and the facility

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 1.

fee rate applicable to the undrawn portion of the facility. The amendment provided for a margin pricing increase of 0.25% effective November 15, 2002, if the Company had not issued at least $50.0 million in senior subordinated notes by that date, and an increase of 0.25% every three months after that date until the first date on which the Company’s balance of cash and cash equivalents is at least $50.0 million and the Company has no loans outstanding under the facility (subject to a maximum interest margin of 3.75% for Eurodollar rate loans and 2.50% for base rate loans). In addition, under the terms of the fourth amendment, the Company was required to enter into a security agreement under which the Company and its subsidiary guarantors under the senior credit facility granted a first priority security interest in their respective accounts receivable and inventory to secure their obligations under the credit facility and the Company’s obligations under its 50% guarantees of the credit facilities of Standard Gypsum and Premier Boxboard.

In November 2002, the Company unwound $50.0 million of its $185.0 million interest rate swap agreement related to the 9 7/8% senior subordinated notes, and received approximately $2.8 million from the bank counter-party. Simultaneously, the Company unwound $50.0 million of one of its interest rate swap agreements, related to the 7 3/8% senior notes, and received approximately $3.4 million. The $6.2 million gain will be accreted to interest expense over the life of the notes and will partially offset the increase in interest expense. The $2.8 million gain lowered the effective interest rate of the 9 7/8% senior subordinated notes from 10.0% to 9.8%. The $3.4 million gain lowered the effective interest rate of the 7 3/8% senior subordinated notes from 7.5% to 7.2%.

On December 27, 2002, the Company completed a fifth amendment to its senior credit facility. This amendment modified the calculation of net worth for purposes of our leverage ratio and tangible net worth financial maintenance covenants to exclude adjustments to other comprehensive loss related to the Company’s defined benefit pension plan. The amendment also allows the Company to exclude from these financial maintenance covenant calculations any restructuring costs recorded in the fourth quarter of 2002 and first quarter of 2003 as long as the aggregate of these restructuring costs does not exceed $16.0 million, on an after tax basis.

In December 2002, the Company initiated a plan to permanently close its Halifax paperboard mill located in Roanoke Rapids, North Carolina. This mill was idled in June 2001 and the Company planned to restart it when industry demand improved. The Company made the decision to permanently close and dismantle the mill based on the current and foreseeable conditions of paperboard demand. In connection with this plan, the Company recorded a pretax charge to operations of approximately $3.4 million. The $3.4 million charge included a $3.0 million noncash write down of assets to estimated net realizable value and a $370 thousand accrual for other exit costs.

In December 2002, the Company initiated a plan to consolidate its Carolina Converting, Inc. facility in Fayetteville, North Carolina into its Carolina Component Concepts facility located in Mooresville, North Carolina and recorded a pretax charge to operations of approximately $6.0 million. The decision to consolidate these facilities was initiated by the loss of a significant customer, combined with a significant decline in demand in other specialty converted products. The $6.0 million charge included an accrual for a $2.4 million noncash write down of assets to estimated net realizable value and a $3.6 million accrual for other exit costs.

In December 2002, the Company initiated a plan to restructure its carton plant in Ashland, Ohio to serve a smaller, more focused carton market and recorded a pretax charge to operations of approximately $2.4 million. The $2.4 million charge included an accrual for a $1.2 million noncash write down of assets to estimated net realizable value, a $494 thousand accrual for severance and termination benefits for 18 hourly and 8 salaried employees terminated in connection with this plan, as well as a $688 thousand accrual for other exit costs.

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 1.

In January 2003, the company effectively unwound $85.0 million of its $135.0 million interest rate swap agreement related to the 9 7/8% senior subordinated notes by assigning the Company’s rights and obligations under the swap to one of the Company’s lenders under the senior credit facility. In exchange, the Company received approximately $4.3 million. The Company will accrete this gain into interest expense over the remaining term of the notes, which will partially offset the increase in interest expense. The gain will lower the effective interest rate of the 9 7/8% senior subordinated notes from 9.8% to 9.5%.

In February 2003, the Company announced the indefinite idling of one of two coated recycled paperboard machines at its Rittman, Ohio paperboard mill. Recently completed upgrades in the Company’s mill system will facilitate the transfer of production from the idled machine to the Company’s other mills, including Rittman’s other machine. The Rittman workforce will be indefinitely reduced by 80 hourly employees, and the Company will recognize a related expense of approximately $1.2 million.

On March 28, 2003, the Company completed a sixth amendment to its senior credit facility. This amendment increased the Company’s maximum permitted leverage ratio to 70.0% for the fiscal quarters ending September 30, 2003 and December 31, 2003 and 67.5% for each succeeding fiscal quarter, lowered the Company’s minimum fixed charge coverage ratio from 1.50:1.0 for all fiscal quarters to 0.95:1.0 for the fiscal quarter ending March 31, 2003, 0.85:1.0 for the fiscal quarters ending June 30, 2003 and September 30, 2003 and 1.05:1.0 for the fiscal quarter ending December 31, 2003, lowered the Company’s minimum tangible net worth covenant for all periods on and after the effective date of the amendment, and lowered the Company’s maximum permitted capital expenditures to $30.0 million per fiscal year. For purposes of calculating compliance with the Company’s leverage ratio and net worth covenants, this amendment also establishes a maximum of $30.0 million for aggregate adjustments to other comprehensive loss related to the Company’s defined benefit pension plan. This amendment also increases to $43.0 million the Company’s subfacility for the issuance of letters of credit under the facility, in order to permit the Company to obtain a letter of credit to replace the Company’s Standard Gypsum joint venture guarantee as described below. Finally, this amendment terminated the quarterly pricing increase established under the fourth amendment to the facility entered into in September 2002 and fixed the Company’s maximum interest margins at 3.25% for LIBOR loans and 2.00% for base rate loans. The financial covenant modifications were necessary to enable the Company to avoid possible violations of its leverage ratio covenant for the third and fourth quarters of 2003, its fixed charge coverage ratio covenant for all quarters during 2003 and its net worth covenant for the second quarter of 2003.

In exchange for these modifications, the Company’s lenders required it to permanently reduce the aggregate commitments under the facility from $75.0 million to $47.0 million, to shorten the maturity of the facility from March 29, 2005 to April 1, 2004, and to pay a monthly fee beginning on July 1, 2002 equal to 1.0% of the aggregate commitments under the facility. The Company’s lenders also required the establishment of a borrowing base that restricts availability under the facility based on monthly computations of eligible accounts receivable and inventory, reduced by the Company’s net hedging obligations owed to lenders under the facility and by the amount of the Company’s guarantee obligations under its joint venture guarantees that are not secured or replaced by letters of credit. Additionally, the Company will not be permitted to borrow or request the issuance of letters of credit under the facility unless the Company has less than $10.0 million in freely available cash and cash equivalents on its consolidated balance sheet both before and immediately after giving effect to the application of the proceeds of such borrowing. The amendment also requires the Company to prepay outstanding loans under the facility and/or cash collateralize outstanding letters of credit with the net cash proceeds from any issuance of debt or equity or, to the extent not reinvested in similar assets, from any sale of assets or insurance or condemnation award. The

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 1.

amendment further requires the Company to provide consolidated financial statements and joint venture financial statements to the lenders on a monthly basis. Finally, the amendment prohibits the Company from incurring capital leases or other indebtedness, making acquisitions or other investments, or prepaying other indebtedness unless the Company’s fixed charge coverage ratio for the most recently reported fiscal quarter exceeds 1.50:1.0 (calculated on a pro forma basis with regard to acquisitions), and completely eliminates the Company’s ability to pay dividends or repurchase shares of its stock.

In connection with this amendment, the Company was also required to amend its security agreement to provide for a springing lien on its machinery and equipment that will become effective on July 1, 2003.

Prior to this amendment to the Company’s senior credit facility, its Standard Gypsum joint venture guarantee contained financial maintenance covenants that were identical to those contained in its senior credit facility. However, the lenders to Standard Gypsum were unwilling to agree to the modifications that the Company made under the amendment to the senior credit facility. In order to avoid an event of default under that guarantee, the Company obtained a letter of credit under its senior credit facility in the face amount of $28.4 million. This letter of credit is issued in favor of the Standard Gypsum lenders and replaces the Company’s guarantee obligations. In exchange for this letter of credit, the Standard Gypsum lenders terminated the Company’s guarantee agreement and released its security interests in the Company’s accounts receivable and inventory. The Company must also pay a fee on October 28, 2003 in the amount of 2% of the full amount of this letter of credit in the event the letter of credit remains outstanding on that date. The letter of credit is renewable annually and may be drawn in the event of a default under the Standard Gypsum credit facility.

Concurrently with the amendments to the Company’s senior credit facility and the issuance of the letter of credit to the Standard Gypsum joint venture lenders as described above, the Company entered into an amendment of its Premier Boxboard guarantee that made changes to the financial covenants corresponding to those made in the sixth amendment to the Company’s senior credit facility. In exchange for this amendment, the Premier Boxboard lenders required that the maturity of the Premier Boxboard credit facility be shortened from June 26, 2005 to January 5, 2004 and that the aggregate commitments under the facility be reduced to equal the amount of outstanding loans and letters of credit of $20.3 million. Any reductions of outstanding loans under the facility may not be reborrowed and will permanently reduce the commitments, thereby effectively requiring the Company to fund Premier Boxboard’s operations from its internal cash flow and from any cash contributions that the Company and its joint venture partner are permitted to make. In addition, the Company will be required to pay a fee to the Premier Boxboard lenders of $100,000 on July 1, 2003 and on the first day of each month thereafter until the facility is terminated and all outstanding borrowings under the facility are fully paid.

In March 2003, the Company announced the permanent closure of its Buffalo Paperboard mill located in Lockport, New York. The Company expects to record a restructuring charge of approximately $5.0 million in connection with this closure. The Buffalo mill had an annual production capacity of approximately 72 thousand tons. In 2002, the mill operated at approximately 50% of capacity and recorded approximately $9.0 million in trade sales. Buffalo sales will be transferred to the Company’s other mills.

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 1.

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

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 37% in the first three months of 2002. The remaining 63% of our paperboard production is 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 $65 during 2001 and $60 during the first three months of 2002.

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 and the first quarter of 2001 before showing some improvement by the end of 2001. In 2001, the average energy cost in our mill system was approximately $57 per ton. During the first three months of 2002, energy costs decreased 14.0% to approximately $49 per ton. The decrease was due primarily to decreases 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 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. 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

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 2.

our operating margins and results of operations will not continue to be adversely affected by rising energy costs.

