Net Sales. Our consolidated net sales for the year ended December 31, 1999 increased 20.8% to $890.1 million from $736.9 million in 1998. Acquisitions completed during 1998 and 1999 accounted for $144.2 million of sales during 1999. These acquisitions included Carolina Component Concepts, Inc., International Paper Company’s Sprague boxboard mill, Halifax Paperboard Co., Inc., Tenneco Packaging, Inc.’s folding carton division and Carolina Converting, Inc., all of which were completed in 1999. The acquisitions of Chesapeake Paperboard Company and its wholly owned subsidiary, Chesapeake Fiber Packaging Corporation, Etowah Recycling, Inc., Tenneco Packaging, Inc.’s 20% interest in the CPI partnership and Boxall, Inc. were completed in 1998. These acquisitions were all accounted for using the purchase method of accounting, and their results of operations were included only from and after the date of the acquisition. Excluding acquisitions, net sales increased 1.2% during 1999. This increase was due to higher sales from the tube, core and composite container and carton and custom packaging segments.

Total paperboard tonnage for 1999 increased 15.0% to 1,155,500 tons from 1,004,500 tons. Excluding acquisitions completed during 1998 and 1999, total paperboard tonnage declined 1.2% to 992,300 tons. Lower shipments of converted paperboard products and lower shipments of unconverted paperboard to external customers in the folding carton and other specialty end-use markets were partially offset by higher shipments of unconverted paperboard to the gypsum wallboard facing paper market. Excluding acquisitions, outside purchases decreased 26.3% to 62,400 tons. Tons sold from paperboard mill production increased 15.8% for 1999 to 1,064,900 tons compared with 919,800 tons last year, and increased 0.5% excluding acquisitions. Total tonnage converted increased 12.8% for 1999 to 446,100 tons compared to 395,500 thousand tons in 1998, but declined 1.7% from last year excluding acquisitions. Excluding acquisitions, volumes decreased 7.2% in the folding carton market and decreased 3.0% in the other specialty end-use markets.

Gross Margin. Gross margin for 1999 decreased to 23.2% of net sales from 27.1% in 1998. This margin decrease was due primarily to the acquisition of operations with lower margins, as a percentage of sales, than our other operations, combined with lower margins in the paperboard segment, partially offset by higher margins in the tube, core and composite container segment.

Operating Income. Operating income for 1999 was $80.7 million, a decrease of $14.2 million, or 14.9% from 1998. Operating income at comparable facilities declined $7.5 million, or 7.9%. This decline was due primarily to lower margins in the paperboard segment, partially offset by improved results in the tube, core and composite container and carton and custom packaging segments. Selling, general and administrative expenses increased by $20.7 million in 1999 versus 1998 due primarily to acquisitions and increased information technology costs.

Other Income (Expense). Interest expense increased 58.4% to $25.5 million for 1999 from $16.1 million in 1998 due to higher average borrowings under the senior credit facility and the June 1, 1999 public debt securities offering.

Equity income from unconsolidated affiliates was $9.2 million, up 114.1% from 1998 due to improved results for Standard Gypsum, our gypsum wallboard joint venture with Temple-Inland.

Income Taxes. Our effective tax rate decreased to 36.1% in 1999 from 37.0% in 1998, due primarily to the implementation of state tax reduction strategies. Our effective tax rate has historically been higher than the U.S. federal statutory rate of 35% due to state income taxes and nondeductible permanent items.

Net Income. Net income decreased 20.7% to $41.1 million from $51.8 million in 1998. Diluted net income per common share decreased 20.1% to $1.63 for 1999 from $2.04 in 1998.

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