INTRODUCTION Buckeye Technologies Inc. and its subsidiaries (the Company) manufacture value-added cellulose-based specialty products in the United States, Canada, Germany, Ireland and Brazil, and sell these products in worldwide markets. On October 1, 1999, the Company acquired essentially all of the assets of Walkisoft, UPM-Kymmene's nonwovens business, with manufacturing locations in Steinfurt, Germany and Gaston County, North Carolina. On July 26, 2000, the Company announced its purchase of the cotton cellulose business of Fibra, S.A., located in Americana, Brazil, for approximately $35.0 million. The Company assumed operations of the facility on August 1, 2000. RESULTS OF OPERATIONS Comparison of Fiscal Years Ended June 30, 2000 and June 30, 1999 Net sales for 2000 were $712.8 million, compared to $617.7 million for 1999, an increase of 15.4%. The increase for the year was due to the acquisition of Walkisoft, higher volume and favorable product mix on existing businesses, offset by the lower unit sales prices related to the January 1, 1999 fluff pulp contract price reduction to Procter & Gamble. In 2000, operating income was $136.9 million, compared to $113.0 million for 1999, an increase of 21.2%. The 2000 operating income as a percentage of sales was 19.2%, compared to 18.3% for 1999. The increase was primarily due to the favorable product mix and lower production costs, partially offset by higher research, selling and administrative expenses. Net interest and amortization of debt costs for 2000 were $42.7 million, compared to $38.9 million for 1999, an increase of $3.8 million. The increase was primarily due to higher debt levels as a result of the Walkisoft acquisition and the purchase of certain packaging technology from Stac-Pac Technologies Inc. The Company's effective tax rate for 2000 was 33.7% versus 31.7% in 1999. The increase was primarily the result of higher profits in the Company's foreign operations. Comparison of Fiscal Years Ended June 30, 1999 and June 30, 1998 Net sales for 1999 were $617.7 million, compared to $630.2 million for 1998, a decrease of 2%. The decrease was primarily due to lower sales volume. In 1999, operating income was $113.0 million, compared to $122.4 million for 1998, a decrease of 7.7%. The 1999 operating income as a percentage of sales was 18.3% compared to 19.4% for 1998. The decrease was primarily due to lower cellulose volume and unit sales prices, including a scheduled January 1, 1999 fluff pulp contract price reduction to Procter & Gamble. These negative factors were substantially offset by improved airlaid sales and lower overall costs. Net interest and amortization of debt costs for 1999 were $38.9 million, compared to $36.3 million for 1998, an increase of $2.6 million. This increase was due to higher average interest rates. The Company's effective tax rate for 1999 was 31.7% versus 34.1% in 1998. During the last two quarters of the fiscal year, the Company recognized additional benefit from optimizing its foreign sales corporation.