Historically, we have grown our business, revenues and production capacity to a significant degree through acquisitions. Based on the difficult operating climate for our industry and our financial position, the pace of our acquisition activity, and accordingly, our revenue growth, has slowed as we have focused on maximizing the productivity of our existing facilities. We made no acquisitions during the first three months of 2002.

We are a holding company that currently operates our business through 19 subsidiaries, as of March 2002. We also own a 50% interest in two joint ventures with Temple-Inland, Inc. We have an additional joint venture with an unrelated entity in which our investment and share of earnings of this venture is immaterial. We account for these interests in our joint ventures under the equity method of accounting. See “— Liquidity and Capital Resources” below.

Critical Accounting Policies

Our accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which require management to make estimates that affect the amounts of revenues, expenses, assets and liabilities reported. The following are critical accounting matters which are both very important to the portrayal of our financial condition and results and which require some of management’s most difficult, subjective and complex judgments. The accounting for these matters involves the making of estimates based on current facts, circumstances and assumptions which, in management’s judgment, could change in a manner that would materially affect management’s future estimates with respect to such matters and, accordingly, could cause future reported financial condition and results to differ materially from financial condition and results reported based on management’s current estimates.

Revenue Recognition. We recognize revenue in accordance with SEC Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements,” (“SAB 101”). SAB 101 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectibility is reasonably assured. Determination of criterion (4) is based on management’s judgments regarding the collectibility of our accounts receivable. Generally, we recognize revenue when we ship our manufactured products or when we complete a service.

Accounts Receivable. We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and the customer’s current credit worthiness, as determined by our review of their current credit information. We continuously monitor collections from our customers and maintain a provision for estimated credit losses based upon our historical experience and any specific customer collection issues that we have identified. While such credit losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past.

Inventory. Inventories are carried at the lower of cost or market. Cost includes materials, labor and overhead. Market, with respect to all inventories, is replacement cost or net realizable value. Management frequently reviews inventory to determine the necessity of reserves for excess, obsolete or unsaleable inventory. These reviews require management to assess customer and market demand. These estimates may prove to be inaccurate, in which case we may have understated the reserve required for excess, obsolete or unsaleable inventory.

Impairment of Long-Lived Assets and Goodwill. We periodically evaluate acquired businesses for potential impairment indicators. Effective January 1, 2002 we adopted SFAS No. 142, “Goodwill and Other Intangible Assets.” This pronouncement requires us to perform a goodwill impairment test at least annually. See Note 7

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 2.

of “Notes to Consolidated Financial Statements” for additional information regarding our goodwill accounting. Our judgments regarding the existence of impairment indicators are based on legal factors, market conditions and operational performance of our acquired businesses. Future events could cause us to conclude that impairment indicators exist and that goodwill associated with our acquired businesses is impaired. Evaluating the impairment of goodwill also requires us to estimate future operating results and cash flows, which also require judgment by management. Any resulting impairment loss could have a material adverse impact on our net income and our balance sheet.

Self-Insurance. We are self-insured for the majority of our workers’ compensation costs and group health insurance costs, subject to specific retention levels. Consulting actuaries and administrators assist us in determining our liability for self-insured claims. While we believe that our assumptions are appropriate, significant differences in our actual experience or significant changes in our assumptions may materially affect our workers’ compensation costs and group health insurance costs.

Accounting for Income Taxes. As part of the process of preparing our consolidated financial statements we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves estimating our actual current tax exposure, together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must include an expense within the tax provision in the statement of operations.

Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our deferred tax assets. We record valuation allowances due to uncertainties related to our ability to utilize some of our deferred tax assets, primarily consisting of certain state net operating losses carried forward and state tax credits, before they expire. The valuation allowance is based on our estimates of taxable income by jurisdiction in which we operate and the period over which our deferred tax assets will be recoverable. In the event that actual results differ from these estimates or we adjust these estimates in future periods we may need to establish an additional valuation allowance which could have a material negative impact on our net income and our balance sheet.

Pension and Other Postretirement Benefits. The determination of our obligation and expense for pension and other postretirement benefits is dependent on our selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions include, among others, the discount rate, expected long-term rate of return on plan assets and rates of increase in compensation and healthcare costs. In accordance with generally accepted accounting principles, actual results that differ from our assumptions are accumulated and amortized over future periods and therefore, generally affect our recognized expense, recorded obligation and funding requirements in future periods. While we believe that our assumptions are appropriate, significant differences in our actual experience or significant changes in our assumptions may materially affect our pension and other postretirement benefit obligations and our future expense.

Three Months Ended March 31, 2002 and 2001

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 unconsoli-

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 2.

dated joint ventures, are combined and presented along end-use market lines. Additional financial information is reported by segment in the notes to the consolidated financial statements.



					Three Months Ended
					March 31,
												%
					2002		2001		Change			Change

Production source of paperboard tons sold (in thousands):
	From paperboard mill production					227.0		217.9		9.1			4.2	%
	Outside purchases					32.0		31.7		0.3			0.9	%

				Total paperboard tonnage		259.0		249.6		9.4			3.8	%

	Tons sold by market (in thousands):
	Tube, core and composite container volume
		Paperboard (internal)				44.4		46.7		(2.3	)		-4.9	%
		Outside purchases				5.6		6.7		(1.1	)		-16.4	%

	Tube, core and composite container converted products					50.0		53.4		(3.4	)		-6.4	%
	Unconverted paperboard					8.4		7.5		0.9			12.0	%

				Tube, core and composite container volume		58.4		60.9		(2.5	)		-4.1	%
	Folding carton volume
		Paperboard (internal)				22.9		20.0		2.9			14.5	%
		Outside purchases				25.0		23.4		1.6			6.8	%

	Folding carton converted products					47.9		43.4		4.5			10.4	%
	Unconverted paperboard					58.7		54.9		3.8			6.9	%

				Folding carton volume		106.6		98.3		8.3			8.4	%
	Gypsum wallboard facing paper volume
		Unconverted paperboard				39.7		35.1		4.6			13.1	%
		Outside purchases (for resale)				—		—		—			—

				Gypsum wallboard facing paper volume		39.7		35.1		4.6			13.1	%
	Other specialty products volume
		Paperboard (internal)				16.4		18.7		(2.3	)		-12.3	%
		Outside purchases				1.4		1.6		(0.2	)		-12.5	%

	Other specialty converted products					17.8		20.3		(2.5	)		-12.3	%
	Unconverted paperboard					36.5		35.0		1.5			4.3	%

				Other specialty products volume		54.3		55.3		(1.0	)		-1.8	%

				Total paperboard tonnage		259.0		249.6		9.4			3.8	%

Gross paper margins ($/ton):
		Paperboard mill:
			Average same-mill net selling price		$	394	$	422	$	(28	)		-6.6	%
			Average same-mill recovered fiber cost			60		69		(9	)		-13.0	%

				Paperboard mill gross paper margin	$	334	$	353	$	(19	)		-5.4	%

		Tube and core:
			Average net selling price		$	771	$	797	$	(26	)		-3.3	%
			Average paperboard cost			434		453		(19	)		-4.2	%

				Tube and core gross paper margin	$	337	$	344	$	(7	)		-2.0	%

Sales. Our consolidated sales for the three months ended March 31, 2002 were $222.2 million, a decrease of 4.7% from $233.1 million in the same period of 2001. This decline was due primarily to a decrease in selling prices in all segments, partially offset by increased volume in the paperboard segment.

Total paperboard tonnage for the first quarter of 2002 increased 3.8% to 259.0 thousand tons compared to 249.6 thousand tons in the first quarter of 2001. This increase was primarily due to higher shipments of

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 2.

unconverted paperboard to external customers in the gypsum wallboard facing paper and the folding carton markets. First quarter 2002 outside purchases increased 0.9% to 32.0 thousand tons. Tons sold from paperboard mill production increased 4.2% for the first three months of 2002 to 227.0 thousand tons, compared with 217.9 thousand tons for the same period last year. Total tonnage converted decreased 1.2% for the first quarter of 2002 to 115.7 thousand tons compared to 117.1 thousand tons in the first quarter of 2001.

Gross Margin. Gross margin for the first three months of 2002 increased to 25.5% of sales from 23.5% in the same period in 2001. This margin increase was due primarily to improved margins in the paperboard segment. Despite lower selling prices in the paperboard segment, margins increased due to higher volume, a decline in recovered fiber and energy costs and cost-cutting efforts that resulted in reduced manufacturing expenses.

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. During 2001 and the first quarter of 2002, we paid $1.2 million in severance and termination benefits and $774 thousand in other exit costs. The remaining other exit costs were paid by December 31, 2002. As of December 31, 2002, one employee remained to assist in the closing of the mill. We currently are marketing the property.

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. All exit costs were paid as of December 31, 2001, and the exit plan was completed.

Operating Income. Operating income for the first three months of 2002 was $9.7 million, an improvement of $11.8 million from a $2.1 million loss for the same period last year. The improvement in operating income was due to the following:

• Restructuring costs of $7.1 million were recorded in the first quarter of 2001 and none were recorded in 2002

• Goodwill amortization expense of $1.0 million was recorded in the first quarter of 2001 and no expense was recorded in 2002 pursuant to SFAS No. 142

• Higher volume and lower energy costs in the paperboard segment

Partially offsetting the improvements above was a decline in selling prices in the carton and custom packaging segment due to intense competition in that market.

Selling, general and administrative expenses decreased by $2.7 million, or 7.4%, in the first quarter of 2002 compared to the first quarter of 2001. This decrease was attributable primarily to the discontinuation of goodwill amortization expense in the first quarter of 2002, as described above, combined with decreased expenses in the paperboard segment due to cost-cutting efforts.

In April 1999, we purchased International Paper Company’s Sprague boxboard mill located in Versailles, Connecticut. This acquisition has had a significant impact on our earnings since that time. Sprague incurred an operating loss of $1.4 million in the first three months of 2002, which is an improvement of $3.7 million over first quarter of 2001 operating loss of $5.1 million. The first quarter 2001 loss was attributable to a combination of unfavorable fixed price contracts and low capacity utilization. Our primary objectives at

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 2.

Sprague have been to improve quality, reduce costs and increase sales volume. We have made significant progress in quality and cost and are beginning to realize the benefits. 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 sales volume. Although we expect losses at Sprague to continue to decline, in light of current difficult industry conditions, we do not expect Sprague to be profitable until at least the second half of 2002.

