1

Presented by:

Michael Tanzer

Mattan Griffel

Zhuoya Wang

October 5, 2007

• Company and Industry

• Thesis overview

– Focus on Core Business

– Increased Financial Flexibility

– Margin of Safety

• Risks

• Recap

• Questions

Agenda

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Caraustar (NASDAQ: CSAR)

• Manufacturing:

– Recycled paperboard and packaging

• Industry leadership position

– Product diversification and integration

• Serves four principal end-use markets:

– tubes, cores and composite cans

– folding cartons

– gypsum facing paper

– specialty paperboard products.

Recovered Fiber Group

•Processing•Brokerage•Mill Fiber Procurement•Consulting Services

Mill Group

•Recycled Paperboard•Gypsum Paper•Laminated Paperboard

Industrial Packing Segment

•Tube and Core•Edge Protectors•Plastics•Adhesives•Paragon Plastics

Consumer Packing Segment

•Folding Cartons•Composite Containers•Graphic and Technical Services

Four Main Segments

Converted Products Group

Four Main Segments

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Sales Breakdown - Segment

Mill Group

‘06 Sales:

270.0M

Recovered Fiber Group

‘06 Sales:

117.3M

Consumer Packing Segment

‘06 Sales:

235.2M

Industrial Packing Segment

‘06 Sales:

367.4M

Key Long Term Relationships

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Paper CAN be Sexy

• Industry: recycled paperboard and packaging solutions

• Industry Stagnant (-1-0% yoy)

• Emphasis on growth through acquisition

• Extremely Cyclical as tied to housing market

Industry Risks:

• Manufacturing expanding offshore

• Product substitutions

• Recovered fiber prices volatile

• Energy costs high + volatile

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Thesis

• Restructuring:

– Focus on core business

– Increased financial flexibility

• Reduction of debt

• Undervalued to assets

• Strongly incentivized management

Focus on Core Business

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Remix, break it down.

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

Paperboard Recovered

Fiber

Tube, core

and

composite

Folding

carton

Internal

ExternalConsumer

Packing

24%Industrial

Packing

37%

Mills

27% Fiber

12%

2006 External Sales:Core Group

Core Group - Mill

• 15 Mills– Locations: South, Midwest, Eastern

seaboard

• 4 Principle markets– Tubes, cores, and composite containers

– Folding cartons

– Gypsum wallboard

– Specialty paperboard products

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Core Group - Mill Operating

Rates

Mill Capacity Market Position

Tube, Core,

Composite

Container

41%

Other

Specialty

21% Gypsum

Facing

38%

19%

18%

15%

12%

7%

6%

5%

3%

1%

14%

100%

Market Share

Caraustar Boxboard Capacity (2007)

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Group 2: Recovered Fiber

• Collect, Process, Sell recovered fiber

• Environmentally-friendly, low cost alternative

• Green initiative

• Synergies with other divisions

Group 3: Industrial Packaging

• Konva-Kore®: #1 in carpet industry

• Kolumn Forms

– Construction tubes to build columns

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Group 4: Consumer Packaging

• Consumer packaging

– High quality custom packaging

– Digital imaging & graphic design

• Industrial packaging

– Tubes, cores, and composite containers

Portfolio Rationalization

• Sold 50% interest in Standard Gypsum to Temple-Inland ($135M)

• Additional groups sold– Corrugated packing facility

– Fiber partitions business

– Coated recycled boxboard

• Exited– Contract packaging

– Transportation business

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SG&A Reduction

SG&A: 2003 $148M 14.9% of sales

2006 $127M 12.9%

2007 Q2 $26.7M 11.2%

Target $100M/year 10.0%

0

4

8

12

16

2003 2006 2007E Target

Increased Financial Flexibility

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Financial Summary

2006 2007

Total Volume (tons in thousands) 326.2 239.2

Sales $263.7 $235.6

SG&A Expense $33.1 $26.7

Income before restructuring & impairment

$5.4 $4.2

EPS - Continuing Operations ($0.55) ($0.08)

