UNITED
      STATES SECURITIES AND EXCHANGE
      COMMISSION


Washington,D.C.20549





FORM
      10-K





SANNUAL
      REPORT
      PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
      the fiscal year ended June 30,
      2008


or





TRANSITION
      REPORT PURSUANT TO SECTION
      13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





For
      the Transition Period From ____ to
      ____





Commission
      file number:
      33-60032





Buckeye
      Technologies
      Inc.


(Exact
      name of registrant as specified
      in its charter)





Delaware
            
            62-1518973(State
                or other jurisdiction of
                incorporation or organization)
            
            (I.R.S.
                Employer Identification
                No.)





1001
                Tillman Street,Memphis,Tennessee
            
            38112(Address
                of principal executive
                offices)
            
            (Zip
                Code)


Registrant’s
      telephone number, including
      area code (901) 320-8100





Securities
      registered pursuant to
      Section 12(b) of the Act:


Title
                of Each
                Class
            
            Name
                of Each Exchange on which
                RegisteredCommon
                Stock, par value
                $0.01
                per share
            
            New
                YorkStock
                Exchange





Securities
      registered pursuant to
      Section 12(g) of the Act: None


Indicate
      by check mark if the registrant
      is a well-known seasoned issuer, as defined in Rule 405 of the Securities
      Act


Yes
NoS


Indicate
      by check mark if the registrant
      is not required to file reports pursuant to Section 13 or Section 15(d) of
      the
      Act.


Yes
NoS


Note
–
Checking
      the box above will not
      relieve any registrant required to file report pursuant to Section 13 or 15(d)
      of the Exchange Act from their obligations under those
      Sections.





Indicate
      by check mark whether
      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
      such 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. YesSNo






Indicate
      by check mark if disclosure of
      delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this
      chapter) is not contained herein, and will be contained, to the best of
      registrant’s knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-K or any amendment to
      this
      Form 10-K.S





Indicate
      by check mark whether the
      registrant is a large accelerated filer, an accelerated filer or a
      non-accelerated filer.  See definition of “accelerated filer” or
“large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check
      one).


Large
                accelerated filer
                
            Accelerated
                filerS
            Non-accelerated
                filer
                




Indicate
      by a check mark whether the
      registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
      Yes  NoS





As
      of December 31, 2007,
      the aggregate market value of the
      registrant’s voting common equity held by non-affiliates, computed by reference
      to the price at which the common equity was last sold, was approximately
      $469.5million.





As
      ofAugust 25, 2008, there
      were outstanding
      39,160,377Common Shares of
      the Registrant.





DOCUMENTS
      INCORPORATED BY
      REFERENCE


Portions
      of Buckeye Technologies Inc.’s
      2008Annual
      Proxy Statement to be filed with
      the commission in connection with the 2008Annual
      Meeting of Stockholders are
      incorporated by reference into Part III and IV.





INDEX




BUCKEYE
      TECHNOLOGIES
      INC.








ITEM
            
            PAGEPART
                I1.
            Business
            31A.
            Risk
                Factors
            81B.
            Unresolved
                Staff
                Comments
            112.
            Properties
            123.
            Legal
                Proceedings
            134.
            Submission
                of Matters to a Vote of
                Security Holders
            13PART
                II5.
            Market
                for the Registrant’s Common
                Stock, Related Security Holder Mattersand Issuer
                Purchases of Equity
                Securities
            136.
            Selected
                Financial
                Data
            157.
            Management’s
                Discussion and
                Analysis of Financial Condition and Results of
                Operations
            167A.
            Qualitative
                and Quantitative
                Disclosures About Market Risk
            278.
            Financial
                Statements and
                Supplementary Data
            299.
            Changes
                in and Disagreements with
                Accountants on Accounting and Financial Disclosure
            299A.
            Controls
                and
                Procedures
            299B.
            Other
            29PART
                III10.
            Directors,Executive
                Officersand Corporate
                Governance
            3011.
            Executive
                Compensation
            3212.
            Security
                Ownership of Certain
                Beneficial Owners and Managementand Related
                Stockholder
                Matters
            3213.
            Certain
                Relationships and Related
                Transactions, and
                DirectorIndependence
            3214.
            Principal
                Accountant Fees and
                Services
            32PART
                IV15.
            Exhibits
                and Financial Statement
                Schedules
            33Signatures
            34OTHERIndex
                to Consolidated Financial
                Statements and Schedules
            F-1











2


PART
      I


Item
      1.
      Business




General




Buckeye
      Technologies Inc. is a leading
      producer of value-added cellulose-based specialty products, headquartered inMemphis,Tennessee.  We
      believe that we have
      leading positions in many of the high-end niche markets in which we
      compete.  We utilize our expertise in polymer chemistry, leading
      research and development and advanced manufacturing facilities to develop and
      produce innovative and proprietary products for our customers.  We
      sell our products to a wide array of technically demanding niche markets in
      which we believe our proprietary products, manufacturing processes and
      commitment to customer technical service give us a competitive
      advantage.  We are the only manufacturer in the world offering
      cellulose-based specialty products made from both wood and cotton and utilizing
      wetlaid and airlaid technologies.  As a result, we believe we produce
      and market a broader range of cellulose-based specialty products than any of
      our
      competitors.  We produce precisely tailored products designed to meet
      individual customer requirements.  Our focus on specialty niche
      markets allows us to establish long-term supply positions with key
      customers.  We operate manufacturing facilities in theUnited States,Canada,GermanyandBrazil.





Cellulose
      is a natural fiber derived
      from trees and other plants that is used in the manufacture of a wide array
      of
      products. The total cellulose market generally can be divided into two
      categories: commodity and specialty.  Manufacturers use commodity
      cellulose to produce bulk paper and packaging materials, the markets for which
      are very large but highly cyclical.  Specialty cellulose is used to
      impart unique chemical or physical characteristics to a diverse range of highly
      engineered products.  Specialty cellulose generally commands higher
      prices, and demand for specialty cellulose is less cyclical than commodity
      cellulose.  We believe the more demanding performance requirements for
      products requiring specialty cellulose limit the number of participants in
      our
      niche markets.  Our focus on niche specialty cellulose markets has
      enabled us to maintain positive cash flows even during cyclical downturns in
      the
      commodity cellulose markets.




Company
      History




We
      and our predecessors have
      participated in the specialty cellulose market for over 85 years and have
      developed new uses for many cellulose-based products.  We began
      operations as an independent company on March 16, 1993, when we acquired the
      cellulose manufacturing operations oftheProcter
&
GambleCompanylocated
      inMemphis,TennesseeandPerry,Florida(the
      Foley Plant), with Procter &
Gamble retaining a 50% limited partnership interest in the Foley
      Plant.  We became a public company in November of 1995 and
      simultaneously acquired and redeemed Procter & Gamble’s remaining interest
      in the Foley Plant.




In
      May 1996, we acquired the specialty
      cellulose business of Peter Temming AG located inGlueckstadt,Germany.  In
      September 1996, we
      acquired Alpha Cellulose Holdings, Inc., a specialty cellulose producing
      facility located inLumberton,North
      Carolina.  In May 1997, we acquired
      Merfin International Inc., a leading manufacturer of airlaid nonwovens with
      facilities located inCanada,Irelandand
      theUnited States.
      In October 1999, we acquired
      essentially all of the assets of Walkisoft, UPM-Kymmene’s airlaid nonwovens
      business.  The acquisition of Walkisoft added manufacturing facilities
      inSteinfurt,GermanyandGaston
      County,North
      Carolina.  In March 2000, we acquired
      the intellectual property rights to the Stac-PacTM folding technology. In August
      2000, we acquired the cotton cellulose business ofFibra,S.A.located
      inAmericana,Brazil. 
In
      calendar 2001, we commenced
      operating the world’s largest airlaid nonwovens machine at our Gaston,North Carolinafacility
      and started up a cosmetic
      cotton fiber line at ourLumberton,North
      Carolinafacility.





Due
      to a decline in demand for cotton
      content paper, in August 2003, we closed the specialty cotton papers portion
      of
      ourLumberton,North
      Carolinafacility.  Due to excess
      airlaid production capacity around the globe we closed our single-line airlaid
      nonwovens facility inCork,Irelandduring
      July 2004. In December 2005, we
      ceased production at our cotton linter pulp facility inGlueckstadt,Germany.  In
      conjunction with this
      closure, we upgraded the capability of ourAmericana,Brazilmanufacturing
      facility.  This
      expansion was completed during fiscal year 2006. See Note 3, Impairment of
      Long-Lived Assets and Assets Held for Sale, to the Consolidated Financial
      Statements for further discussion of the Lumberton, North Carolina; and
      Glueckstadt, Germany closures.





We
      are incorporated inDelawareand
      our executive offices are located at1001 Tillman
      Street,Memphis,Tennessee.
      Our telephone number is (901)
      320-8100.








3





Products




Our
      product lines can be broadly grouped
      into four categories: chemical cellulose, customized fibers, fluff pulp and
      nonwoven materials.  We manage these products within two reporting
      segments: specialty fibers and nonwoven materials.  The chemical
      cellulose and customized fibers are derived from wood and cotton cellulose
      materials using wetlaid technologies.  Fluff pulps are derived from
      wood using wetlaid technology.  Wetlaid technologies encompass
      cellulose manufacturing processes in which fibers are deposited using
      water.  Airlaid nonwoven materials are derived from wood pulps,
      synthetic fibers and other materials using airlaid
      technology.  Airlaid technology utilizes air as a depositing medium
      for fibers, one benefit of which is an increased ability as compared to wetlaid
      processes to mix additional feature-enhancing substances into the material
      being
      produced.  A breakdown of our major product categories, percentage of
      sales, product attributes and applications is provided
      below.





Product
                Groups
            %
                of Fiscal 2008Sales
            Value
                Added
                Attributes
            Market
                for End Use
                ApplicationsSpecialty
                Fibers
              Chemical
                Cellulose
              
              Food
                casings
              
              Rayon
                industrial
              cord
              
              High
                purity
                cotton
              ethers
              
              
              Film
                for
                liquid
              crystal
                displays
            32%
            Purity
                and
                strength
              
              Strength
                and heat
                stability
              
              
              High
                viscosity, purity and
                safety
              
              
              Transparency/clarity,
                strength
                and
              purity
            Hot
                dog and sausage
                casings
              
              High
                performance tires and hose
                reinforcement
              
              
              Personal
                care products, low fat
                dairy products, pharmaceuticals and construction
                materials
              
              
              Laptop
                and desktop computers
                and
              television
                screensCustomized
                Fibers
              
              Filters
              
              Specialty
                cotton
              papers
              
              Cosmetic
                Cotton
              
              Buckeye
                UltraFiber 500®
            17%
            High
                porosity and product
                life
              
              Color
                permanence and tear
                resistance
              
              Absorbency,
                strength and
                softness
              
              Finishing
                and crack
                reduction
            Automotive,
                laboratory and
                industrial filters
              
              Personal
                stationery, premium
                letterhead and currency
              
              Cotton
                balls and cotton
                swabs
              
              ConcreteFluff
                Pulp
              
              Fluff
                pulp
            19%
            Absorbency
                and fluid
                transport
            Disposable
                diapers, feminine
                hygiene products and adult incontinence productsNonwoven
                Materials
              
              Airlaid
                nonwovens
            32%
            Absorbency,
                fluid management
                and
              wetstrength
            Feminine
                hygiene products,
                specialty wipes and mops, tablecloths, napkins, placemats, incontinence
                products and food pads





See
      Note 14, Segment Information, to the
      Consolidated Financial Statements for additional information on
      products.