Other Income (Expense). Interest expense for the first three months of 2002 was $9.3 million versus $9.2 million in the same period of 2001. This slight increase was due to higher outstanding debt balances at higher interest rates, which were 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 was $3 thousand in the first quarter of 2002, an improvement of $1.6 million from equity in loss of $1.6 million in the first quarter of 2001. This increase was primarily due to improved operating results for Standard Gypsum, L.P., our gypsum wallboard joint venture, partially offset by lower operating results for Premier Boxboard Limited LLC, our paper mill joint venture. Standard Gypsum’s operating results improved primarily due to increased volume and selling prices in the gypsum wallboard market, while Premier Boxboard Limited’s operating results declined primarily due to lower volume. Both of these joint ventures are with Temple-Inland.

Net Income (Loss). Net income for the first three months of 2002 was $499 thousand, or $0.02 net income per common share on a diluted basis, compared to a net loss of $10.8 million, or $0.39 net loss per common share on a diluted basis, for the same period last year. The improvement from prior year was due to the following:

• Higher operating income as explained above

• First quarter 2001 results include an extraordinary loss of $2.7 million (net of tax benefit) related to the early extinguishment of debt

• An improvement in operating results of our unconsolidated joint ventures, as explained above

Events of September 11, 2001. The horrific terrorist attacks against the United States and their aftermath did not, during 2001 or the first three months of 2002, 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 have adversely affected, or will continue to 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 have been, and could continue to be, adversely affected.

Liquidity and Capital Resources

Liquidity Sources and Risks. Our primary sources of liquidity are cash from operations and borrowings under the various debt facilities described below. Downturns in operations can significantly affect our ability to generate cash. Factors that can affect our operating results are discussed further in this Report under “Risk Factors.” We generated $16.0 million in cash from operations in the first quarter of 2002 and increased our cash balance by $3.2 million. We believe that our existing cash and liquidity position will be further strengthened through the sale of the real estate at our Baltimore, Maryland, Camden, New Jersey and Chicago, Illinois paperboard mills, which we anticipate will occur in 2002. Additionally, we received a federal tax refund of approximately $16.0 million in April of 2002 from the carryback of the 2001 net operating loss. If, however, we were to face unexpected liquidity needs, we could require additional funds from external sources such as our senior credit facility. See “Subsequent Events” below regarding amendments to our senior credit facility.

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 2.

The availability of liquidity from borrowings is primarily affected by our continued compliance with the terms of the debt agreements governing these facilities, including the payment of interest and compliance with various covenants and financial maintenance tests. In addition, as described below under “— Joint Venture Financings,” to the extent we are unable to comply with financial maintenance tests under our senior credit facility, we will fail to comply with identical financial maintenance covenant tests under our guarantees of the credit facilities of our joint ventures, which could potentially materially and adversely affect us through a series of cross-defaults under both our joint ventures’ and our own obligations if we were unable to obtain appropriate waivers or amendments with respect to the underlying violations and any related cross-defaults.

At March 31, 2002, we were in compliance with the leverage ratio and interest coverage ratio, respectively, under both our senior credit facility and our joint venture guarantees. In 2002 and 2003, we were required to obtain additional amendments [and waivers] under both our senior credit facility and our joint venture guarantees. See “Subsequent Events.” Absent further material deterioration of the U.S. economy as a whole or the specific sectors on which our business depends (see “Risk Factors — Our business and financial performance may be adversely affected by downturns in industrial production, housing and construction and the consumption of durable and nondurable goods”), we believe it is unlikely that we will breach our covenants under our debt agreements or joint venture guarantees during the balance of 2003. However, we cannot assure you that we will achieve our expected future operating results or continued compliance with our debt covenants, or that, in such event, necessary waivers and amendments would be available at all or on acceptable terms. If our debt or that of our joint ventures were placed in default, or if we were called upon to satisfy our joint venture guarantees, our liquidity and financial condition would be materially and adversely affected.

Borrowings. At March 31, 2002 and 2001, and December 31, 2001, total debt (consisting of current maturities of debt, senior credit facility, and other long-term debt, as reported on our consolidated balance sheets) was as follows (in thousands):



	March 31,
					December 31,
	2002		2001		2001

Senior credit facility	$	—	$	—	$	—
7 1/4% senior notes		25,520		25,243		25,449
7 3/8% senior notes		189,472		198,817		197,716
9 7/8% senior subordinated notes		274,656		274,128		277,326
Other notes payable		8,248		8,306		8,248

Total debt	$	497,896	$	506,494	$	508,739

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. We recorded an extraordinary loss of $2.7 million, which included the prepayment penalty and unamortized issuance costs of $705 thousand, net of tax benefit of $1.6 million. The difference between issue price and principal amount at maturity of our 7 1/4% senior notes 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. Management considers this

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 2.

nonguarantor domestic subsidiary immaterial to investors, therefore, separate financial statements are not presented.

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 March 31, 2002 or March 31, 2001; however, an aggregate of $10.0 million in letter of credit obligations were outstanding on March 31, 2002. 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 March 31, 2002, 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 March 31, 2002.

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 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 our company.

During the third and fourth quarters of 2001 and the first quarter of 2002, we completed three amendments to our senior credit facility agreement. The first amendment, dated September 10, 2001, 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.

The second amendment, dated November 30, 2001, provides for the issuance of letters of credit under the senior credit facility having an original expiration date more than one year from the date of issuance, if required under related industrial revenue bond documents and agreed to by the issuing lender.

The third amendment was completed on January 22, 2002 with an effective date of September 30, 2001. We obtained this amendment in order to avoid the occurrence of an event of default under our senior credit facility agreement resulting from a violation of the interest coverage ratio covenant contained in the agreement. This amendment modified the definitions of “Interest Expense,” “Premier Boxboard Interest Expense” and “Standard Gypsum Interest Expense” to include interest income and the benefit or expense derived from interest rate swap agreements or other interest hedge agreements. Additionally, the amendment lowered the minimum allowable interest coverage ratio for the fourth quarter of 2001 from 2.5:1.0 to 2.25:1.0, the first quarter of 2002 from 2.75:1.0 to 2.25:1.0, and the second quarter of 2002 from 2.75:1.0 to 2.50:1.0.

See “Subsequent Events” below regarding additional amendments to our joint venture debt agreements and our senior credit facility.

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 2.

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. On February 5, 2002, we purchased $6.75 million in principal amount of our 7 3/8% senior notes on the open market. This purchase will lower our interest expense by approximately $500 thousand annually.

Interest Rate Swaps. 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 the three-month LIBOR plus a fixed margin. These swap agreements decreased interest expense by $2.5 million in the first three months of 2002. We expect our swap agreements to continue to lower our interest expense; however, if the three-month LIBOR increases significantly, our interest expense could be adversely affected. Based on the three-month LIBOR at March 31, 2002, our swaps would reduce our interest expense by approximately $9.6 million for 2002 compared with $3.8 million in 2001. If the three-month LIBOR increases 100 basis points, our savings on interest expense would be reduced by approximately $2.85 million annually.

The following table identifies the debt instrument hedged, the notional amount, the fixed spread and the three-month LIBOR at March 31, 2002 for each of our interest rate swaps. The March 31, 2002 three-month LIBOR is presented for informational purposes only and does not represent our actual effective rates in place at March 31, 2002.


						Three-Month
	Notional					LIBOR at			Total
	Amount		Fixed			March 31,			Variable
Debt Instrument	(000’s)		Spread			2002			Rate

7 3/8% senior notes	$	50,000		2.365	%		2.031	%		4.396	%
7 3/8% senior notes		25,000		1.445			2.031			3.476
7 3/8% senior notes		25,000		1.775			2.031			3.806
9 7/8% senior subordinated notes		185,000		4.400			2.031			6.431

In October 2001, we unwound our $185.0 million interest rate swap agreement related to 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 market conditions.

See “Subsequent Events” below regarding transactions related to our interest rate swap agreements.

Joint Venture Financings. As noted above, we own a 50% interest in two joint ventures with Temple-Inland, Inc.: Standard Gypsum, L.P. and Premier Boxboard Limited LLC. Because we account for these interests in our joint ventures under the equity method of accounting, the indebtedness of these joint ventures is not reflected in the liabilities included on our consolidated balance sheets. As described below, we have guaranteed certain obligations of these joint ventures. A default under these guarantees also constitutes a default under the credit facilities of these joint ventures and our senior credit facility. The guarantees also contain independent financial maintenance covenants that are identical to the covenants under our senior credit facility. Accordingly, our default under one or more of these covenants would technically permit the lenders under the joint venture credit facilities and our joint venture partner’s respective guarantees of those facilities, as well as the lenders under our senior credit facility, if they so elected, to prohibit any future borrowings under these facilities and to accelerate all such outstanding obligations under these facilities. The

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 2.

resulting acceleration of our obligations could also cause further defaults and accelerations under our 9 7/8% senior subordinated notes, our 7 1/4% senior notes and our 7 3/8% senior notes. In January 2002, we entered into agreements with the Premier Boxboard Limited and Standard Gypsum lenders that correspond to the amendments made in the third amendment to the senior credit facility, as described above. At March 31, 2002, we were in compliance with all covenants under these guarantees. See the “Subsequent Events” note to the consolidated financial statements for additional amendments to these guarantee agreements.

Standard Gypsum is the obligor under reimbursement agreements pursuant to which direct-pay letters of credit in the aggregate original amount of approximately $56.2 million have been issued for its account in support of industrial development bond obligations. We have severally and unconditionally guaranteed 50% of Standard Gypsum’s obligations for reimbursement of letter of credit drawings, interest, fees and other amounts. The other Standard Gypsum partner, Temple-Inland, has similarly guaranteed 50% of Standard Gypsum’s obligations. As of March 31, 2002, the outstanding letters of credit totaled approximately $56.2 million, of which one-half (approximately $28.1 million) is guaranteed by us.

Premier Boxboard is the borrower under a credit facility providing for up to $30.0 million in revolving loans (with a subfacility for up to $1.0 million in letters of credit). The credit facility was originally entered into in July 1999 and matures in June 2005. We have severally and unconditionally guaranteed 50% of Premier Boxboard’s obligations under the credit facility for principal (including reimbursement of letter of credit drawings), interest, fees and other amounts. Temple-Inland has similarly guaranteed 50% of Premier Boxboard’s obligations. As of March 31, 2002, the outstanding principal amount of borrowings under the facility (including outstanding letters of credit) was approximately $20.2 million, of which one-half (approximately $10.1 million) is guaranteed by us.