Cap Ex $15.8 $11.6

For the Quarter ended June 30,

$ millionsCurrent liabilities 110.4Long-term debt 260.2Other long-term liabilities 92.0

462.6Stockholder equity 161.6

Balance Sheet

End 31-Dec-06 $ millionsCash 1.0Receivables 95.0Inventory 75.0Other current assets 8.3PPE 263.6Goodwill 127.5Other long-term assets 53.6

624.6

(Net tangible assets 34.0)

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Increased Financial Flexibility

• Debt reduced $232M (47.2%) to $260M

• Annual interest expense reduced by $24.4M (58.1%)

• Revolving credit facility expanded by $60M (80%) and extended five years

• Working capital reduced $8M (7.7%)

Liquidity

$Million

Cash on hand (6/30/07) $2

Revolving credit facility availability

$87

Less borrowing on revolving credit facility

($32)

Less letters of credit ($16)

Less reserves ($15)

Available liquidity $26

Equipment Lease $7

Asset Sales $25-$30

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Long Term Debt

7.375% Senior Notes due 6-1-09 $ 189.8

7.25% Senior Notes due 5-1-10 29.0

Revolving credit facility through 3-30-11 32.0

Senior term loan amortizing through 3-30-11 28.2

Other (net) 4.5

TOTAL LONG TERM DEBT $ 283.5

As of 6/30/07

Margin of Safety

“Our breakup value is $12 per share”

-Ronald J. Domaninco, CFO

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EBIT Breakdown

Mill Industrial Consumer Total

Sales (External) $270M $367M $235 $872

MV of Internal Sales (approx.)

221M 7M 1M 229M

Net Sales 491M 374M 236M 1101M

Operating Expenses 445M 366M 239M 1050M

Normalized EBIT 46M 8M (3M) 51M

Real-Estate Valuation

• Very old company

– Real estate appreciated over 80 years!!!1!

• Average land size: 330 acres/plant

• Average value:

– $3,100 per acre

– Range: $1,180 - $4,820 per acre

– Excludes corporate offices and Pasadena properties

• 90 wholly owned + 2 Joint Venture properties

– Conservative Real Estate value: ~$84m

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Financials and Valuation

• 5th largest in US

• Produces 2.8 mil tons a yr

• “We get requested monthly by any of the 5 (referring to comps) to see if the business is for sale”

• Going, Going, Gone… on Wednesday

Fiber Breakdown

• Acquisition Comp

– PPG acquires Altivity at industry average 8*EV/EBITDA

– This would make target price of (ebitda = 28-30 mil) =224 mil $

0

50000

100000

150000

200000

250000

2004 2005 2006

Intersegment

ExternalCustomers

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Joint Venture, baby

• Standard Gypsum – Industrial gypsum producer

– Sold 50% (01/17/07) for $135m to Temple-Inland

• Premier Boxboard, LLC– Agronomic and industrial gypsum producer

– Owns 50% stake, along with Temple-Inland

• Additional source for value

• Business not consolidated– Largest US recycled boxboard company

• EBITDA: $23M

• Avg. Acquisition Price: 6-7x EBITDA

• Potential Sale Price: 50% x (6-7) x 23 = $69-80M

Management Incentive

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Insider Transactions

• Management owns 13% of Shares Outstanding

Transactions

October 14,000 shares bought

September 340,000 shares bought

July 12,000 shares bought

April

January

10,000 shares bought

8,000 shares bought

Only insider sale in the last 3 years: 4000 shares in Sep ‘06

Risks

• Further demise of the housing market

• Failure to sell parts at premium

• Postponement of sales

• Hamster invasions

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Recap

• Good Company ≠ Good Investment

• Joel Greenblatt’s Checklist:

Emphasis on margin of safety

Look for a catalyst

Well-incentivized management team

Significant size

Questions, anyone?