4


Raw
      Materials





Slash
      pine timber and cotton fibers are
      the principal raw materials used in the manufacture of our specialty fibers
      products.  These materials represent the largest components of our
      variable costs of production.  The region surrounding the Foley Plant
      has a high concentration of slash pine timber, which enables us to purchase
      adequate supplies of a species well suited to our products at an attractive
      cost.  In order to be better assured of a secure source of wood at
      reasonable prices, we have entered into timber purchase agreements which allow
      us to purchase a portion of our wood at market prices that are fixed annually
      or
      current market prices as stated in the agreements.  Additional
      information is included in Note 16, Commitments, to the Consolidated Financial
      Statements.





We
      purchase cottonlinterfiber
      either directly from cottonseed
      oil mills or indirectly through agents or brokers.  We purchase the
      majority of our requirements of cotton fiber for theMemphisandLumbertonplants
      domestically.  The
      majority of the cotton fiber processed in theAmericanaplant
      comes from withinBrazil.





Fluff
      pulp is the principal raw material
      used in the manufacture of our nonwoven materials
      products.  Approximately 65% of our fluff pulp usage is supplied
      internally and the remainder is purchased from several other suppliers. In
      addition to fluff pulp, these products are comprised of synthetic fibers, latex
      polymers, absorbent powders and carrier tissue depending on grade
      specifications.  These materials are also purchased from multiple
      sources.





The
      cost and availability of slash pine
      timber, cottonlinterfiber
      and fluff pulp are
      subject to market fluctuations caused by supply and demand
      factors.  We do not foresee material constraints from pricing or
      availability for slash pine timber and fluff pulp.  Wecontinue tohave
      raw material availability issues
      for our cottonlinterfibers
      in both North
      America andBrazil.  We
      have increased our
      imported cotton linters purchases for specialty cotton fiber productioninMemphisin
      order to minimize the impact of
      current constraints on North American cotton fiber availability.  For
      the near term, this raw material availability will limitourgrowth
      andincrease production costs.





Our
      manufacturing processes,especially
      for specialty fibers, require
      significant amounts of fuel oil and natural gas.  These manufacturing
      inputs are subject to significant changes in prices and availability, whichhaveadversely
      impactedour
      operating
      results.




Sales
      and Customers





Our
      products are marketed and sold
      through a highly trained and technically skilled sales force.  We
      maintain sales offices in theUnited StatesandEurope.  Our
      worldwide sales are
      diversified by geographic region as well as end-product application. Our sales
      are distributed to customers inover60
      countries around the
      world.  Our fiscal 2008sales
      reflect this geographic diversity,
      with 42%
      of sales in North America,37%
      of sales in Europe,11%
      of sales in Asia, 4% of sales inSouth Americaand6%
      in other
      regions.  Approximately85%
      of our worldwide sales for fiscal
      2008were
      denominated in U.S. dollars. Our
      products are shipped by rail, truck and ocean carrier.  Geographic
      segment data and product sales data are included in Note 14, Segment
      Information, to the Consolidated Financial Statements.




Sales
      by geographical destination for
      the three years ended June 30, 2008were
      as follows:





(in
      millions)


Sales
                by
                Destination2008
            
            2007
            
            2006United
                  States
            
            $
            274
            
            
            33
            %
            $
            254
            
            
            33
            %
            $
            230
            
            
            32
            %Germany
            
            
            72
            
            
            9
            
            
            66
            
            
            9
            
            
            59
            
            
            8Italy
            
            
            62
            
            
            7
            
            
            72
            
            
            9
            
            
            66
            
            
            9Japan
            
            
            39
            
            
            5
            
            
            38
            
            
            5
            
            
            38
            
            
            5Mexico
            
            
            38
            
            
            5
            
            
            33
            
            
            4
            
            
            25
            
            
            3Canada
            
            
            31
            
            
            4
            
            
            45
            
            
            6
            
            
            47
            
            
            6France
            
            
            31
            
            
            4
            
            
            25
            
            
            3
            
            
            22
            
            
            3Brazil
            
            
            30
            
            
            3
            
            
            25
            
            
            3
            
            
            21
            
            
            3Spain
            
            
            26
            
            
            3
            
            
            26
            
            
            3
            
            
            25
            
            
            3All
                other
            
            
            223
            
            
            27
            
            
            185
            
            
            25
            
            
            195
            
            
            28Total
            
            $
            826
            
            
            100
            %
            $
            769
            
            
            100
            %
            $
            728
            
            
            100
            %





5


The
      high-end, technically demanding
      specialty niche markets that we serve require a higher level of sales and
      technical service support than do commodity product sales.  Our sales,
      product development and customer service professionals work with customers
      in
      their plants to design products tailored precisely to their product needs and
      manufacturing processes.  In addition to a direct sales force, we also
      utilize outside sales agents in some parts of the world.




Procter
&
Gamble
      is our largest
      customer, accounting for 10%
      of our fiscal 2008net
      sales.Our Specialty Fibers
      segmentaccountsfor
      approximately 66%
      of the total sales to Procter &
Gamble.  No other customer accounted for greater than5%
      of our fiscal 2008net
      sales.





Research
      and
      Development





Our
      research and development activities
      focus on developing new products, improving existing products and enhancing
      process technologies to further reduce costs and respond to environmental
      needs.  We have research and development pilot plant facilities inMemphis,
      and we employ engineers, scientists
      and technicians who are focused on advanced products and new applications to
      drive future growth.  Our pilot plant facilities allow us to produce,
      test and deliver breakthrough products to the market place on a more
      cost-effective basis while minimizing interruptions to the normal production
      cycles of our operating plants.





Research
      and development costs of
      $8.2million,
      $8.3million
      and $9.2million
      were charged to expense as
      incurred for the years ended June 30, 2008,
      2007and
      2006,
      respectively.




Competition




There
      are relatively few specialty
      fibers producers when compared with the much larger commodity paper pulp
      markets. The technical demands and unique requirements of the high-purity
      chemical cellulose or customized fiber pulp user tend to differentiate suppliers
      on the basis of their ability to meet the customer’s particular set of needs,
      rather than focusing only on pricing.  The high-purity chemical
      cellulose and customized fiber markets are less subject to price variation
      than
      commodity paper pulp markets.  Major competitors include
      Archer-Daniels-MidlandCompany,
      Borregaard, RayonierInc.and
      TembecInc.





We
      believe that the number of producers
      is unlikely to grow significantly due to the substantial investment required
      to
      enter the mature specialty fibers market anddueto
      sufficient existing
      capacity.  However, Sateriis in the process ofadding250,000
      tons of specialty pulp capacity
      inBrazil(Bahia)infiscal
      year 2008 and is currently
      operating in the start-up stage.  Also, aformer Weyerhaeuser mill
      in Cosmopolis,Washingtonwith
      an annual capacity of 155,000
      metric tons may restart production.  We do not expect that this
      planned increase in industry capacity will adversely impactourspecialty
      fibers business inour fiscal year
      2009.  However,
      it is possible that it could have an impact in the following fiscal
      year.





Althoughglobaldemand
      for fluff pulp isgrowing by 3% to 5% annually,
      fluff pulp prices tend to varydirectlywith
      commodity paper pulp prices because
      fluff pulp is often produced in mills that also produce commodity paper
      pulp.  Our strategy is to reduce our exposure to fluff pulp by
      increasing our sales of more specialized wood cellulose into new and existing
      markets.  We also used approximately 41,000
      metric tons of fluff pulp from ourPerry, Florida wood
      cellulose facilityduring
      this fiscal year as a key raw material in our airlaid nonwovens operations.We currently produce
      less
      than 6% of the world’s
      supply of fluff pulp.  Major competitors includeAbitibiBowaterInc.,
      International PaperCompany,
      GP Cellulose, LLC,
      Rayonier and
      Weyerhaeuser.We
      understand International Paper has added capability at two of its mills to
      begin
      producing fluff pulp and GP Cellulose announced it is adding capacity at itsBrunswickmill,
      both of which will create
      additional fluff pulp capacity.  The potential added
      capacity from these and
      other smaller announced additions is in the 500,000 to 600,000 ton range over
      a
      two year period (2008 to 2009) compared to a current global market size 4.5
      million tons annually.





Demand
      for airlaid nonwovens grew
      significantly in the 1990’s.  Since then, significant capacity
      expansion in 2001, primarily inNorth America,
      resulted in the market being
      oversupplied.  Buckeye is the leading supplier of airlaid nonwoven
      materials worldwide.  The markets we compete in also utilize nonwovens
      materials produced with technologies other than airlaid such as
      spunlace.  Major nonwovens competitors include Ahlstrom,
      FiberwebPlc,
      Concert IndustriesLtd.,
      DuniAB,
      Koch Industries,Inc.,Kimberly-ClarkCorporationand
      PolymerGroup,Inc.





While
      the North American industry is
      operating in an environment of excess supply, there
      is limited availability of airlaid
      nonwoven capacity inEurope.  However,
      one of our
      competitors there, Fiberwebhas
      commenced production at
      anew airlaid nonwovens
      plant inItalywith
      an annual capacity of approximately
      10,000 metric tons,and
      Concert has announced another line
      at their Falkenhagen,Germanyfacility
      also with an annual capacity of
      10,000 metric tons to be online in the fall of 2009.  In other parts
      of the world, Fiberweb has started up a second machine inChina,
      also with approximately 10,000 metric
      tons of annual capacity, and Sambo started up a 10,000 metric tons per year
      line
      inSouth Koreathis
      year.





6


Intellectual
      Property




At
      June 30, 2008and
      2007,
      we had intellectual property assets
      recorded totaling $16.6million
      and $18.0million,
      respectively.  These
      amounts include patents (including application and defense costs), licenses,
      trademarks, and tradenames, the majority of which were obtained in the
      acquisition of airlaid nonwovens businesses and Stac-Pacвtechnology.  We
      intend to protect our patents and file applications for any future inventions
      that are deemed to be important to our business operations.  The
      Stac-Pacвpackaging technology,
      a
      proprietary system for packaging low-density nonwoven materials in compressed
      cube-shaped bales, is an example of technology we acquired to further
      differentiate us from our airlaid nonwovens
      competitors.  Stac-Pacвbales facilitate our
      customers’ high-speed production lines with a continuous flow of material.
      Stac-Pacвunits also reduce freight
      costs by compressing more material in a bale than can be shipped in a
      traditional roll form, which enables us to ship the bales more effectively
      in
      trucks and containers.  Additional information is included in Note 1,
      Accounting Policies, totheConsolidated
      Financial
      Statements.





Inflation




Wehave
      experienced a significant increase
      in our raw material, energy, chemicals and transportation costs over the past
      fiscal year.  We have been able to offset this cost inflation with
      significant increases in the selling prices of our products for the total year
      compared to the prior year.  While oil and natural gas prices have
      moderated from recent peaks, we are still facing rising cost
      trends.




Seasonality


Our
      business generally is not seasonal
      to a substantial extent, although we ship somewhat lower specialty fiber volume
      in the July – September quarter and somewhat lower nonwovens volume is shipped
      in the October – December quarter.