In addition to the general default risks discussed above with respect to the joint ventures, a substantial portion of the assets of Premier Boxboard are pledged as security for $50.0 million in outstanding principal amount of senior notes under which Premier Boxboard is the obligor. These notes are guaranteed by Temple-Inland, but are not guaranteed by us. A default under the Premier Boxboard credit facility would also constitute an event of default under these notes. In the event of default under these notes, the holders would also have recourse to the assets of Premier Boxboard that are pledged to secure these notes. Thus, any resulting default under these notes could result in the assets of Premier Boxboard being utilized to satisfy creditor claims, which would have a material adverse effect on the financial condition and operations of Premier Boxboard and, accordingly, our interest in Premier Boxboard. Further, in such an event of default, these assets would not be available to satisfy obligations owing to unsecured creditors of Premier Boxboard, including the lender under the credit facility, which might make it more likely that our guarantee of the Premier Boxboard credit facility would be the primary source of repayment under the facility in the event Premier Boxboard cannot pay.

Additional contingencies relating to our joint ventures that could affect our liquidity include possible additional capital contributions and buy-sell triggers which, under certain circumstances, give us and our joint venture partner either the right, or the obligation, to purchase the other’s interest or to sell an interest to the other. In the case of both Standard Gypsum and Premier Boxboard, neither joint venture partner is obligated or required to make additional capital contributions without the consent of the other. With regard to buy-sell rights, under the Standard Gypsum joint venture, in general, either party may purchase the other’s interest upon the occurrence of certain purported unauthorized transfers or involuntary transfer events (such as bankruptcy). In addition, under the Standard Gypsum joint venture, either (i) in the event of an unresolved deadlock over a material matter or (ii) at any time after April 1, 2001, either party may initiate a “Russian roulette” buyout procedure by which it names a price at which the other party must agree either to sell its interest to the initiating party or to purchase the initiating party’s interest. Under the Premier Boxboard joint venture, in general, mutual buy-sell rights are triggered upon the occurrence of certain purported unauthorized or involuntary transfers, but in the event of certain change of control or deadlock events, the buy-sell rights are structured such that we are always the party entitled, or obligated, as the case may be, to purchase.

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 2.

We generally consider our relationship with Temple-Inland to be good with respect to both of our joint ventures and do not anticipate experiencing material liquidity events resulting from either additional capital contributions or buy-sell contingencies with respect to our joint ventures during 2002. We cannot assure you, however, that these assumptions will prove accurate or that such liquidity events will not arise.

Cash from Operations. Cash generated from operations was $16.0 million for the three month period ended March 31, 2002, compared with $5.4 million in the same period of 2001. The increase was due primarily to improved operating results, a distribution from one of our joint ventures and favorable changes in working capital.

Capital Expenditures. Capital expenditures were $5.8 million in the first quarter of 2002 versus $11.8 million in the first quarter of 2001. Aggregate capital expenditures of approximately $23.4 million are anticipated for 2002.

Dividends. We paid cash dividends of $833 thousand in the first quarter of 2002 versus $4.7 million in the first quarter of 2001. Since February 2001, we have reduced our dividend payments from $0.18 per issued and outstanding common share to $0.03. Then, in February 2002, we announced that we would suspend future dividend payments on our common stock until our earnings performance exceeds the dividend limitation provision of our senior subordinated notes. We made these decisions to reduce the quarterly dividends to preserve our financial flexibility in light of difficult industry conditions and due to the limitations on dividend payments in our financial covenants. 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 included in our financial covenants.

Share Repurchases. We did not purchase any shares of our common stock during the first three months of 2002 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. However, our 9 7/8% senior subordinated notes and our senior credit facility limit our ability to purchase our common stock.

Subsequent Events

In January 2002, we completed a third amendment to our senior credit facility that modified the definitions of “Interest Expense,” “Premier Boxboard Interest Expense” and “Standard Gypsum Interest Expense” to include interest income and the benefit or expense derived from interest rate swap agreements or other interest hedge agreements. Additionally, the amendment lowered the minimum allowable interest coverage ratio for the fourth quarter of 2001 from 2.5:1.0 to 2.25:1.0, the first quarter of 2002 from 2.75:1.0 to 2.25:1.0, and the second quarter of 2002 from 2.75:1.0 to 2.50:1.0.

Also in January 2002, we entered into agreements with the PBL and Standard Gypsum lenders that correspond to the amendments made in the third amendment to the senior credit facility, as described above, in order to avoid events of default under those guarantees resulting from a violation of the interest ratio coverage covenants.

In February 2002, we announced that we would suspend future dividend payments on our common stock until our earnings performance exceeds the dividend limitation provision of our senior subordinated notes.

In June 2002, we recorded a $985 thousand noncash, pretax restructuring charge related to the permanent closure of our Camden and Chicago paperboard mills, which were shut down in 2000 and 2001, respectively. The $985 thousand charge represents a revised estimate of fixed asset disposals at these mills.

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 2.

In August 2002, we unwound our $185.0 million interest rate swap agreement related to the 9 7/8% senior subordinated notes and received $5.5 million from the bank counter-party. Simultaneously, we executed a new swap agreement with a fixed spread that was 17 basis points higher than the original swap agreement. The new swap agreement was the same notional amount, had the same terms and covers the same notes as the original agreement. In September 2002, we repaid the $5.5 million and entered into a new swap agreement that lowered the fixed spread by 7.5 basis points from the August 2002 swap.

In September 2002, we acquired certain operating assets (excluding accounts receivable) of the Smurfit Industrial Packaging Group, a business unit of Jefferson Smurfit Corporation (U.S.), for approximately $67.1 million, and assumed $1.7 million of indebtedness outstanding under certain industrial revenue bonds. The acquisition was funded with cash on hand. Goodwill and intangible assets of approximately $40.6 million were recorded in conjunction with the Smurfit Industrial Packaging Group acquisition.

Smurfit Industrial Packaging Group operations included 17 paper tube and core plants, 3 uncoated recycled paperboard mills and 3 partition manufacturing plants. These facilities are located in 16 states across the U.S. and in Canada. We believe that these assets enhance our capabilities in the tube, core and composite container market and position us as a prominent producer in this market.

In September 2002, in connection with the acquisition of the Smurfit Industrial Packaging Group, we entered into a fourth amendment to our senior credit facility. The purpose of this amendment was to obtain the required lender consent under the senior credit facility for the consummation of the acquisition (and the incurrence of up to $60.0 million in subordinated debt financing to refinance borrowings under the credit facility and restore cash used to fund a portion of the acquisition price), to lower the minimum allowable tangible net worth for all periods after the effective date of the amendment, and to increase the maximum permitted leverage ratio covenant to 70.0% for the fiscal quarters ending December 31, 2002, March 31, 2003 and June 30, 2003, and 67.5% for the fiscal quarter ending September 30, 2003. Additionally, the minimum interest coverage ratio covenant was replaced with a minimum fixed charge coverage ratio covenant beginning with the third quarter of 2002. These modifications, in addition to increasing our flexibility to finance the acquisition, were necessary to enable us to avoid violations of the leverage ratio and interest coverage ratio covenants for the third quarter of 2002 and violations of the leverage ratio covenant in future periods.

In exchange for these modifications, our lenders required an increase in the applicable margin component of the interest rates applicable to borrowings under the facility and the facility fee rate applicable to the undrawn portion of the facility. The amendment also provided for a pricing increase of 0.25% effective November 15, 2002, if we did not issue at least $50.0 million in senior subordinated notes by that date, which we did not, and an increase of 0.25% every three months after that date until the first date on which our balance of cash and cash equivalents is at least $50.0 million and we have no loans outstanding under the facility (subject to a maximum interest margin of 3.75% for Eurodollar rate loans and 2.50% for base rate loans). In addition, under the terms of the fourth amendment, we were required to enter into a security agreement under which we and our subsidiary guarantors under the senior credit facility granted a first priority security interest in our respective accounts receivable and inventory to secure our obligations under the credit facility and our obligations under our 50% guarantees of the credit facilities of Standard Gypsum and Premier Boxboard.

In November 2002, we unwound $50.0 million of our $185.0 million interest rate swap agreement related to the 9 7/8% senior subordinated notes, and received approximately $2.8 million from the bank counter-party. Simultaneously, we unwound $50.0 million of one of our interest rate swap agreements related to the 7 3/8% senior notes, and received approximately $3.4 million. The $6.2 million gain will be accreted to interest expense over the remaining term of the notes and will partially offset the increase in interest expense. The $2.8 million gain lowered the effective interest rate of the 9 7/8% senior subordinated notes from 10.0% to 9.8%. The $3.4 million gain lowered the effective interest rate of the 7 3/8% senior notes from 7.5% to 7.2%.

In December 2002, we completed a fifth amendment to our senior credit facility. This amendment modified the calculation of net worth for purposes of our leverage ratio and tangible net worth financial maintenance

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 2.

covenants to exclude adjustments to other comprehensive loss related to our defined benefit pension plan. This amendment also allows us to exclude from these financial maintenance covenant calculations any restructuring costs recorded in the fourth quarter of 2002 and first quarter of 2003 as long as the aggregate of these restructuring costs does not exceed $16.0 million, on an after tax basis.

In December 2002, we initiated a plan to restructure our carton plant in Ashland, Ohio to serve a smaller, more focused carton market and recorded a pretax charge to operations of approximately $2.4 million. The $2.4 million charge included a $1.2 million noncash write down of assets.

In December 2002, we initiated a plan to permanently close our Halifax paperboard mill located in Roanoke Rapids, North Carolina and recorded a pretax charge to operations of approximately $3.4 million. The $3.4 million charge included a $3.0 million noncash write down of assets.

In December 2002, we initiated a plan to consolidate our converting operations in Fayetteville, North Carolina into Carolina Component Concepts, also located in North Carolina, and recorded a pretax charge to operations of approximately $6.0 million. The $6.0 million charge included a $2.4 million noncash write down of assets.

In January 2003, we effectively unwound $85.0 million of our $135.0 million interest rate swap agreement related to the 9 7/8% senior subordinated notes by assigning our rights and obligations under the swap to one of our lenders under the senior credit facility. In exchange, we received approximately $4.3 million. We will accrete this gain into interest expense over the remaining term of the notes, which will partially offset the increase in interest expense. The gain will lower the effective interest rate of the 9 7/8% senior subordinated notes from 9.8% to 9.5%.

In February 2003, we announced the indefinite idling of one of two coated recycled paperboard machines at our Rittman, Ohio paperboard mill. Recently completed upgrades in our mill system will facilitate the transfer of production from the idled machine to our other mills. The Rittman workforce will be indefinitely reduced by 80 hourly employees, and we will recognize a related expense of approximately $1.2 million.

On March 28, 2003, we completed a sixth amendment to our senior credit facility. This amendment increased our maximum permitted leverage ratio to 70.0% for the fiscal quarters ending September 30, 2003 and December 31, 2003 and 67.5% for each succeeding fiscal quarter, lowered our minimum fixed charge coverage ratio from 1.50:1.0 for all fiscal quarters to 0.95:1.0 for the fiscal quarter ending March 31, 2003, 0.85:1.0 for the fiscal quarters ending June 30, 2003 and September 30, 2003 and 1.05:1.0 for the fiscal quarter ending December 31, 2003, lowered our minimum tangible net worth covenant for all periods on and after the effective date of the amendment, and lowered our maximum permitted capital expenditures to $30.0 million per fiscal year. For purposes of calculating compliance with our leverage ratio and net worth covenants, this amendment also establishes a maximum of $30.0 million for aggregate adjustments to other comprehensive loss related to our defined benefit pension plan. This amendment also increases to $43.0 million our subfacility for the issuance of letters of credit under the facility, in order to permit us to obtain a letter of credit to replace our Standard Gypsum joint venture guarantee as described below. Finally, this amendment terminated the quarterly pricing increase established under the fourth amendment to the facility entered into in September 2002 and fixed our maximum interest margins at 3.25% for LIBOR loans and 2.00% for base rate loans. The financial covenant modifications were necessary to enable us to avoid possible violations of our leverage ratio covenant for the third and fourth quarters of 2003, our fixed charge coverage ratio covenant for all quarters during 2003 and our net worth covenant for the second quarter of 2003

In exchange for these modifications, our lenders required us to permanently reduce the aggregate commitments under the facility from $75.0 million to $47.0 million, to shorten the maturity of the facility from March 29, 2005 to April 1, 2004, and to pay a monthly fee beginning on July 1, 2002 equal to 1.0% of the aggregate commitments under the facility. Our lenders also required the establishment of a borrowing base that restricts availability under the facility based on monthly computations of eligible accounts receivable and

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 2.

inventory, reduced by our net hedging obligations owed to lenders under the facility and by the amount of our guarantee obligations under our joint venture guarantees that are not secured or replaced by letters of credit. Additionally, we will not be permitted to borrow or request the issuance of letters of credit under the facility unless we have less than $10.0 million in freely available cash and cash equivalents on our consolidated balance sheet both before and immediately after giving effect to the application of the proceeds of such borrowing. The amendment also requires us to prepay outstanding loans under the facility and/or cash collateralize outstanding letters of credit with the net cash proceeds from any issuance of debt or equity or, to the extent not reinvested in similar assets, from any sale of assets or insurance or condemnation award. The amendment further requires us to provide consolidated financial statements and joint venture financial statements to the lenders on a monthly basis. Finally, the amendment prohibits us from incurring capital leases or other indebtedness, making acquisitions or other investments, or prepaying other indebtedness unless our fixed charge coverage ratio for the most recently reported fiscal quarter exceeds 1.50:1.0 (calculated on a pro forma basis with regard to acquisitions), and completely eliminates our ability to pay dividends or repurchase shares of our stock.

In connection with this amendment, we were also required to amend our security agreement to provide for a springing lien on our machinery and equipment that will become effective on July 1, 2003.

We intend to refinance our senior credit facility with a new revolving credit facility, which we expect would be an asset-based credit facility secured by substantially all of our assets. We expect to complete this refinancing by the end of the second quarter of 2003. In connection with this refinancing, we also intend to refinance our joint venture credit facilities and our credit support of such facilities. However, we cannot give assurance that we will be able to complete a new credit facility on terms that are acceptable to us, or that we will be able to refinance our joint venture credit facilities and related credit support as part of or in connection with any such new credit facility.

Prior to this amendment to our senior credit facility, our Standard Gypsum joint venture guarantee contained financial maintenance covenants that were identical to those contained in our senior credit facility. However, the lenders to Standard Gypsum were unwilling to agree to the modifications that we made under the amendment to the senior credit facility. In order to avoid an event of default under that guarantee, we obtained a letter of credit under our senior credit facility in the face amount of $28.4 million. This letter of credit is issued in favor of the Standard Gypsum lenders and replaces our guarantee obligations. In exchange for this letter of credit, the Standard Gypsum lenders terminated our guarantee agreement and released their security interests in our accounts receivable and inventory. We must also pay a fee on October 28, 2003 in the amount of 2% of the full amount of this letter of credit in the event the letter of credit remains outstanding on that date. The letter of credit is renewable annually and may be drawn in the event of a default under the Standard Gypsum credit facility. However, in the event we are in default under our senior credit facility or have insufficient availability under the facility, we may not be able to obtain an extension or renewal of this letter of credit, which could result in an event of default under our Standard Gypsum credit facility. Further, if we are not able to refinance our existing senior credit facility prior to April 1, 2004, we may not be able to obtain an alternate letter of credit in favor of the Standard Gypsum lenders, which could result in an event of default under our Standard Gypsum credit facility.

Concurrently with the amendments to our senior credit facility and the issuance of the letter of credit to the Standard Gypsum lenders as described above, we entered into an amendment of our Premier Boxboard guarantee that made changes to the financial covenants corresponding to those made in the sixth amendment to our senior credit facility. In exchange for this amendment, the Premier Boxboard lenders required that the maturity of the Premier Boxboard credit facility be shortened from June 26, 2005 to January 5, 2004 and that the aggregate commitments under the facility be reduced to equal the amount of outstanding loans and letters of credit of $20.3 million. Any reductions of outstanding loans under the facility may not be reborrowed and will permanently reduce the commitments, thereby effectively requiring us to fund Premier Boxboard’s operations from its internal cash flow and from any cash contributions that we and our joint venture partner

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 2.

are permitted to make. In addition, we will be required to pay a fee to the Premier Boxboard lenders of $100,000 on July 1, 2003 and on the first day of each month thereafter until the facility is terminated and all outstandings under the facility are fully paid. The reduction of the commitments under this credit facility eliminates availability for borrowings unless we are able to reduce outstandings under the facility, and, if we are not able to fund Premier Boxboard’s operations in this manner, its performance could be adversely affected. Further, if we are unable to refinance this facility prior to January 5, 2004, the entire facility would become immediately due and payable and we would be required to satisfy our guarantee of 50% of the obligations under the facility. Any acceleration of the obligations under either or both of our joint venture facilities could also cause further defaults and acceleration under our 9 7/8% senior subordinated notes, our 7 1/4% senior notes and our 7 3/8% senior notes.

In March 2003, we announced the permanent closure of our Buffalo Paperboard mill located in Lockport, New York. We expect to record a restructuring charge of approximately $5.0 million in connection with this closure. Our Buffalo mill had an annual production capacity of approximately 72 thousand tons. In 2002, the mill operated at approximately 50% of capacity and recorded approximately $9.0 million in trade sales. Buffalo sales will be transferred to our other mills.

Georgia-Pacific Litigation

On March 26, 2002, we reached a final settlement with Georgia-Pacific Corporation concerning the dispute regarding the terms of the long-term supply agreement that had been the subject of our previously reported litigation with Georgia-Pacific. We and G-P Gypsum, a wholly-owned subsidiary of Georgia-Pacific, have resolved the dispute by entering into a new five-year paperboard supply agreement that provides that we will produce and sell to G-P Gypsum between 0.378 and 0.756 billion square feet (10 to 20 thousand tons) of paper per year to be used in G-P Gypsum’s ToughRock wallboard. This new paperboard supply agreement supersedes the terms of the tentative settlement previously announced on May 9, 2001 and the agreement and transition period that had been a part of that tentative settlement. As a result of the final settlement, our previously filed suit against Georgia-Pacific in the General Court of Justice, Superior Court Division of Mecklenburg County, North Carolina (Case No. 00-CVS-12302), and Georgia-Pacific’s previously reported separate action filed in the Superior Court of Fulton County, Georgia (Case No. 2000-CV-27684), were each dismissed with prejudice on April 1 and 2, 2002, respectively.

New Accounting Pronouncements

SFAS No. 142 supercedes APB Opinion No. 17, “Intangible Assets”. This pronouncement prescribes the accounting practices for goodwill and other intangible assets. Under this pronouncement, goodwill will no longer be amortized to earnings, but instead will be reviewed periodically (at least annually) for impairment. We adopted this pronouncement effective January 1, 2002. We have completed our initial impairment test, which was required to be completed by June 30, 2002, and have determined that no impairment of goodwill exists. See Note 7 of “Notes to Consolidated Financial Statements” for additional information regarding goodwill accounting.

In July 2001, the FASB issued SFAS No. 143, “Accounting for Asset Retirement Obligations” (“SFAS No. 143”). This pronouncement requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes the

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 2.

cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, the entity either settles the obligation for the amount recorded or incurs a gain or loss. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. We are currently evaluating this pronouncement and do not expect the adoption of this pronouncement to have a material impact on our consolidated financial statements.

In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”). This pronouncement addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supercedes SFAS No. 121. SFAS No. 144 is effective for fiscal years beginning after December 15, 2001. We adopted SFAS No. 144 as of January 1, 2002. This pronouncement did not have a material impact on our consolidated financial statements upon adoption.

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 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, that are based on our beliefs and assumptions, as well as information currently available to us. 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. These statements involve risks and uncertainties that could cause our actual results to differ materially depending on a variety of important factors, including, but not limited to, those identified below under “Risk Factors” and other factors discussed elsewhere in this Report and our other filings with the Securities and Exchange Commission. With respect to such forward-looking statements, we claim protection under the Private Securities Litigation Reform Act of 1995. The documents that we file with the Securities and Exchange Commission are available from us, and also may be examined at public reference facilities maintained by the Securities and Exchange Commission or, to the extent filed via EDGAR, accessed through the Web Site of the Securities and Exchange Commission (http://www.sec.gov). 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.

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 2.

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 the first quarter of 2001 before showing some improvement by the end of 2001. In 2001, the average energy cost in our mill system was approximately $57 per ton. During the first three months of 2002, energy costs decreased to approximately $49 per ton. The decrease was due primarily to decreases 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 and as a result, our operating margins have been 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.