Employees




As
      ofAugust 15,
      2008,
      we employed approximately1,500employees,
      of whom approximately1,100are
      employed at our facilities in theUnited States.
      Approximately 55% of theU.S.employees
      are represented by unions at
      two plants inPerry,FloridaandMemphis,Tennessee.Our
      Foley Plant’s labor agreement
      expired on March 31, 2008 and a new agreement is currently being
      negotiated.  The agreement for the Memphis
      Plant is in effect
      through March 18, 2009.  The union at our Canadian facility ratified a
      new labor agreement effective through June 30, 2009.  A national union
      provides employee representation for non-management workers at our specialty
      fibers plant inAmericana,Brazil.A
      works council provides employee
      representation for non-management workers at our nonwoven materials plant inSteinfurt,Germany.Our
      plants in Gaston, King andLumberton,North
      Carolinaare not unionized.





None
      of our facilities has had labor
      disputes or work stoppages in recent history.  The Foley and Memphis
      Plants have not experienced any work stoppages due to labor disputes in over
      30
      years and 50 years, respectively.  We consider our relationships with
      our employees and their representative organizations to be good.  An
      extended interruption of operations at any of our facilities, however,could
      have a material adverse effect on
      our business.




Environmental
      Regulations and
      Liabilities




Our
      operations are subject to extensive
      general and industry-specific federal, state, local and foreign environmental
      laws and regulations.  We devote significant resources to maintaining
      compliance with these laws and regulations.  We expect that, due to
      the nature of our operations, we will be subject to increasingly stringent
      environmental requirements (including standards applicable to wastewater
      discharges and air emissions) and will continue to incur substantial costs
      to
      comply with such requirements.  Our failure to comply with
      environmental laws or regulations could subject us to penalties or other
      sanctions which could materially affect our business, results of operations
      or
      financial condition.  Additional information is included in Note 17,
      Contingencies, to the Consolidated Financial Statements.




7


Other
      Information





Our
      website iswww.bkitech.com.  We
      make available, free of
      charge, through our website under the heading “Investor Relations,” annual
      reports on Form 10-K, quarterly reports on Form 10-Q and current reports on
      Form
      8-K, and any amendments to those filed or furnished, pursuant to Section 13(a)
      or Section 15(d) of the Securities Exchange Act of 1934, as amended.  The
      information on our
      website is not part of or incorporated by reference in this Annual Report on
      Form 10-K.





These
      reports are also available as soon
      as reasonably practicable after we electronically file such materials with,
      or
      furnish such materials to, the Securities and Exchange Commission, or the
      SEC.  The public may also read and copy any materials we file with the
      SEC at the SEC’s Public Reference Room atStation Place,100
      F Street NE,Washington,D.C.20549.  The
      public may obtain
      information about the operation of the Public Reference Room by calling the
      SEC
      at 1-800-SEC-0330.  In addition, the SEC maintains an internet site
      that contains reports, proxy and information statements and other information
      filed electronically by us, which are available at
      http://www.sec.gov.





SafeHarborProvisions




This
      document contains both historical
      and forward-looking statements.  All statements other than statements
      of historical fact are, or may be deemed to be, forward-looking statements
      within the meaning of section 27A of the Securities Act of 1933, as
      amended, and section 21E of the Securities Exchange Act of 1934, as
      amended.  These forward-looking statements are not based on historical
      facts, but rather reflect management’s current expectations concerning future
      results and events.




These
      forward-looking statements
      generally can be identified by the use of statements that include phrases such
      as "believe," "expect," "anticipate," "intend," "plan," "foresee," "likely,"
      "will" or other similar words or phrases.  Similarly, statements that
      describe management’s objectives, plans or goals are or may be forward-looking
      statements.  These forward-looking statements involve known and
      unknown risks, uncertainties and other factors that are difficult to predict
      and
      which may cause the actual results, performance or achievements to be different
      from any future results, performance and achievements expressed or implied
      by
      these statements.





The
      following important factors, among
      others, could affect future results, causing these results to differ materially
      from those expressed in our forward-looking statements: dependence on a single
      customer; the ability to obtain additional capital, maintain adequate cash
      flow
      to service debt as well as meet operating needs; maintaining satisfactory labor
      relations; an inability to predict the scope of future environmental compliance
      costs or liabilities; pricing fluctuations and worldwide economic conditions;
      competition; and fluctuations in the costs and availability of raw
      materials.





The
      forward-looking statements included
      in this document are only made as of the date of this document and we do not
      have any obligation to publicly update any forward-looking statements to reflect
      subsequent events or circumstances.




Item
      1A.
      Risk
      Factors




Our
      operations are subject to a number
      of risks including those listed below anddiscussed elsewhere in
      this Annual
      Report on Form 10-K (particularly in Item 7. Management’s Discussion and
      Analysis of Financial Condition and Results of Operations).  If any of the events
      described in the following risk factors actually occur, itcould materially impact
      our results of
      operations and financial condition.





Risks
      related to our
      industry





We
      are subject to the cyclicality of our
      industry.





The
      demand and pricing of our products,
      particularly fluff pulp, are influenced by the much larger market for
      papermaking pulps which is highly cyclical.  The markets for most
      cellulose and absorbent products are sensitive to both changes in general global
      economic conditions and to changes in industry capacity. Both of these factors
      are beyond our control.  The price of these products can fluctuate
      significantly when supply and demand become imbalanced for any
      reason.  Our financial performance can be heavily influenced by these
      pricing fluctuations and the general cyclicality of the industries in which
      we
      compete.  Furthermore, a general economic downturn in a particular
      country or on an international scale, could reduce the overall sales within
      our
      industry, thereby likely reducing our sales.  We cannot assure you
      that current prices will be maintained, that any price increases will be
      achieved, or that industry capacity utilization will reach favorable
      levels.  The demand, cost and prices for our products may fluctuate
      substantially in the future and downturns in market conditions could have a
      material adverse effect on our business, results of operations and financial
      condition.





8


Competition
      and surplus capacity could
      adversely affect our operating results and financial
      condition.





The
      markets for our products are all
      competitive.  Actions by competitors can affect our ability to sell
      our products and can affect the volatility of the prices at which our products
      are sold.  Other actions by competitors, such as reducing costs or
      adding low-cost capacity, may adversely affect our competitive position in
      the
      products we manufacture and, consequently, our sales, operating income and
      cash
      flows.  New competitors and the expansion of existing competitors
      could create a surplus capacity of the goods that we sell, which might cause
      us
      to either lose sales or lower the prices of our goods.  As examples of
      existing competitors expanding their production, Sateri has announced that
      it
      will add 250,000 tons of specialty pulp capacity inBraziland
      Weyerhauser could reopen a mill with
      an annual capacity of 155,000 metric tons.In addition, Fiberweb
      and Sambo have
      increased airlaid nonwoven production capacity in Asia and Concert has announced
      additional capacity inGermanyin
      the fall of 2009.Actions by our competitors
      and any
      surplus capacity could cause our profits to decline, affecting our operating
      results and financial condition.





Market
      fluctuations in the availability
      and cost of energy and raw materials are beyond our control and may adversely
      impact our business.




Energy,
      chemicals, and raw material
      costs, including fuel oil, natural gas, electricity, cotton linters, wood,
      and
      caustic and other chemicals are a significant operating expense.  The
      prices and availability of raw materials and energy can be volatile and are
      susceptible to rapid and substantial changes due to factors beyond our control
      such as changing economic conditions, currency fluctuations, weather conditions,
      political unrest and instability in energy-producing nations, and supply and
      demand considerations.  We have raw material availability issues at
      our Memphis and Americana specialty fibers plants.  We havethe
      option to importcotton linters purchases
      for ourMemphisspecialty
      cotton fiber production in
      order to minimize the impact of current constraints on North American cotton
      fiber availability.  We have limited production at ourAmericana,BrazilandMemphisspecialty
      fibers facilitiesbecause
      of raw material
      constraints.  For the near term, this raw material availability will
      limit growth and increase our production costs.  Additionally, energy
      and chemical costs have increased substantially in recent years, which has
      resulted in increased production costs for our products. Increases in production
      costs could have a material adverse effect on our business, financial condition
      and results of operations.  In addition to increased costs, it is
      possible that a disruption in supply of natural gas or other fossil fuels could
      limit our ability to operate our facilities.





Market
      fluctuations in the availability
      and cost of transportation are beyond our control and may adversely impact
      our
      business.





Our
      business depends on the
      transportation of a large number of products, both domestically and
      internationally.  An increase in transportation rates or fuel
      surcharges and/or a reduction in transport availability in truck, rail and
      international shipping could negatively impact our ability to provide products
      to our customers in a timely manner.  An increase in international
      shipping rates or fuel surcharges or a reduction in the availability of vessels
      could negatively impact our costs and our ability to provide products to our
      international customers in a timely manner.  While we have had
      adequate transportation availability, there is no assurance that such
      availability can continue to be effectively managed in the
      future.





Risks
      related to our
      business





Exposure
      to commodity products creates
      volatility in pricing and profits.





If
      our research and development efforts
      do not result in the commercialization of new, proprietary products, we will
      continue to have significant exposure to fluff pulp, which could result in
      volatility in sales prices and profits.




If
      our significant customer changes its
      purchasing habits, our business could be adversely impacted.





Procter
&
Gamble
      is our largest
      single customer.  We supply Procter & Gamble with fluff pulp and
      airlaid nonwovens, and sales to Procter & Gamble accounted for approximately10%
      of our sales in fiscal year
      2008.  In
      the event that Procter
& Gamble fails to continue to purchase these products from us in substantial
      volume, our results of operations and financial condition could be materially
      and adversely affected, particularly if we are unable to attract new
      customers.





9


Our
      substantial indebtedness could
      adversely affect our financial health.





As
      of June 30, 2008,
      our total debt was approximately
      $394million
      and our total debt, as a
      percentage of total capitalization, was48%.  Our
      level of debt could
      have a significant adverse future effect on our business. For
      example:





-         
      we may have limited ability
      to
      borrow additional amounts for working capital, capital expenditures,
      acquisitions, debt service requirements, execution of our growth strategy,
      research and development costs or other purposes;





-         
      a substantial portion of our
      cash
      flow may be used to pay principal and interest on our debt, which will reduce
      the funds available for working capital, capital expenditures, acquisitions
      and
      other purposes;





-         
      our senior secured credit facility
      covenants require us to meet certain financial objectives and impose other
      restrictions on business operations.  These covenants and those
      contained in the indentures governing our senior andseniorsubordinated
      notes limit our ability to
      borrow additional funds or dispose of assets and limit our flexibility in
      planning for and reacting to changes in our business;





-         
      we may be more vulnerable to
      adverse changes in general economic, industry and competitive conditions and
      adverse changes in government regulation;





-         
      our debt level and the various
      covenants contained in the indentures related to our senior notes, senior
      subordinated notes and the documents governing our other existing indebtedness
      may place us at a relative competitive disadvantage as compared to certain
      of
      our competitors; and





-         
      our borrowings under our senior
      secured credit facility are at floating rates of interest, which could result
      in
      higher interest expense in the event of an increase in interest
      rates.