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. If those events, other terrorist activities, the U.S. military response and the resulting uncertainties continue to adversely affect the United States economy in general, the sectors above may be negatively affected, which would cause our business to 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.

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 2.

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 and our financial position, the pace of our acquisition activity, and accordingly, our revenue growth, has slowed significantly as we have focused 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, high energy costs and higher fiber costs that we were unable to pass through to our customers. 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 asset values and earnings because of:

• goodwill impairment;

• 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 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.

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 2.

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. In addition, as described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” we have guaranteed indebtedness of our joint ventures for which we could also be liable. 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.

Our Interest Expense Could Be Adversely Affected By Risks Associated With Our Interest Rate Swap Agreements.

Interest rate swap agreements carry a certain inherent element of interest rate risk. During 2001, we entered into several interest rate swap agreements in order to take advantage of the current market conditions. These agreements converted a significant portion of our fixed rate 9 7/8% senior subordinated notes and our fixed rate 7 3/8% senior notes into variable rate obligations. The variable rates are based on the three-month LIBOR plus a fixed margin. These swap agreements have lowered our interest expense, and we expect these agreements to continue to positively affect our interest expense. If, however, the three-month LIBOR increases significantly, our interest expense could be adversely affected. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for additional information on our swap agreements.

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

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

PART I, ITEM 2.

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.

The indictment of our former independent auditors, Arthur Andersen LLP, may adversely affect Arthur Andersen LLP’s ability to satisfy any claims arising from the provision of auditing services to us and may impede our access to the capital markets.

Arthur Andersen LLP, which audited our financial statements for the years ended December 31, 2001, 2000 and 1999, was indicted in March 2002 on federal obstruction of justice charges arising from the government’s investigation of Enron Corporation and is currently on trial for such charges. Arthur Andersen LLP has indicated that it intends to contest the indictment vigorously. The Securities and Exchange Commission, or SEC, stated that it will continue accepting financial statements audited by Arthur Andersen LLP so long as Arthur Andersen LLP is able to make specified representations to us. It is possible that events arising out of the indictment may adversely affect the ability of Arthur Andersen LLP to satisfy any claims arising from its provision of auditing services to us, including claims that could arise out of Arthur Andersen LLP’s audit of our financial statements included in our periodic reports, prospectuses or registration statements filed with the SEC.

Should we seek to access the public capital markets, SEC rules will require us to include or incorporate by reference in any prospectus three years of audited financial statements. The SEC’s current rules would require us to present audited financial statements for one or more fiscal years audited by Arthur Andersen LLP and obtain their consent and representations until our audited financial statements for the fiscal year ending December 31, 2004 become available in the first quarter of 2005. If prior to that time the SEC ceases accepting financial statements audited by Arthur Anderson LLP or if Arthur Andersen LLP becomes unable to make the representations to us required by the SEC, it is possible that our available audited financial statements for the years ended December 31, 2001, 2000 and 1999 might not satisfy the SEC’s requirements. In that case, we would be unable to access the public capital markets unless Deloitte & Touche LLP, our current independent accounting firm, or another independent accounting firm, is able to audit the financial statements originally audited by Arthur Anderson LLP. Any delay or inability to access the public capital markets caused by these circumstances could have a material adverse effect on our business, profitability and growth prospects.

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

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, 2001. There have been no significant developments with respect to our exposure to interest rate market risk.

FORM 10-Q/A FOR THE QUARTER ENDED MARCH 31, 2002

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/ RONALD J. DOMANICO

Ronald J. Domanico

Vice President and Chief Financial Officer

(Principal Financial Officer)

Date: March 28, 2003

CERTIFICATION

I, Thomas V. Brown, President and Chief Executive Officer, certify that:

1. I have reviewed this quarterly report on Form 10-Q/A of Caraustar;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of Caraustar as of, and for, the periods presented in this quarterly report;

4. Caraustar’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for Caraustar and we have:

      (a) designed such disclosure controls and procedures to ensure that material information relating to Caraustar, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

      (b) evaluated the effectiveness of Caraustar’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

      (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. Caraustar’s other certifying officer and I have disclosed, based on our most recent evaluation, to Caraustar’s auditors and the audit committee of Caraustar’s board of directors (or persons performing the equivalent function):

(a) all significant deficiencies in the design or operation of internal controls which could adversely affect Caraustar’s ability to record, process, summarize and report financial data and have identified for Caraustar’s auditors any material weaknesses in internal controls; and

(b) any fraud, whether or not material, that involves management or other employees who have a significant role in Caraustar’s internal controls; and

6. Caraustar’s other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies an material weaknesses.

By: /s/ THOMAS V. BROWN

Thomas V. Brown

President and Chief Executive Officer

Date: March 28, 2003

CERTIFICATION

I, Ronald J. Domanico, Vice President and Chief Financial Officer, certify that:

1. I have reviewed this quarterly report on Form 10-Q/A of Caraustar;

      (a) designed such disclosure controls and procedures to ensure that material information relating to Caraustar, including its consolidated subsidiaries, is made known to us by others with those entities, particularly during the period in which this quarterly report is being prepared;

      (b) evaluated the effectiveness of Caraustar’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

      (c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluations as of the Evaluation Date;

By: /s/ RONALD J. DOMANICO

Ronald J. Domanico

Vice President and Chief Financial Officer

Date: March 28, 2003

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	—	Third Amended and Restated Bylaws of the Company (Incorporated by reference — Exhibit 3.02 to Annual Report for 2001 on Form 10-K [SEC File No. 0-20646])
	4	.01	—	Specimen Common Stock Certificate (Incorporated by reference — Exhibit 4.01 to Registration Statement on Form S-1 [SEC File No. 33-50582])
	4	.02	—	Articles 3 and 4 of the Company’s Amended and Restated Articles of Incorporation (included in Exhibit 3.01)
	4	.03	—	Article II of the Company’s Third 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 (Incorporated by Reference — Exhibit 10.04 to report on Form 10-Q for the quarter ended September 30, 2001 [SEC File No. 0-20646]
	10	.05	—	Amendment No. 2 to Credit Agreement, dated as of November 30, 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 (Incorporated by reference — Exhibit 10.05 to report on Form 10-K for the year ended December 31, 2001 [SEC File No. 0-20646])
	10	.06	—	Amendment No. 3 to Credit Agreement, dated as of January 22, 2002, 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 (Incorporated by reference — Exhibit 10.06 to report on Form 10-K for the year ended December 31, 2001 [SEC File No. 0-20646])


Exhibit
No.				Description

	10	.07	—	Amendment No. 4 to Credit Agreement, dated as of September 23, 2003, 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 (Incorporated by reference — Exhibit 10.07 to report on Form 10-Q for the nine months ended September 30, 2002 ([SEC File No. 0-20646])
	10	.08	—	Amendment No. 5 to Credit Agreement, dated as of December 27, 2002, 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 (Incorporated by reference — Exhibit 10.08 to report on Form 10-K/A for the year ended December 31, 2001 [SEC File No. 0-20646])
	10	.09	—	Amendment No. 6 to Credit Agreement, dated as of March 28, 2003, 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 (Incorporated by reference — Exhibit 10.09 to report on Form 10-K/A for the year ended December 31, 2001 [SEC File No. 0-20646])
	10	.10	—	Security Agreement, dated as of September 23, 2002, among the Company, certain subsidiaries of the Company identified as guarantors listed therein, and Bank of America, N.A., as Collateral Agent (Incorporated by reference — Exhibit 10.08 to report on Form 10-Q for the nine months ended September 30, 2002 [SEC File No. 0-20646])
	10	.11	—	First Amendment to Security Agreement, dated as of March 28, 2003, among the Company, certain subsidiaries of the Company identified as guarantors listed therein, and Bank of America, N.A., as Collateral Agent (Incorporated by reference — Exhibit 10.11 to report on Form 10-K/A for the year ended December 31, 2001 [SEC File No. 0-20646])
	10	.11*	—	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	.12*	—	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	.13*	—	1987 Executive Stock Option Plan (Incorporated by reference — Exhibit 10.09 to Registration Statement on Form S-1 [SEC File No. 33-50582])
	10	.14*	—	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	.15*	—	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	.16*	—	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	.17*	—	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	.18*	—	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	.19	—	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	.20	—	Guaranty Agreement, dated as of July 30, 1999, as amended of the Company in favor of SunTrust Bank Atlanta (Incorporated by reference — Exhibit 10.19 to report on Form 10-K for the year ended December 31, 2001 [SEC File No. 0-20646])
	10	.21	—	Fifth Amendment to Guaranty Agreement, dated as of September 20, 2002, of the Company in favor of SunTrust Bank Atlanta (Incorporated by reference — Exhibit 10.19 to report on Form 10-Q for the nine months ended September 30, 2002 [SEC File No. 0-20646?)
	10	.23	—	Seventh Amendment to Guaranty Agreement, dated as of March 28, 2003, of the Company in favor of SunTrust Bank (Incorporated by reference — Exhibit 10.23 to report on Form 10-K/A for the year ended December 31, 2001 [SEC File No. 0-20646])


Exhibit
No.				Description

	10	.24	—	Third amendment to Amended and Restated Revolving Credit Agreement, dated as of March 28, 2003, between Premier Boxboard Limited LLC and SunTrust Bank (Incorporated by reference — Exhibit 10.24 to report on Form 10-K/A for the year ended December 31, 2001 [SEC File No. 0-20646])
	10	.25	—	Second Amended and Restated Parent Guaranty, dated as of August 1, 1999, as amended, of the Company in favor of Toronto-Dominion (Texas), Inc., as Administrative Agent (Incorporated by reference — Exhibit 10.20 to report on Form 10-K for the year ended December 31, 2001 [SEC File No. 0-20646])
	10	.26	—	Revised Fifth Amendment to Parent Guaranty, dated as of September 23, 2002, of the Company in favor of Toronto-Dominion (Texas), Inc., as Administrative Agent (Incorporated by reference — Exhibit 10.21 to report on Form 10-Q for the nine months ended September 30, 2002 [SEC File No. 0-20646])
	10	.27	—	First Agreement Regarding Amendments to Loan Documents, dated as of March 28, 2003, among Standard Gypsum L.L.C., Temple-Inland, Inc., Temple-Inland Forest Products Corporation, the Company and Toronto Dominion (Texas), Inc., as Administrative Agent (Incorporated by reference — Exhibit 10.27 to report on Form 10-K/A for the year ended December 31, 2001 [SEC File No. 0-20646])
	10	.28	—	Irrevocable Standby Letter of Credit, dated March 28, 2003, in favor of Toronto Dominion (Texas), Inc. upon application of the Company (Incorporated by reference — Exhibit 10.28 to report on Form 10-K/A for the year ended December 31, 2001 [SEC File No. 0-20646])
	10	.29	—	Partnership Agreement of Standard Gypsum L.P. (Incorporated by reference — Exhibit 10.21 to report on Form 10-K for the year ended December 31, 2001 [SEC File No. 0-20646])
	10	.30	—	Operating Agreement of Premier Boxboard Limited LLC (Incorporated by reference — Exhibit 10.22 to report on Form 10-K for the year ended December 31, 2001 [SEC File No. 0-20646])
	10	.31	—	Asset Purchase Agreement between Caraustar Industries, Inc. and Smurfit-Stone Container Corporation, dated as of July 22, 2002 (Incorporated by reference — Exhibit 2 to Current Report on Form 8-K dated October 15, 2002)
	10	.32	—	First Amendment to Asset Purchase Agreement between Caraustar Industries, Inc. and Smurfit-Stone Container Corporation, dated as of September 9, 2002 (Incorporated by reference — Exhibit 10.25 to Report on Form 10-Q dated September 30, 2002 [SEC File No. 0-20646])
	10	.33*	—	Employment Agreement, dated February 13, 2002, between the Company and Michael J. Keough (Incorporated by reference — Exhibit 10.26 to Report on Form 10-Q dated September 30, 2002 (SEC File No. 0-20646])
	10	.34*	—	Employment Agreement, dated October 1, 2002, between the Company and Ronald J. Domanico (Incorporated by reference — Exhibit 10.27 to Report on Form 10-Q dated September 30, 2002 [SEC File No. 0-20646])
	10	.35*	—	Resignation Agreement, dated October 8, 2002, between the Company and Henry L. Thrash, III (Incorporated by reference — Exhibit 10.28 to Report on Form 10-Q dated September 30, 2002 [SEC File No. 0-20646])
	10	.36	—	Master Lease Agreement, with Riders Nos. 1 through 3 and Equipment Schedules Nos. 1 through 4, dated September 30, 2002, between Caraustar Industries, Inc. and Banc of America Leasing & Capital, LLC (Incorporated by reference — Exhibit 10.29 to Report on Form 10-Q dated September 30, 2002 [SEC File No. 0-20646])
	10	.37#*	—	Change in Control Severance Agreement, dated October 1, 2002, between the Company and Ronald J. Domanico (Incorporated by reference — Exhibit 10.30 to Report on Form 10-Q dated September 30, 2002 [SEC File No. 0-20646])
	11	.01†	—	Computation of Earnings Per Share
	99	.01†	—	Certification of CEO
	99	.02†	—	Certification of CFO

† Filed herewith

* Management contract or compensatory plan required to be filed under Item 14(c) of Form 10-K and Item 601 of Regulation S-K of the Securities and Exchange Commission.

# This Exhibit is substantially identical to Change in Control Severance Agreements for the following individuals: Thomas V. Brown, Michael J. Keough, James L. Walden, Jimmy A. Russell, H. Lee Thrash, III, Gregory B. Cottrell, John R. Foster and William A. Nix, III, except the agreement is dated March 1, 2002, for these individuals.

** Pursuant to interim guidance provided in SEC Release No. 33-8212, this certification accompanies, but shall not be deemed filed as a part of, the quarterly report on Form 10-Q/A.


	1.	Part I, Item I — Condensed Consolidated Financial Statements.

	2.	Part I, Item II — Management’s Discussion and Analysis of Financial Condition and Results Operations.

	3.	Part I, Item III — Quantitative and Qualitative Disclosure About Market Risk.

	4.	Signatures.

	5.	The certifications required by Section 302 of the Sarbanes-Oxley Act of 2002 have been added.

	6.	The certifications required by Section 90G of the Sarbanes-Oxley Act of 2002 have been filed with the SEC as correspondence to this filing.


	During the second quarter of 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 March 31, 2001 by $776,000. The effect on net income for the three months ended March 31, 2001 was $18,000.

	Inventories are carried at the lower of cost or market. Cost includes materials, labor and overhead. Market, with respect to all inventories, is replacement cost or net realizable value. As described above, all inventories are valued using the first-in, first-out method.

	Inventories at March 31, 2002 and December 31, 2001 were as follows (in thousands):


	In October 2001, the Company unwound its $185,000,000 interest rate swap agreement related to the 9 7/8 percent senior subordinated notes and received $9,093,000 from the bank counter-party. Simultaneously, the Company 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 $9,093,000 gain, which is classified as a component of debt, 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 market conditions.

	See the “Subsequent Events” footnote regarding transactions related to our interest rate swap agreements.

	Under the provisions of SFAS No. 133, the Company has designated and accounted for its interest rate swap agreements as fair value hedges. The Company has assumed no ineffectiveness with regard to these agreements as they qualify for the short-cut method of accounting for fair value hedges of debt obligations, as prescribed by SFAS No. 133. The aggregate fair value of the swap agreements of approximately $11,669,000 as of March 31, 2002 and $7,418,000 as of December 31, 2001 are classified as a component of other long-term liabilities.


	The Company operates principally in three business segments based on its 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.

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


	(A)	Results for 2001 include a charge to operations of $4,447,000 for restructuring costs related to the closing of the Chicago, Illinois paperboard mill. This charge was related to the paperboard segment and is reflected in the segment’s operating income. (Note 8)


	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. The remaining other exit costs were paid by December 31, 2002. As of December 31, 2002, one employee remained to assist in the closing of the mill. The Company is currently marketing the property.

	The following is a summary of restructuring activity from plan adoption to March 31, 2002 (in thousands):


	2.25:1.0, the first quarter of 2002 from 2.75:1.0 to 2.25:1.0, and the second quarter of 2002 from 2.75:1.0 to 2.50:1.0.

	Also in January 2002, the Company entered into agreements with the PBL and Standard Gypsum lenders that correspond to the amendments made in the third amendment to the senior credit facility described above, in order to avoid events of default under those guarantees resulting from a violation of the interest ratio coverage covenants.

	In June 2002, the Company recorded a $985 thousand noncash, pretax restructuring charge related to the permanent closure of the Company’s Camden and Chicago paperboard mills, which were shut down in 2000 and 2001, respectively. The $985 thousand charge represents a revised estimate of fixed asset disposals at these mills. The Chicago mill recorded a $1.5 million additional provision while the Camden mill overestimated the fixed asset write-off and recorded a credit of $500 thousand.

	In August 2002, the Company unwound its $185.0 million interest rate swap agreement related to the 9 7/8% senior subordinated notes and received $5.5 million from the bank counter-party. Simultaneously, the Company executed a new swap agreement with a fixed spread that was 17 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. In September 2002, the Company repaid the $5.5 million and entered into a new swap agreement that lowered the fixed spread by 7.5 basis points from the August 2002 swap.

	On September 30, 2002, the Company acquired certain operating assets (excluding accounts receivable) of the Smurfit Industrial Packaging Group, a business unit of Jefferson Smurfit Corporation (U.S.), for approximately $67.1 million, and assumed $1.7 million of indebtedness outstanding under certain industrial revenue bonds. The acquisition was funded with cash on hand. Goodwill of approximately $31.9 million and intangible assets of approximately $8.7 million were recorded in conjunction with the Smurfit Industrial Packaging Group acquisition. The intangible asset is associated with the value of acquired customer relationships and will be amortized over 15 years.

	Smurfit Industrial Packaging Group operations included 17 paper tube and core plants, 3 uncoated recycled paperboard mills and 3 partition manufacturing plants. These facilities are located in 16 states across the U.S. and in Canada.

	In September 2002, in connection with the Company’s acquisition of the Smurfit Industrial Packaging Group, the Company entered into a fourth amendment to its senior credit facility. The purpose of this amendment was to obtain the required lender consent under the senior credit facility for the consummation of the acquisition (and the incurrence of up to $60.0 million in subordinated debt financing to refinance borrowings under the credit facility and restore cash used to fund a portion of the acquisition price), to lower the minimum allowable tangible net worth for all periods after the effective date of the amendment, and to increase the maximum permitted leverage ratio covenant to 70.0% for the fiscal quarters ending December 31, 2002, March 31, 2003 and June 30, 2003, and 67.5% for the fiscal quarter ending September 30, 2003. Additionally, the minimum interest coverage ratio covenant was replaced with a minimum fixed charge coverage ratio covenant beginning with the third quarter of 2002. These modifications, in addition to increasing the Company’s flexibility to finance the acquisition, were necessary to enable the Company to avoid violations of the leverage ratio and interest coverage ratio covenants for the third quarter of 2002 and violations of the leverage ratio covenant in future periods.

	In exchange for these modifications, the Company’s lenders required an increase in the applicable margin component of the interest rates applicable to borrowings under the facility and the facility


	fee rate applicable to the undrawn portion of the facility. The amendment provided for a margin pricing increase of 0.25% effective November 15, 2002, if the Company had not issued at least $50.0 million in senior subordinated notes by that date, and an increase of 0.25% every three months after that date until the first date on which the Company’s balance of cash and cash equivalents is at least $50.0 million and the Company has no loans outstanding under the facility (subject to a maximum interest margin of 3.75% for Eurodollar rate loans and 2.50% for base rate loans). In addition, under the terms of the fourth amendment, the Company was required to enter into a security agreement under which the Company and its subsidiary guarantors under the senior credit facility granted a first priority security interest in their respective accounts receivable and inventory to secure their obligations under the credit facility and the Company’s obligations under its 50% guarantees of the credit facilities of Standard Gypsum and Premier Boxboard.

	In November 2002, the Company unwound $50.0 million of its $185.0 million interest rate swap agreement related to the 9 7/8% senior subordinated notes, and received approximately $2.8 million from the bank counter-party. Simultaneously, the Company unwound $50.0 million of one of its interest rate swap agreements, related to the 7 3/8% senior notes, and received approximately $3.4 million. The $6.2 million gain will be accreted to interest expense over the life of the notes and will partially offset the increase in interest expense. The $2.8 million gain lowered the effective interest rate of the 9 7/8% senior subordinated notes from 10.0% to 9.8%. The $3.4 million gain lowered the effective interest rate of the 7 3/8% senior subordinated notes from 7.5% to 7.2%.