Our
      ability to pay principal of and
      interest on our senior notes and senior subordinated notes, to service our
      other
      debt and to refinance indebtedness when necessary depends on our financial
      and
      operating performance, each of which is subject to prevailing economic
      conditions and to financial, business and other factors beyond our
      control.





We
      cannot assure you that we will
      generate sufficient cash flow from operations or that we will be able to obtain
      sufficient funding to satisfy all of our obligations.  If we are
      unable to pay our debts, we will be required to pursue one or more alternative
      strategies, such as selling assets, refinancing or restructuring our
      indebtedness or selling additional equity capital. However, we cannot assure
      you
      that any alternative strategies will be feasible at the time or prove
      adequate.  Also, certain alternative strategies will require the
      consent of our senior secured lenders before we engage in any such
      strategy.





Our
      failure to maintain satisfactory
      labor relations could have a material adverse effect on our
      business.





If
      our negotiations with the
      representatives of the unions, to which many of our employees belong, are not
      successful, our operations could be subject to interruptions at many of our
      facilities.  As ofAugust 15,
      2008,
      we employed approximately1,500employees,
      of whom approximately1,100are
      employed at our facilities in theUnited States.
      Approximately 55% of theU.S.employees
      are represented by unions at
      two plants inPerry,FloridaandMemphis,Tennessee.Our
      Foley Plant’s labor agreement
      expired on March 31, 2008 and a new agreement is currently being
      negotiated.  Theagreement for the Memphis
      Plant is in
      effect through March 18, 2009.  The union at our Canadian facility
      ratified a new labor agreement effective through June 30,
      2009.





Employee
      representation is provided by a
      national unionfor
      non-management workers at our specialty fibers plant inAmericana,Brazil,
      anda works council atour
      nonwoven materials plant inSteinfurt,Germany.  Our
      plants in Gaston,Lumbertonand
      King,North Carolinaare
      not unionized.





None
      of our facilities has had labor
      disputes or work stoppages in recent history.  The Foley and Memphis
      Plants have not experienced any work stoppages due to labor disputes in over
      30
      years and 50 years, respectively.  We consider our relationships with
      our employees and their representative organizations to be good.  An
      extended interruption of operations at any of our facilities could have a
      material adverse effect on our business.





Problems
      regarding the negotiation of
      any labor contracts could also affect our business.  The failure to
      renegotiate labor agreements in a timely manner could lead to a curtailment
      or
      stoppage of work at our factories.  If we negotiated a labor agreement
      on unfavorable terms, our production costs will increase.  A reduction
      in production or increasing the costs of production would lower our profits
      and
      harm our business.





10


Compliance
      with extensive general and
      industry specific environmental laws and regulations requires significant
      resources, and the significant associated costs may adversely impact our
      business.





Our
      operations are subject to extensive
      general and industry specific federal, state, local and foreign environmental
      laws and regulations.  We devote significant resources to maintaining
      compliance with these laws and regulations.  We expect that, due to
      the nature of our operations, we will be subject to increasingly stringent
      environmental requirements (including standards applicable to wastewater
      discharges and air emissions) and will continue to incur substantial costs
      to
      comply with these requirements.  Because it is difficult to predict
      the scope of future requirements, there can be no assurance that we will not
      incur material environmental compliance costs or liabilities in the
      future.





The
      Foley Plant, located inPerry,Florida,
      discharges treated wastewater into theFenhollowayRiver.  Under
      the terms of an
      agreement with the Florida Department of Environmental Protection (“FDEP”),
      approved by the U. S. Environmental Protection Agency (the “EPA”) in 1995, we
      agreed to a comprehensive plan to attain Class III (“fishable/swimmable”) status
      for the Fenholloway River under applicable Florida law (the “Fenholloway
      Agreement”).  The Fenholloway Agreement requires us, among other
      things, to (i) make process changes within the Foley Plant to reduce the
      coloration of its wastewater discharge, (ii) restore certain wetlands areas,
      (iii) relocate the wastewater discharge point into the Fenholloway River to
      a
      point closer to the mouth of the river, and (iv) provide oxygen enrichment
      to
      the treated wastewater prior to discharge at the new location.  We
      have completed the process changes within the Foley Plant as required by the
      Fenholloway Agreement.  In making these in-plant process changes, we
      incurred significant expenditures, and, we expect to incur significant
      additional capital expenditures to comply with the remaining obligations under
      the Fenholloway Agreement.




Based
      on the requirementsanticipated inthe
      proposed permit, we expect to incur
      capital expenditures of approximately $9.0millionover
      the next two yearson in-plant process changes,
      and additional capital expenditures
      ofat least$50
      million over at least five years,
      possibly beginning as early as fiscal year 2012.  The amount and
      timing of these capital expenditures may vary depending on a number of
      factorsincluding when the
      permit is issued and whether there are any further changes to the proposed
      permit.  For
      additional information on environmental matters, see Note 17, Contingencies,to
      the Consolidated Financial
      Statements.  These possible expenditures could have a material adverse
      effect on our business, results of operations or financial
      condition.





Because
      approximately 67% of our sales
      are to customers outside theUnited States,
      we are subject to the economic and
      political conditions of foreign nations.





We
      have manufacturing facilities in four
      countries and sell products in approximately 60 countries.  For the
      fiscal year ended June 30, 2008,
      sales of our products outside theUnited Statesrepresented
      approximately 67% of our
      sales.  The global economy and relative strength or weakness of the
      U.S. dollar can have a significant impact on our sales.  In addition,
      although approximately 82% of our sales are denominated in U.S. dollars, it
      is
      possible that as we expand globally, we will face increased risks associated
      with operating in foreign countries, including:





-           
      the risk that foreign currencies
      will be devalued or that currency exchange rates will
      fluctuate;





-
            the
                risk that limitations will be
                imposed on our ability to convert foreign currencies into U.S. dollars
                or
                on our foreign subsidiaries' ability to remit dividends and other
                payments
                to the United States;




-
            the
                risk that our foreign
                subsidiaries will be required to pay withholding or other taxes on
                remittances and other payments to the United States or that the amount
                of
                any such taxes will be
                increased;





-           
      the risk that certain foreign
      countries may experience hyperinflation;and





-           
      the risk that foreign governments
      may impose or increase investment or other restrictions affecting our
      business.





Any
      of these risks could have a material
      adverse effect on our business, results of operations or financial
      condition.








Item
      1B.
      Unresolved
      Staff Comments




None.





11


Item
      2.
      Properties





Corporate
      Headquarters.Our corporate headquarters,
      research and
      development laboratories, and pilot plants are located inMemphis,Tennessee.




Specialty
      Fiber
      Plants




MemphisPlant.  The
      Memphis Plant is
      located on approximately 75 acres adjacent to the headquarters complex and
      has a
      capacity of approximately 100,000 annual metric tons of cotton
      cellulose.  As of June 30, 2008,
      the Memphis Plant operated at
      approximately 80% of its capacity.




Foley
      Plant.  The Foley
      Plant is located atPerry,Florida,
      on a 2,900 acre site and has a
      capacity of approximately 465,000 annual metric tons of wood
      cellulose.  In connection with the acquisition of the Foley Plant, we
      also own 13,000 acres of real property near the plant site. As of June 30,
      2008,
      the Foley Plant operated at 100% of
      its capacity.




LumbertonPlant.  The
      Lumberton Plant is
      located inLumberton,North
      Carolinaon a 65-acre site and
      has a capacity of
      approximately 8,000 annual metric tons of cosmetic cotton fiber.  As
      of June 30, 2008,
      the Lumberton Plant operated at
      approximately100%
      of its capacity.




AmericanaPlant.The
      Americana Plant is located in the
      city ofAmericanain
      the state ofSao Paulo,Brazilon
      27 acres and is part of a
      multi-business industrial site with a capacity of approximately 40,000 annual
      metric tons of cotton cellulose.  As of June 30, 2008,
      the Americana Plant operated at
      approximately 65%
      of its capacity.





Nonwovens
      Plants





The
      stated capacity of airlaid nonwovens
      machines is based upon an assumed mix of products.  The flexible
      nature of airlaid technology allows for a wide range of materials to be
      produced.  Machine production capability has typically been lower than
      the stated capacity, often by factors of 10-20%, when adjusted to reflect the
      actual product mix. Based on current product mix, utilization of our airlaid
      machines worldwide, as of June 30, 2008, was approximately
      70% ofitscapacity.





Delta
      Plant. The Delta Plant is
      located in Delta, British Columbia on a 12-acre industrial park site and has
      a
      total capacity of approximately 30,000 annual metric tons of airlaid nonwovens
      (26,000 based on current production mix) from two production
      lines.





Steinfurt
      Plant. The Steinfurt Plant
      is located inSteinfurt,Germanyon
      an 18-acre site and has a total
      capacity of approximately 30,000 annual metric tons of airlaid nonwovens from
      two production lines.





Gaston
      Plant. The Gaston Plant is
      located inGastonCountynearMt.
      Holly,North
      Carolinaon an 80-acre site and
      has a total
      capacity of approximately 60,000 annual metric tons of airlaid nonwovens (43,000
      annual metric tons based on current production mix) from two production
      lines.





King
      Plant. The King Plant is
      located in King,North
      Carolinaand converts
      airlaid materials and wetlaid papers into wipes, towels and tissues for
      industrial and commercial uses.





We
      own our corporate headquarters, the
      Memphis Plant, the Foley Plant, the Lumberton Plant, the Gaston Plant, the
      Delta, Canada Plant, the Steinfurt, Germany Plant and theAmericana,
      Brazil Plant.  We lease
      buildings that house the King, North Carolina Plant, the sales offices in Europe
      and distribution facilities inSavannah,Georgia.  All
      of the facilities
      located in theUnited
      Statesare pledged as
      collateral for certain debt agreements.





We
      believe that our specialty fibers and
      nonwoven materials manufacturing facilities and administrative buildings are
      adequate to meet current operating demands.





12


Item
      3.
      Legal Proceedings




We
      are involved in certain legal actions
      and claims arising in the ordinary course of business.  We believe
      that such litigation and claims will be resolved withoutamateriallyadverse
      effect on our financialstatements as a
      whole.





On
      January 3, 2008, K.T. Equipment
      (International)(K.T.),
      Inc. filed a claim in the United
      States District Court, Western District of Tennessee, againstus,
      in which K.T. alleged thatwebreachedourobligation
      under the Stac-Pac®
acquisition agreement to pay K.T.a
      contingent promissory note in the
      principal amount of $5millionplus
      accrued interest of approximately
      $2.6millionas
      of June 30, 2008.  Payment of the contingent
      note was dependent
      on the satisfaction of certain
      specified conditions relating to the rights obtained byuswith
      regard to the intellectual property
      assets.  When these conditions were not met pursuant to the terms of
      the Stac-Pac® acquisition agreement,wecanceled
      the contingent note inthe year ended June 30,
      2007.  Webelievewehavemeritorious
      defenses to K.T.’s
      claim and intend to defend against
      the claimvigorously.





Item
      4.
      Submission of Matters to a Vote of Security Holders




None.





PART
      II





Item
      5.
      Market for the Registrant’s Common Stock,Related
      Security Holder Mattersand
      Issuer
      Purchases of Equity Securities




Buckeye
      Technologies Inc.’s common stock
      is traded on the New York Stock Exchange under the symbol BKI.  There
      were approximately 4,000 shareholders onAugust 15,
      2008,
      based on the number of record holders
      of our common stock and an estimate of the number of individual participants
      represented by security position listings.  The table below sets forth
      the high and low sales prices for our common stock.