	On December 27, 2002, the Company completed a fifth amendment to its senior credit facility. This amendment modified the calculation of net worth for purposes of our leverage ratio and tangible net worth financial maintenance covenants to exclude adjustments to other comprehensive loss related to the Company’s defined benefit pension plan. The amendment also allows the Company to exclude from these financial maintenance covenant calculations any restructuring costs recorded in the fourth quarter of 2002 and first quarter of 2003 as long as the aggregate of these restructuring costs does not exceed $16.0 million, on an after tax basis.

	In December 2002, the Company initiated a plan to permanently close its Halifax paperboard mill located in Roanoke Rapids, North Carolina. This mill was idled in June 2001 and the Company planned to restart it when industry demand improved. The Company made the decision to permanently close and dismantle the mill based on the current and foreseeable conditions of paperboard demand. In connection with this plan, the Company recorded a pretax charge to operations of approximately $3.4 million. The $3.4 million charge included a $3.0 million noncash write down of assets to estimated net realizable value and a $370 thousand accrual for other exit costs.

	In December 2002, the Company initiated a plan to consolidate its Carolina Converting, Inc. facility in Fayetteville, North Carolina into its Carolina Component Concepts facility located in Mooresville, North Carolina and recorded a pretax charge to operations of approximately $6.0 million. The decision to consolidate these facilities was initiated by the loss of a significant customer, combined with a significant decline in demand in other specialty converted products. The $6.0 million charge included an accrual for a $2.4 million noncash write down of assets to estimated net realizable value and a $3.6 million accrual for other exit costs.

	In December 2002, the Company initiated a plan to restructure its carton plant in Ashland, Ohio to serve a smaller, more focused carton market and recorded a pretax charge to operations of approximately $2.4 million. The $2.4 million charge included an accrual for a $1.2 million noncash write down of assets to estimated net realizable value, a $494 thousand accrual for severance and termination benefits for 18 hourly and 8 salaried employees terminated in connection with this plan, as well as a $688 thousand accrual for other exit costs.


	In January 2003, the company effectively unwound $85.0 million of its $135.0 million interest rate swap agreement related to the 9 7/8% senior subordinated notes by assigning the Company’s rights and obligations under the swap to one of the Company’s lenders under the senior credit facility. In exchange, the Company received approximately $4.3 million. The Company will accrete this gain into interest expense over the remaining term of the notes, which will partially offset the increase in interest expense. The gain will lower the effective interest rate of the 9 7/8% senior subordinated notes from 9.8% to 9.5%.

	In February 2003, the Company announced the indefinite idling of one of two coated recycled paperboard machines at its Rittman, Ohio paperboard mill. Recently completed upgrades in the Company’s mill system will facilitate the transfer of production from the idled machine to the Company’s other mills, including Rittman’s other machine. The Rittman workforce will be indefinitely reduced by 80 hourly employees, and the Company will recognize a related expense of approximately $1.2 million.

	On March 28, 2003, the Company completed a sixth amendment to its senior credit facility. This amendment increased the Company’s maximum permitted leverage ratio to 70.0% for the fiscal quarters ending September 30, 2003 and December 31, 2003 and 67.5% for each succeeding fiscal quarter, lowered the Company’s minimum fixed charge coverage ratio from 1.50:1.0 for all fiscal quarters to 0.95:1.0 for the fiscal quarter ending March 31, 2003, 0.85:1.0 for the fiscal quarters ending June 30, 2003 and September 30, 2003 and 1.05:1.0 for the fiscal quarter ending December 31, 2003, lowered the Company’s minimum tangible net worth covenant for all periods on and after the effective date of the amendment, and lowered the Company’s maximum permitted capital expenditures to $30.0 million per fiscal year. For purposes of calculating compliance with the Company’s leverage ratio and net worth covenants, this amendment also establishes a maximum of $30.0 million for aggregate adjustments to other comprehensive loss related to the Company’s defined benefit pension plan. This amendment also increases to $43.0 million the Company’s subfacility for the issuance of letters of credit under the facility, in order to permit the Company to obtain a letter of credit to replace the Company’s Standard Gypsum joint venture guarantee as described below. Finally, this amendment terminated the quarterly pricing increase established under the fourth amendment to the facility entered into in September 2002 and fixed the Company’s maximum interest margins at 3.25% for LIBOR loans and 2.00% for base rate loans. The financial covenant modifications were necessary to enable the Company to avoid possible violations of its leverage ratio covenant for the third and fourth quarters of 2003, its fixed charge coverage ratio covenant for all quarters during 2003 and its net worth covenant for the second quarter of 2003.

	In exchange for these modifications, the Company’s lenders required it to permanently reduce the aggregate commitments under the facility from $75.0 million to $47.0 million, to shorten the maturity of the facility from March 29, 2005 to April 1, 2004, and to pay a monthly fee beginning on July 1, 2002 equal to 1.0% of the aggregate commitments under the facility. The Company’s lenders also required the establishment of a borrowing base that restricts availability under the facility based on monthly computations of eligible accounts receivable and inventory, reduced by the Company’s net hedging obligations owed to lenders under the facility and by the amount of the Company’s guarantee obligations under its joint venture guarantees that are not secured or replaced by letters of credit. Additionally, the Company will not be permitted to borrow or request the issuance of letters of credit under the facility unless the Company has less than $10.0 million in freely available cash and cash equivalents on its consolidated balance sheet both before and immediately after giving effect to the application of the proceeds of such borrowing. The amendment also requires the Company to prepay outstanding loans under the facility and/or cash collateralize outstanding letters of credit with the net cash proceeds from any issuance of debt or equity or, to the extent not reinvested in similar assets, from any sale of assets or insurance or condemnation award. The


	amendment further requires the Company to provide consolidated financial statements and joint venture financial statements to the lenders on a monthly basis. Finally, the amendment prohibits the Company from incurring capital leases or other indebtedness, making acquisitions or other investments, or prepaying other indebtedness unless the Company’s fixed charge coverage ratio for the most recently reported fiscal quarter exceeds 1.50:1.0 (calculated on a pro forma basis with regard to acquisitions), and completely eliminates the Company’s ability to pay dividends or repurchase shares of its stock.

	In connection with this amendment, the Company was also required to amend its security agreement to provide for a springing lien on its machinery and equipment that will become effective on July 1, 2003.

	Prior to this amendment to the Company’s senior credit facility, its Standard Gypsum joint venture guarantee contained financial maintenance covenants that were identical to those contained in its senior credit facility. However, the lenders to Standard Gypsum were unwilling to agree to the modifications that the Company made under the amendment to the senior credit facility. In order to avoid an event of default under that guarantee, the Company obtained a letter of credit under its senior credit facility in the face amount of $28.4 million. This letter of credit is issued in favor of the Standard Gypsum lenders and replaces the Company’s guarantee obligations. In exchange for this letter of credit, the Standard Gypsum lenders terminated the Company’s guarantee agreement and released its security interests in the Company’s accounts receivable and inventory. The Company must also pay a fee on October 28, 2003 in the amount of 2% of the full amount of this letter of credit in the event the letter of credit remains outstanding on that date. The letter of credit is renewable annually and may be drawn in the event of a default under the Standard Gypsum credit facility.

	Concurrently with the amendments to the Company’s senior credit facility and the issuance of the letter of credit to the Standard Gypsum joint venture lenders as described above, the Company entered into an amendment of its Premier Boxboard guarantee that made changes to the financial covenants corresponding to those made in the sixth amendment to the Company’s senior credit facility. In exchange for this amendment, the Premier Boxboard lenders required that the maturity of the Premier Boxboard credit facility be shortened from June 26, 2005 to January 5, 2004 and that the aggregate commitments under the facility be reduced to equal the amount of outstanding loans and letters of credit of $20.3 million. Any reductions of outstanding loans under the facility may not be reborrowed and will permanently reduce the commitments, thereby effectively requiring the Company to fund Premier Boxboard’s operations from its internal cash flow and from any cash contributions that the Company and its joint venture partner are permitted to make. In addition, the Company will be required to pay a fee to the Premier Boxboard lenders of $100,000 on July 1, 2003 and on the first day of each month thereafter until the facility is terminated and all outstanding borrowings under the facility are fully paid.

	In March 2003, the Company announced the permanent closure of its Buffalo Paperboard mill located in Lockport, New York. The Company expects to record a restructuring charge of approximately $5.0 million in connection with this closure. The Buffalo mill had an annual production capacity of approximately 72 thousand tons. In 2002, the mill operated at approximately 50% of capacity and recorded approximately $9.0 million in trade sales. Buffalo sales will be transferred to the Company’s other mills.


	•	Restructuring costs of $7.1 million were recorded in the first quarter of 2001 and none were recorded in 2002

	•	Goodwill amortization expense of $1.0 million was recorded in the first quarter of 2001 and no expense was recorded in 2002 pursuant to SFAS No. 142

	•	Higher volume and lower energy costs in the paperboard segment


	•	Higher operating income as explained above

	•	First quarter 2001 results include an extraordinary loss of $2.7 million (net of tax benefit) related to the early extinguishment of debt

	•	An improvement in operating results of our unconsolidated joint ventures, as explained above


•	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.


•	assumption of unanticipated liabilities and contingencies;

•	diversion of management’s attention; and

•	possible reduction of our reported asset values and earnings because of:


	•	goodwill impairment;

	•	increased interest costs;

	•	issuances of additional securities or debt; and

	•	difficulties in integrating acquired businesses.


•	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.


•	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.



	Ronald J. Domanico
	Vice President and Chief Financial Officer
	(Principal Financial Officer)


	(a) designed such disclosure controls and procedures to ensure that material information relating to Caraustar, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

	(b) evaluated the effectiveness of Caraustar’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the “Evaluation Date”); and

	(c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;


	(a) all significant deficiencies in the design or operation of internal controls which could adversely affect Caraustar’s ability to record, process, summarize and report financial data and have identified for Caraustar’s auditors any material weaknesses in internal controls; and

	(b) any fraud, whether or not material, that involves management or other employees who have a significant role in Caraustar’s internal controls; and


*	Management contract or compensatory plan required to be filed under Item 14(c) of Form 10-K and Item 601 of Regulation S-K of the Securities and Exchange Commission.


#	This Exhibit is substantially identical to Change in Control Severance Agreements for the following individuals: Thomas V. Brown, Michael J. Keough, James L. Walden, Jimmy A. Russell, H. Lee Thrash, III, Gregory B. Cottrell, John R. Foster and William A. Nix, III, except the agreement is dated March 1, 2002, for these individuals.


**	Pursuant to interim guidance provided in SEC Release No. 33-8212, this certification accompanies, but shall not be deemed filed as a part of, the quarterly report on Form 10-Q/A.