Year
                Ended June
                302008
            
            2007High
            
            Low
            
            High
            
            LowFirst
                  quarter (ended September
                  30)
            
            $
            17.81
            
            $
            10.43
            
            $
            9.00
            
            $
            6.84Second
                quarter (ended December
                31)
            
            
            18.77
            
            
            11.46
            
            
            12.72
            
            
            8.33Third
                  quarter (ended March
                  31)
            
            
            13.54
            
            
            9.90
            
            
            14.00
            
            
            11.16Fourth
                quarter (ended June
                30)
            
            
            12.19
            
            
            8.45
            
            
            16.25
            
            
            11.75





We
      did not make any dividend payments
      during the fiscal years ended June 30, 2008 or 2007and
      have no plans to pay dividends in
      the foreseeable future.We repurchased 300,000
      shares of our
      common stock during the fiscal year ended June 30, 2008 and repurchased no
      shares during the fiscal year ended June 30, 2007. Dueto certain debt agreements
      we are
      limited in our ability to make dividend distributions and share repurchases
      in
      the future.  The amount available will depend on our financial results
      and ability to comply with certain conditions under our most restrictive debt
      agreements at the time of distribution or repurchase.





Issuer
      Purchases of Equity
      Securities





During
      fiscal years 1997 to 2001 the
      Board of Directors authorized total repurchases of 6.0 million shares of common
      stock.  During fiscal year 2008, werepurchased0.3
      millionshares of our common
      stockat a total cost of $2.7
      million.At
      June 30, 2008, atotal of5.3
      millionshares have been repurchasedunder
      these authorizations.Below
      is a summary of our
      stock repurchases for the period ending June 30, 2008.





(a)Total
                number of shares
                purchased
            
            
            (b)Average
                price paid per
                share
            
            
            (c)Total
                number of shares purchased
                as part of publicly announcedplans
                or
                programs
            
            
            (d)Maximum
                number of shares that may
                yet be purchased under plans or programs990,700April1
–
April
                30,
                2008
            
            
            -
            
            
            -
            
            
            -
            
            
            990,700May
                1 – May 31,
                2008
            
            
            300,000
            
            $
            9.07
            
            
            300,000
            
            
            690,700June
                1 – June 30,
                2008
            
            
            -
            
            
            -
            
            
            -
            
            
            690,700Total
            
            
            300,000
            
            $
            9.07
            
            
            300,000
            
            
            690,700





On
      August 8, 2008 theBoard
      of Directors authorized the
      repurchase of 5.0 million shares of common stock in addition to the6.0
      millionshares of common stockpreviously
      authorized.Repurchased
      shares will be held as
      treasury stock and will be available for general corporate purposes, including
      the funding of employee benefit and stock-related plans.





13


Performance
      Graph





The
      line graph below comparesthe
      cumulative total stockholder return
      on our common stock with the cumulative total return of the Standard &
Poor’s 500 Index and the New York Stock Exchange (NYSE) Paper & Allied
      Products peer group for the five fiscal years ended June 30, 2008.  The
      graph and table assume
      that $100 was invested on June 30, 2003in
      each of our common stock, the
      Standard & Poor’s index and the NYSE Paper & Allied Products peer group
      and that all dividends were reinvested.







2003
            2004
            2005
            2006
            2007
            2008Buckeye
                  Technologies
                  Inc.
            
            100.00
            169.12
            117.21
            112.35
            227.50
            124.41S&P
                500
            
            100.00
            119.11
            126.64
            137.57
            165.90
            144.13NYSE
                  Paper & Allied Products -
                  SIC Codes 2600-2699 (U.S.&
ForeignCos.)
            100.00
            133.76
            122.27
            132.70
            159.21
            125.40





14


Item
      6.
      Selected Financial Data




Selected
      Financial
      Data


In
                thousands, except per share
                data
            
            Year
                Ended June
                302008(a)
            
            2007(b)
            
            2006(c)
            
            2005(d)
            
            2004(e)Operating
                Data:Net
                  sales
            
            $
            825,517
            
            $
            769,321
            
            $
            728,485
            
            $
            712,782
            
            $
            656,913Operating
                  income
                  (loss)
            
            
            100,333
            
            
            81,211
            
            
            44,420
            
            
            57,601
            
            
            (19,079
            )Cumulative
                  effect of changes in
                  accounting, net of tax
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            5,720Net
                  income
                  (loss)
            
            
            47,102
            
            
            30,118
            
            
            1,980
            
            
            20,204
            
            
            (38,190
            )Basic
                  earnings (loss) per
                  share
            
            $
            1.21
            
            $
            0.80
            
            $
            0.05
            
            $
            0.54
            
            $
            (1.03
            )Diluted
                earnings (loss) per
                share
            
            $
            1.20
            
            $
            0.79
            
            $
            0.05
            
            $
            0.54
            
            $
            (1.03
            )Pro
                forma amounts
                (f)Net
                  income
                  (loss)
            
            $
            47,102
            
            $
            30,118
            
            $
            1,980
            
            $
            20,204
            
            $
            (43,910
            )Earnings
                  (loss) per
                  shareBasic
            
            $
            1.21
            
            $
            0.80
            
            $
            0.05
            
            $
            0.54
            
            $
            (1.18
            )Diluted
            
            $
            1.20
            
            $
            0.79
            
            $
            0.05
            
            $
            0.54
            
            $
            (1.18
            )Balance
                  sheet
                  data:Total
                assets
            
            $
            1,009,225
            
            $
            951,822
            
            $
            948,213
            
            $
            949,737
            
            $
            970,823Total
                  long-term debtand capital
                  leases(including
                  current
                  portion)
            
            $
            394,268
            
            $
            445,893
            
            $
            522,090
            
            $
            538,982
            
            $
            606,748Ratio
                  of earnings to fixed charges
                  (g)
            
            
            2.9x
            
            
            2.1x
            
            $
            (497
            )
            
            1.4x
            
            $
            (69,522
            )





(a)
            Includes
                a pretax charge of $623
                ($392 after tax) for early extinguishment of
                debt.





(b)
            Includes
                a pretax benefit of
                $2,000 ($1,274 after tax) from a water conservation partnership
                payment.  Includes $1,867 ($1,171 after tax) from reversal of
                accrued interest related to cancellation of a contingent
                note.  Includes a pretax charge of $1,249 ($812 after tax) for
                restructuring costs and $832 ($521 after tax) for early extinguishment
                of
                debt.





(c)
            Includes
                a pretax charge of $5,616
                ($3,497 after tax) for restructuring and impairment costs.  (See
                Note 3, Impairment of Long-Lived
                Assets and Assets Held forSale).





(d)
            Includes
                a pretax charge of
                $16,905 ($9,392 after tax) for restructuring and impairment
                costs.  Includes a pretax charge of $242 ($153 after tax) for
                loss on early extinguishment of debt. Includes a pretax gain of $7,203
                ($4,682 after tax) for gain on sale of assets held for
                sale.  During fiscal 2005, the IRS completed an audit of our tax
                return for fiscal year 2002.  With the conclusion of this audit,
                we released the reserve on a tax deduction we claimed relating to
                our
                investment in our former facility inCork,Irelandand
                recorded a non-cash tax
                benefit of $5,481 to our provision for income
                taxes.





(e)
            Includes
                a pretax charge of
                $51,853 ($33,522 after tax) for restructuring and impairment
                costs.  Includes $4,940 ($3,112 after tax) for loss on early
                extinguishment of debt.  Includes $5,720 ($0.15 per share), net of
                tax, cumulative effect of change in accounting relating to a change
                in the
                way we account for planned maintenance activities at our Perry,Floridafacility.





(f)
            Pro
                forma amounts reflect net
                income (loss) and earnings (loss) per share as if the change in accountingmethod was
                applied
                retroactively.





(g)
            Earnings
                were inadequate to cover
                fixed charges during fiscal years 2006and2004.  Amounts
                reflect
                the deficit of earnings to fixed charges.  See Exhibit 12.1 for
                computation.





15


Item
      7.
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations





The
      following Management's Discussion
      and Analysis of Results of Operations and Financial Condition ("MD&A")
      summarizes the significant factors affecting our results of operations,
      liquidity, capital resources and contractual obligations, as well as discussing
      our critical accounting policies.  This discussion should be read in
      conjunction with the Consolidated Financial Statements, Notes to the
      Consolidated Financial Statements, and other sections of this Annual Report
      on
      Form 10-K.  Our MD&A is composed of four major sections; Executive
      Summary, Results of Operations, Financial Condition and Critical Accounting
      Policies.




Executive
      Summary




Buckeye
      manufactures and distributes
      value-added cellulose-based specialty products used in numerous applications,
      including disposable diapers, personal hygiene products, engine, air and oil
      filters, concrete reinforcing fibers, food casings, cigarette filters, rayon
      filaments, acetate plastics, thickeners and papers.  Our products are
      produced in theUnited
      States,Canada,GermanyandBrazil,
      and we sell these products in
      approximately 60 countries worldwide.  We generate revenues, operating
      income and cash flows from two reporting segments: specialty fibers and nonwoven
      materials.  Specialty fibers are derived from wood and cotton
      cellulose materials using wetlaid technologies.  Our nonwoven
      materials are derived from wood pulps, synthetic fibers and other materials
      using an airlaid process.





Our
      strategy is to continue to
      strengthen our position as a leading supplier of cellulose-based specialty
      products.  We believe that we can continue to expand market share,
      improve profitability and decrease our exposure to cyclical downturns by
      pursuing the following strategic objectives: focus on technically demanding
      niche markets, develop and commercialize innovative proprietary products,
      strengthen long-term alliances with customers, provide our products at an
      attractive valueandevaluate
      growth
      opportunities that match our specialty market focus.





Buckeye
      had an excellent year, with
      record revenue and the highest earnings ineightyears.Highlights
      for fiscal year
      2008 compared to fiscal year 2007 include:





·
            Net
                sales increased 7.3% to a
                company record of $825.5
                million


·
            Gross
                margin improved from 17.1%
                to 18.1%


·
            Operating
                income was $100.3
                million versus $81.2 million


·
            Earnings
                per share were $1.20, up
                52% compared to the prior
                year


·
            Long-term
                debt decreased by $51.2
                million to $393.9 million at
                year-end


·
            Net
                income increased 56% to $47.1
                million





Total
      year earnings benefited from
      higher selling prices across all of our businesses.  We continue to
      see particularly strong demand and a strong pricing environment for our products
      in the Specialty Fibers segment of our business.  As a result of
      higher selling prices, improved product mix and improved chemical usage, our
      gross margin for fiscal 2008 improved to 18.1% versus 17.1% in fiscal
      2007.  However, our gross margin percentage trended down sharply
      during the second half of the fiscal year primarily as increased selling prices
      were not sufficient to offset the negative impacts of higher input costs,
      reduced production volume at our Perry, Florida wood cellulose mill and reduced
      capacity utilization at our Canadian airlaid nonwovens
      plant.





Transitioning
      ourAmericanaplant
      to a profitable operation
      continues to be a challenge as our sales out of that facility are constrained
      due to limited raw material supply.  While our operating loss is down
      significantly year over year, over the past four quarters our operating loss
      atAmericanahas
      stayed fairly constant in the range
      of $0.8 million to $1.0 million per quarter, and we have been operating close
      to
      cash breakeven during that time.  Over the past year, we have raised
      our selling prices aggressively to cover rapidly escalating cotton fiber
      prices.  Selling prices for fiscal year 2008 were up 21% and cotton
      linter costs were up 30%.  We have also made some progress in
      improving our raw material supply, as total production tons for fiscal year
      2008
      were up about 10% to approximately 27,000 tons.  Our ability to
      prevent our operating results at this facility from deteriorating remains
      dependent on our ability to purchase cotton linters at an affordable
      cost.  Further strengthening of the Brazilian real versus the U.S.
      dollar would also impair the profitability of this operation by about $1.3
      million annually for every ten basis point move in the
      currency.





We
      are moving forward on our Foley
      Energy Project initiative.  The savings potential of this initiative
      continues to grow with the trend toward mandates on renewable energy sources
      and
      with higher oil prices.  Our Board of Directors has approved total
      capital expenditures of $45 million over a three year period for this project,
      which was based on a design goal of an equivalent reduction of over 200,000
      barrels of #6 fuel oil annually.We have spent $6.3 million
      of this
      amount through June 30, 2008 and have secured the appropriate construction
      permit in August.Additionally, upon the
      successful implementation of this initiative, we should be capable of producing
      excess energy and electricity using only biomass.





16


UltraFiber
      500® held its own in the face
      of a collapsing housing market as we continue to leverage the value of our
      UltraFiber 500® dispensing system.  Additionally, we are working toexpand the use of 
Ultrafiber 500®   in commercial construction,
      specifically in the
      concrete used on steel decks.  We recently confirmed that Ultrafiber 500®
enhances the fire resistance of normal weight concrete, which could provide
      significant cost savings in the construction of multi-level
      buildings.Finally, we are targeting
      growth inChina,
      where a significant amount of concrete
      is being used to developChina’s
      basic infrastructure
      needs.





Strong cash flow generation
      enabled us to reduce long-term debt by $51.2 million during fiscal year
      2008.  Our interest expense decreased $5.6 million as compared to
      fiscal year 2007.  This was a result of the lower debt and lower
      average interest rates which reduced interest expense by $7.5 million partially
      offset bythe $1.9 million
      reversalof interestrelated
      to the cancellation
      of the Stac-Pac Technologies Inc. contingent note.





Results
      of
      Operations





Consolidated
      results




The
      following table compares the
      components of consolidated operating income for the three fiscal years ended
      June 30, 2008.





(millions)
            
            Year
                Ended June
                30
            
            $
                Change
            
            Percent
                Change2008
            
            2007
            
            2006
            
            2008/
              2007
            
            2007/
              2006
            
            2008/
              2007
            
            2007/
              2006Net
                  sales
            
            $
            825.5
            
            $
            769.3
            
            $
            728.5
            
            $
            56.2
            
            $
            40.8
            
            
            7.3
            %
            
            5.6
            %Cost
                of goods
                sold
            
            
            676.0
            
            
            637.5
            
            
            628.7
            
            
            38.5
            
            
            8.8
            
            
            6.0
            
            
            1.4Gross
                  margin
            
            
            149.5
            
            
            131.8
            
            
            99.8
            
            
            17.7
            
            
            32.0
            
            
            13.4
            
            
            32.1Selling,
                research and
                administrative expenses
            
            
            47.3
            
            
            47.0
            
            
            47.8
            
            
            0.3
            
            
            (0.8
            )
            
            0.6
            
            
            (1.7
            )Amortization
                  of intangibles and
                  other
            
            
            1.8
            
            
            2.3
            
            
            2.0
            
            
            (0.5
            )
            
            0.3
            
            
            (21.7
            )
            
            15.0Impairment
                and restructuring
                costs
            
            
            0.1
            
            
            1.3
            
            
            5.6
            
            
            (1.2
            )
            
            (4.3
            )
            
            (92.3
            )
            
            (76.8
            )Operating
                  income
            
            $
            100.3
            
            $
            81.2
            
            $
            44.4
            
            $
            19.1
            
            $
            36.8
            
            
            23.5
            %
            
            82.9
            %





Net
      sales increased 7.3% for the year
      ended June 30, 2008, primarily due to selling prices which were higher by
      approximately 10% on average compared to the year ended June 30, 2007,
      accounting for $69.4 million in incremental sales.  Partially
      offsetting the impact of favorable price increases, fiscal year 2008 sales
      volumes declined versus fiscal year 2007, accounting for a reduction in sales
      of
      $27.4 million.  Nonwovens accounted for the largest part of this sales
      volume impact ($18.7 million) as a result of the loss of business with a large
      customer in January.  Lower sales volume at our two specialty cotton
      fiber mills due to raw material availability issues also negatively impacted
      sales by $7.1 million compared to the prior year.





Our
      gross margin improved by $17.7
      million in fiscal 2008 versus fiscal 2007.  Our selling price
      increases of $69.4 million  more than offset the impact of higher
      costs for raw materials and the lower shipment and production
      volumes.  Raw material costs were higher year over year ($29.8
      million) mainly for cotton linter fibers ($18.6 million) and in our nonwoven
      materials ($8.2 million) business.  Increased chemical costs ($5.2
      million) overall were partially offset by lower usage at our specialty wood
      fibers facility.  Higher energy costs had a negative impact of $5.8
      million and higher transportation costs reduced our gross margin by $4.8 million
      compared to the prior year.





Net
      sales were higher during the year
      ended June 30, 2007, primarily driven by higher selling prices across all
      segments of our business.  The shift from tolling operations to market
      sales at ourAmericanaspecialty
      fibers facility
      contributed a positive mix impact.  A positive currency impact, due to
      the strong euro, added to the improvement.  Shipment volume was down
      for the year ended June 30, 2007, mainly due to the closure of our specialty
      fibers facility inGlueckstadt,Germany.




The
      gross margin improvement from fiscal
      year 2006 to fiscal year 2007 was mainly a result of the higher selling prices
      discussed previously.  We also had improved operational results at ourAmericanaplant,
      lower energy costs, and improved
      capacity utilization at our North American nonwovens sites.  These
      improvements more than offset increased raw material costs in our cotton fibers
      and nonwovens business, increased transportation cost and higher plant direct
      costs.




Selling,
      research and administrative
      expenses increased slightly in the year ended June 30,
      2008.Selling,
      research and administrative expenses decreased slightly in the year ended June
      30, 2007.  As a percentage of net sales these costsdecreased to 5.7% in
      fiscal year 2008
      versus 6.1% in fiscal 2007 and 6.6% in fiscal 2006.




17


During
      the second half of the year ended
      June 30, 2007, we entered into a restructuring program that
      complementedour
      operations’ consolidations and
      involvedconsolidation
      in our European sales
      offices, product and market development and corporate
      overhead.The
      total cost of this program
      wasapproximately
      $1.4million
      andwascompleted
      during the first quarter of
      the 2008 fiscal year.  As a result of this restructuring,
      22positions
      wereeliminated.




Further
      discussion of revenue, operating
      trends, impairment and restructuring costs can be found later in this MD&A.
      Additional information on the impairment and restructuring programs and charges
      may also be foundin Note 3,
      Impairment of Long-Lived
      Assets and Assets Held forSale,
      and Note 4, Restructuring Costs, to
      the Consolidated Financial Statements.




Segment
      results




Although
      nonwoven materials, processes,
      customers, distribution methods and regulatory environment are very similar
      to
      specialty fibers, we believe it is appropriate for nonwoven materials to be
      disclosed as a separate reporting segment from specialty fibers.  The
      specialty fibers segmentconsistsofour
      chemicalcellulose,
      customizedfibersand
      fluff pulp product lines which are
      cellulosic fibersbased on
      both wood and cotton.  We make separate financial decisions and
      allocate resources based on the sales and operating income of each
      segment.  We allocate selling, research, and administration expense to
      each segment, and we use the resulting operating income to measure the
      performance of the two segments.  We exclude items that are not
      included in measuring business performance, such as restructuring costs, asset
      impairment, amortization of intangibles,certain
      financing and investing costsand unallocated at-risk
      and
      stock-based compensation.We
      have reclassified the at-risk
      compensation and stock-based compensation from the specialty fibers and
      nonwovens segments for fiscal years 2007 and 2006 for
      comparability.





Specialty
      fibers




The
      following table compares specialty
      fibers net sales and operating income for the three years ended June 30,
      2008.




(millions)
            
            Year
                Ended June
                30
            
            $
                Change
            
            Percent
                Change2008
            
            2007
            
            2006
            
            2008/
              2007
            
            2007/
              2006
            
            2008/
              2007
            
            2007/
              2006Net
                  sales
            
            $
            595.8
            
            $
            543.8
            
            $
            515.9
            
            $
            52.0
            
            $
            27.9
            
            
            9.6
            %
            
            5.4
            %Operating
                income
            
            
            90.6
            
            
            65.8
            
            
            36.7
            
            
            24.8
            
            
            29.1
            
            
            37.7
            
            
            79.3





Net
      sales increased 9.6% in fiscal 2008
      versus fiscal 2007, primarily due to higher prices.  Selling prices
      were up approximately 8% on our wood specialty products and 15% on our cotton
      specialty fibers products.  In fiscal 2008, fluff pulp prices
      increased approximately $107 per ton compared to fiscal
      2007.  Shipment volume was down approximately 2%, partially offsetting
      the favorable price increases.





Operating
      income improved as a
      percentage of sales from 12.1% in fiscal 2007 to 15.2% in fiscal
      2008.  The favorable impact of higher selling prices ($66.9 million)
      was partially offset by higher raw material costs ($21.7 million), mainly due
      to
      the increase in cotton fibers for which costs were up 36% year over
      year.  In addition, higher chemical, energy and transportation costs
      reduced the favorable impact of the higher selling prices.





Our
      operating loss atAmericanawas
      reduced significantly in fiscal 2008
      versus fiscal 2007 (approximately 50%).  Increased pricing (21%),
      higher production volume and reductions in fixed costs helped offset the higher
      cotton linter prices and the strengthening Brazilian currency (1.77 versus
      2.11
      BRL/USD).





Specialty
      fibers net sales improved
      during the year ended June 30, 2007 versus the prior year, primarily driven
      by
      higher selling prices and improved product mix, offset partially by the closure
      of the Glueckstadt plant, which had a negative impact on sales
      volume.  Strong demand in our high-end specialty and fluff markets
      allowed us to raise prices during the year.  Fluff pulp pricing
      increased by approximately $55 per ton on the average during the year ended
      June
      30, 2007 versus the previous year.  Average selling prices on our
      high-end specialty products increased in the mid-single digit range for the
      year.




Sales
      pricing and improved product mix
      were the primary drivers of our operating income improvement in fiscal
      2007.  Costs as a percentage of sales increased compared to the prior
      year as the impact of lower energy costs was not enough to offset increases
      in
      transportation costs, raw material costs and factory direct
      costs.




18


OurMemphisandAmericanaplants
      are working to solve the
      fundamental raw material supply constraints in North America andBrazil,
      reduce operating costs and improve
      gross margins on an on-going basis.  Raw material availability continues to
      limit productionat these
      two sites.  According
      to the USDA, in theU.S.,
      cotton production decreased 11% in the
      2007/08 crop year and is expected to decrease another 28% in the 2008/09 crop
      year (harvested in the fall of 2008).According
      to the USDA, inBrazilcotton
      production in the 2006/07 crop
      year increased 49% from the prior year and is expected to increase by about
      2%
      in the 2007/08 crop year (harvest began in June 2008).  In
      both cases, the amount of cottonseed
      that is delinted and crushed for oil determines our raw material supply, and
      this has not been increasing fast enough to meet our needs.  We expect that
      the amount of seed crushed for our fiscal year 2009 could increase approximately
      10% inBraziland
      is likely to decrease approximately
      5% in theUnited
      States.  We are
      strengthening relationships with our raw material suppliers to increase
      delinting capacity and assisting with their expansion plans.  Improving our
      lint supply is a top priority, but will take time to implement.  As more
      lint becomes available, we intend to ramp up production levels at our cotton
      fiber facilities.  During our fiscal year 2009, we expect to continue to
      operate theAmericana,Brazilfacility
      at its current rate of
      approximately 2,200 tons per month due to constraints on raw material
      availability, assuming we are able to purchase sufficient cotton linters at
      a
      reasonable price.  TheMemphis,Tennesseefacility
      is expected to run at
      approximately 75% to 80% of capacity during fiscal year 2009, up slightly compared
      to 2008,due to the constraints
      of
      the North American cotton crop.





Nonwoven
      materials




The
      following table compares nonwoven
      materials net sales and operating income for the three years ended June 30,
      2008.




(millions)
            
            Year
                Ended June
                30
            
            $
                Change
            
            Percent
                Change2008
            
            2007
            
            2006
            
            2008/
              2007
            
            2007/
              2006
            
            2008/
              2007
            
            2007/
              2006Net
                  sales
            
            $
            263.6
            
            $
            258.8
            
            $
            240.9
            
            $
            4.8
            
            $
            17.9
            
            
            1.9
            %
            
            7.4
            %Operating
                income
            
            
            15.3
            
            
            22.2
            
            
            16.3
            
            
            (6.9
            )
            
            5.9
            
            
            (31.1
            )
            
            36.2





Nonwoven
      materials sales increased in
      fiscal 2008 versus fiscal 2007.  Strong sales volume in the first half
      of fiscal year 2008 was offset by weak volume in the second half of the fiscal
      year due to the loss of business with a long-time customer.  Shipment
      volume year over year was down 8% from fiscal 2007 to fiscal 2008.  We
      have recently replaced a sizeable portion of that lost business inNorth America.  We
      started to see the
      impact of this in June and anticipate that sales in the first quarter of fiscal
      2009 should increase by $3.0 to $4.0 million compared to the fourth quarter
      of
      fiscal year 2008.  Improved pricing and improved product mix
      contributed $6.4 million and $4.8 million, respectively, to the sales
      increase.  The strengthening of the euro provided $12.2 million of the
      increased revenues.





Operating
      income decreased 31% in fiscal
      2008 versus fiscal 2007.  The impact of higher sales prices was more
      than offset by lower volume, higher raw material costs for fluff pulp,
      bi-component fiber and latex binder, and higher energy and transportation
      costs.





A
      strong market for Nonwoven materials
      inNorth Americacontributed
      to the increase
      in net sales during fiscal year 2007 versus fiscal year
      2006.  Increased demand resulted in higher sales volumes at increased
      selling prices.  We implemented similar sales price increases inEuropeduring
      the year, and our sales volume
      remained stable.  Additionally, net sales inEuropesaw
      improvement due to the strengthening
      of the euro during this time period.  Most products sold at our
      Steinfurt,Germanyfacility
      are denominated in
      euros and translated to US dollars for consolidation
      purposes.




Operatingincome
      improvement during fiscal year
      2007 versus fiscal year 2006 was driven by the increased volumes and selling
      prices.  Increased volumes inNorth Americaand
      the associated improvements in
      capacity utilization helped to improve operating margins during the
      year.  Higher revenues from increased selling prices largely offset
      increased raw material costs in North America andEurope.




19


Corporate





Our
      intercompany net sales elimination
      represents intercompany sales from ourFloridaandMemphisspecialty
      fiber facilities to our
      airlaid nonwovens plants.  The unallocated at-risk compensation and
      unallocated stock based compensation represent compensation for executive
      officers and certain other employees.We have reclassified
      the at-risk
      compensation and stock-based compensation from the specialty fibers and
      nonwovens segments for fiscal years 2007 and 2006 for
      comparability.





The
      following tablescomparecorporate
      net sales and operating loss
      for the three years ended June 30, 2008.




(millions)
            
            Year
                Ended June
                30
            
            $
                Change
            
            Percent
                Change2008
            
            2007
            
            2006
            
            2008/
              2007
            
            2007/
              2006
            
            2008/
              2007
            
            2007/
              2006Net
                  sales
            
            $
            (33.8
            )
            $
            (33.4
            )
            $
            (28.2
            )
            $
            0.4
            
            $
            5.2
            
            
            1.2
            %
            
            18.4
            %Operating
                income
            
            
            (5.6
            )
            
            (6.8
            )
            
            (8.6
            )
            
            1.2
            
            
            1.8
            
            
            17.6
            
            
            20.9





The
      operating loss for the three years
      ended June 30 consists of:





(millions)
            
            2008
            
            2007
            
            2006Unallocated
                  at-risk
                  compensation
            
            $
            (2.6
            )
            $
            (2.2
            )
            $
            (0.8
            )Unallocated
                stock based
                compensation
            
            
            (0.9
            )
            
            (0.8
            )
            
            (0.6
            )Intellectual
                  property
                  amortization
            
            
            (1.9
            )
            
            (2.3
            )
            
            (2.0
            )Restructuring
                expenses
            
            
            (0.1
            )
            
            (1.2
            )
            
            (3.5
            )Impairment
                  on long-lived
                  assets
            
            
            -
            
            
            -
            
            
            (2.1
            )Gross
                  margin on intercompany
                  sales
            
            
            (0.1
            )
            
            (0.3
            )
            
            0.4$
            (5.6
            )
            $
            (6.8
            )
            $
            (8.6
            )





Restructuring
      and impairment
      activities




During
      the three years ended June 30,
      2008,
      we entered into various restructuring
      programs, which resulted in restructuring and impairment charges. In order
      to
      continue to provide both specialty fibers and nonwoven materials at attractive
      values, weintend tocontinue
      to look for ways
      to reduce costs and optimize our operating structure. The following table
      summarizes restructuring expense by program and impairment charges for the
      three
      years ended June 30, 2008.
      Following the table is an explanation
      of the programs and the resulting impairment charges. For further explanation
      of
      these charges, see Note 3, Impairment of Long-lived Assets and Assets Held
      forSale,
      and Note 4, Restructuring Costs, to
      the Consolidated Financial Statements.





Year
                Ended June
                30
            
            Total(millions)
            
            2008
            
            2007
            
            2006
            
            ChargesImpairment
                  charges
            
            $
            -
            
            $
            -
            
            $
            2.1Restructuring
                  costs2007
                Restructuring
                program
            
            $
            0.1
            
            $
            1.3
            
            $
            -
            
            $
            1.42005
                  Restructuring
                  program
            
            
            -
            
            
            -
            
            
            3.5
            
            
            6.5Total
                restructuring
                costs
            
            $
            0.1
            
            $
            1.3
            
            $
            3.5
            
            $
            7.9





2007
      Restructuring
      program





In
      January 2007, we entered into a
      restructuring program that complements our operations’ consolidations and
      involves consolidation in our European sales offices, product and market
      development and corporate overhead operations.The
      total cost of this program
      wasapproximately
      $1.4million
      and wascompleted
      during the first quarter of
      the 2008 fiscal year.  As a result of this restructuring,
      22positions
      wereeliminated
      whichshouldprovide
      annual savings of over $2.0
      million.





20


2005
      Restructuring
      program and impairments





In
      January 2005, we announced our
      decision to discontinue producing cotton linter pulp at our Glueckstadt
      facility.During
      fiscal2006, management
      reevaluated its estimate of fair value less the cost to sell the remaining
      equipment and determined an additional impairment should be recognized for
      equipment with a carrying value of $0.3 million.  Therefore, we wrote
      down the carrying value of the remaining equipment to its fair value less costs
      to sell of $0.2 million and recorded an impairment charge of $0.1
      million.  In September 2006, the remaining assets were sold for $0.5
      million.  Since we previously had written the value of these assets
      down to $0.2 million, we recorded a gain on sales of assets held for sale of
      $0.3 million.





During
      fiscal year 2006, we began to
      actively market the land and buildings, and the equipment which had carrying
      values of $1.6 million and $0.5 million, respectively.Therefore,
      we wrote down the carrying
      value of the land and buildings to their fair value less costs to sell of $0.1
      million and recorded an additional impairment charge of $1.5 million during
      fiscal year 2006. Subsequent to this impairment, we sold the land and building
      for $0.1 million.





The
      closure of the Glueckstadt
      facility resulted in the termination of 103 employees, and restructuring
      expenses related to the closure of $6.5 million over fiscal year 2005 and
      2006.





Impairments





During
      fiscal year 2006, we began to
      actively market idled cotton linter pulping equipmentat our specialty fibersLumberton,North
      Carolinafacilitywhich
      had a carrying value of $1.5
      million.  Management evaluated its estimate of fair value less the
      cost to sell the assets and determined an impairment should be recognized for
      the equipment.  We wrote down the carrying value of the equipment to
      its fair value less costs to sell of $1.0 million and recorded an impairment
      charge of $0.5 million during fiscal year 2006.  Subsequent to this
      impairment, we sold the equipment for net proceeds of $1.0
      million.





Interest
      expense and
      amortization of debt costs





Interest
      expense and amortization of
      debt costs decreased $5.6 million for fiscal year 2008 versus fiscal year
      2007.  This improvement was primarily the result of lower average debt
      levels during fiscal 2008 and lower average interest rates.  This
      favorable impact was partially offset by the decrease in interest expense in
      fiscal year 2007 due to the reversal of $1.9 million of interest related to
      the
      cancellation of a contingent note owed to Stac-Pac Technologies
      Inc.





Interest
      expense and amortization of
      debt costs decreased $4.7 million for fiscal year 2007 versus fiscal year
      2006.  This decrease includes the reversal of $1.9 million of accrued
      interestpreviously
      discussed. The remaining
      decrease was primarily due to lower debt levels.  The decrease would
      have been larger, but capitalized interest related to theAmericanaproject
      reduced last year’s interest
      expense by $1.3 million that was not replicated in fiscal 2007.  The
      weighted average effective interest rate on our variable rate debt increased
      from 7.2% at June 30, 2006 to 7.3% at June 30, 2007.  See Note 8,
      Debt, in the Consolidated Financial Statements for further discussion of
      variable interest rates.




Loss
      on early extinguishment of debt
      costs





Fiscal
      year
      2008– During fiscal year
      2008, we used cash from operations and borrowings on our revolving credit
      facility to redeem the remaining $60 million of our 2008 notes and to redeem
      $35
      million of the 2010 notes.  As a result of these extinguishments, we
      wrote off a portion of deferred financing costs, resulting in non-cash expenses
      of $0.6 million during fiscal year 2008.





Fiscal
      year 2007
–During fiscal year 2007
      we
      used cash from operations to redeem $5 million of our senior subordinated notes
      due in 2008 and to make voluntary prepayments on our term loan of $60.8
      million.  As a result of these partial extinguishments, we wrote-off a
      portion of deferred financing costs, resulting in non-cash expense of $0.8
      million during fiscal year 2007.





Fiscal
      year
      2006– OnSeptember
      26, 2005 we used borrowings on
      our revolving credit facility to redeem $15 million of our senior subordinated
      notes due in 2008.  As a result of this partial extinguishment, we
      wrote-off a portion of deferred financing costs, resulting in non-cash expense
      of $0.2 million during fiscal year 2006.





See
      Note 8, Debt, in the Consolidated
      Financial Statements for further discussion of the debt issuance and related
      extinguishment.





21


Gain
      on sale of
      assets held for sale





In
      September 2006, the remaining assets
      located at our Glueckstadt facility were sold for $0.5 million.  Since
      we had previously written the value of these assets down to $0.2 million, we
      recorded a gain on sale of assets held for sale of $0.3 million during fiscal
      2007.





Foreign
      exchange and
      other





Foreign
      exchange and other in fiscal
      2008,
      2007and
      2006were
      $0.6million,
      $1.9million
      and $(0.4)million,
      respectively.The income in fiscal
      2008 was primarily
      due to foreign currency gains as a result of the strengthening of the Brazilian
      real.The income
      in fiscal 2007 was primarily due to $2.0 million from a water conservation
      partnership payment received
      pursuant to our reduction in the daily water permit limit at the Foley
      plant.   The expense in fiscal 2006 was primarily due to foreign
      currency losses as a result of the strengthening of the Canadian dollar during
      the fiscal year.





Income
      tax expense




Our
      effective tax rate for
      2008was
      approximately30.0%
      versus31.3%in
      fiscal 2007and
      (189.5%)
      in fiscal 2006.





During
      fiscal year 2008, we decreasedour
      valuation allowance related to
      deferred tax assets for net operating losses of theAmericana,Braziloperations
      by $0.5 million due to tax
      planning associated with intercompany interest charges offsetting the operating
      losses.During
      fiscal year 2007 and fiscal year
      2006, we increased our valuation allowance related to deferred tax assets for
      net operating losses of theAmericana,Braziloperations
      by $2.5 million and $1.7
      million, respectively.  This was almost entirely offset by a reduction
      of valuation allowances in the amount of $2.5 million related to certain state
      net operating losses and tax credits due to tax planning
      efforts.The
      increase in our valuation allowance in fiscal year 2006 was primarily due to
      the
      allowance for losses of theAmericana,Braziloperation.





Effective
      June 22, 2006, many of the tax
      measures introduced in the 2006 Canadian Federal budget were passed into
      law.  Included in the budget was a reduction in the general corporate
      tax rate to 20.5% for 2008, 20% for 2009, and 19% for 2010 and later
      years.  As a result, the company remeasured its Canadian deferred tax
      balances based on the reversal pattern of our temporary differences, resulting
      in a $791 net tax benefitin fiscal 2006.Effective
      December 2007,
      Canada enacted Canada Bill C-28 which further reduced its Canadian corporate
      tax
      rates to 19.5% for 2008, 19% for 2009, 18% for 2010, 16.5% for 2011 and 15%
      for
      2012 and later years.  This further reduction in corporate rates
      resulted in an additional remeasurement of Canadian deferred tax balances with
      a
      net tax benefit of $165 in fiscal 2008.  Furthermore, changes in
      estimates and tax planning resulted in a net tax benefit of $438 in fiscal
      2008
      related to utilization of Canadian net operating loss
      carryforwards.





Effective
      July 2007, Germany reduced its
      tax rates resulting in a $2.2 million net tax benefit for fiscal 2008 related
      to
      remeasurement of German deferred tax liabilities based on reversal of temporary
      differences.





On
      July 1, 2007, we adopted the
      provisions of FASB Interpretation No. (“FIN”) 48, “Accounting
      for
      Uncertainty in Income Taxes.”FIN 48 clarifies the
      accounting for
      income taxes by prescribing the minimum recognition threshold a tax position
      is
      required to meet before being recognized in the financial
      statements.  As a result of the adoption, we recorded an adjustment of
      $0.9 million to reduce retained earnings at July 1, 2007.  At adoption
      and June 30, 2008, our unrecognized tax benefits totaled $1.8 million and
      cumulative potential interest and penalties accrued related to unrecognized
      tax
      benefits totaled $0.2 million.  We include interest and penalties
      related to income tax matters as a component of income before income
      taxes.  All unrecognized tax benefits at adoption would affect the
      effective tax rate, if recognized.





Financial
      Condition





Our
      financial condition continued to
      improve during fiscal year 2008.  We
      are committed to
      reducing our debt, strengthening our operations and continuing to improve our
      profitability and cash flow.





22


Liquidity
      and
      capitalization




We
      have the following major sources of
      financing: a senior secured credit facility, senior notes and senior
      subordinated notes. Our senior secured credit facility, senior notes and senior
      subordinated notes contain various covenants.  We were in compliance
      with these covenants as of June 30, 2008,
      and believe we will continue to remain
      in compliance for the foreseeable future.  These sources of financing
      are described in detail in Note 8, Debt, to the Consolidated Financial
      Statements.




Our
      total debt and capital leases
      decreased $51.4million
      to $394.5million
      at June 30, 2008from
      $445.9 million at June
      30, 2007. From
      June 30, 2006 to June 30, 2007, total debt decreased
      by $76.2million(including
      the cancellation of the $5.0
      million note owed to
      Stac-Pac Technologies Inc).  Our total debt as a
      percentage of our total capitalization was47.9%
      at June 30, 2008,as
      compared to56.2%
      at June 30, 2007and64.3%
      at June 30, 2006.




On
      July 25, 2007, we established a new
      $200 million senior secured revolving credit facility with a maturity date
      of
      July25,
      2012.  This facility amendedand restatedourpreviouscredit
      facility.  Initially,
      we used the proceeds from this credit facility to pay the outstanding balance
      on
      the former credit facility plus fees and expenses.  The interest rate
      applicable to borrowings under thecredit facilityis
      grid based pricing, related to our
      total leverage ratio,atthe
      agent’s prime rate plus
      0.25% to 1.00% or a LIBOR-based rate ranging from LIBOR plus 1.25% to LIBOR
      plus
      2.00%.  Wealsousedproceeds
      from this facility to redeem
      the remaining $60 million of our 2008 notes, to redeem $20 million of the 2010
      notes in mid-September 2007, and for general corporate purposes.  The
      credit facility is secured by substantially all of our assets located in theUnited States.





Ourcredit
      facility contains covenants
      customary for financing of this type. The financial covenants include: maximum
      total leverage ratio of consolidated total debt to consolidated earnings before
      interest, taxes, depreciation and amortization (“EBITDA”), and minimum ratio of
      consolidated EBITDA to consolidated interest expense.  During fiscal
      year 2008 and at June 30,
      2008, we were in compliance
      with the financial covenants under our credit facility.




On
      June 30, 2008,
      we had $10.4
      million of cash and cash equivalents
      andwe had$116.7million
      borrowing capacity on our credit
      facility.The
      credit facility also contains a $50
      million increase option.  The portion of this capacity that we could
      borrow on a particular date will depend on our financial results and ability
      to
      comply with certain borrowing conditions under the revolving credit
      facility.  The commitment fee on the unused portion of the revolving
      credit facility ranges from 0.25% to 0.40% per annum based on a grid related
      to
      our leverage ratio.  Total costs for the issuance of the facility were
      approximately $1.3 million andarebeingamortized
      to interest expense using the
      effective interest method over the life of the facility.





While
      we can offer no assurances, we
      believe that our cash flow from operations, together with current cash and
      cash
      equivalents, will be sufficient to fund necessary capital expenditures, meet
      operating expenses and service our debt obligations for the foreseeable
      future.





Treasury
      stock




During
      fiscal years 1997 to 2001 the
      Board of Directors authorized total repurchases of 6.0 million shares of common
      stock.  During fiscal year 2008, werepurchased0.3
      millionshares of our common
      stockat a total cost of $2.7
      million.At
      June 30, 2008, atotal of5.3
      millionshares have been repurchasedunder
      these authorizations.On
      August 8, 2008 theBoard
      of Directors authorized the
      repurchase of 5.0 million shares of common stock in addition to the6.0
      millionshares of common stockpreviously
      authorized.Repurchased
      shares will be held as
      treasury stock and will be available for general corporate purposes, including
      the funding of employee benefit and stock-related plans.





23


Cash
      Flow





Cash
      and cash equivalents totaled
      $10.4million
      at June 30, 2008,
      compared to $14.8million
      at June 30, 2007and
      $8.7million
      at June 30, 2006.
      The following table provides a summary
      of cash flows for the three years ended June 30, 2008.





(millions)
            
            2008
            
            2007
            
            2006Operating
                activities:Net
                  income
            
            $
            47.1
            
            $
            30.1
            
            $
            2.0Noncash
                charges and credits,
                net
            
            
            67.5
            
            
            62.5
            
            
            49.3Changes
                  in operating assets and
                  liabilities, net
            
            
            (22.3
            )
            
            18.8
            
            
            7.4Net
                cash provided by operating
                activities
            
            
            92.3
            
            
            111.4
            
            
            58.7Investing
                activities:Purchases
                  of property, plant and
                  equipment
            
            
            (49.2
            )
            
            (45.2
            )
            
            (45.6
            )Proceeds
                from sales of
                assets
            
            
            -
            
            
            0.5
            
            
            1.2Other
                  investing
                  activities
            
            
            (0.4
            )
            
            (0.5
            )
            
            (0.5
            )Net
                cash used in investing
                activities
            
            
            (49.6
            )
            
            (45.2
            )
            
            (44.9
            )Financing
                activities:Net
                  borrowings (payments) under
                  lines of credit
            
            
            78.2
            
            
            (3.0
            )
            
            0.4Payments
                on long-term debt and
                other
            
            
            (129.0
            )
            
            (67.8
            )
            
            (16.8
            )Other
                  financing activities,
                  net
            
            
            1.8
            
            
            9.9
            
            
            0.5Net
                cash used in financing
                activities
            
            
            (49.0
            )
            
            (60.9
            )
            
            (15.9
            )Effect
                of foreign currency rate
                fluctuations on cash
            
            
            1.9
            
            
            0.8
            
            
            0.9Net
                increase (decrease) in cash
                and cash equivalents
            
            $
            (4.4
            )
            $
            6.1
            
            $
            (1.2
            )





Cash
      provided by operating
      activities





The
      $19.1 million decrease in cash flows
      from operating activities in fiscal 2008 was primarily due to higher inventory
      levels, partially offset by improved profits of $17.0 million.  The
      inventory increase was primarily due to increasing inventory levels of raw
      cotton linters from very low levels at the beginning of the year, and higher
      raw
      material costs across all of our businesses.





The
      $52.7 million increase in cash flows
      from operating activities infiscal2007
      was primarily due to improved
      profits of $28.1 million, higher accounts payable and current liabilities and
      deferred taxes.  The higher current liabilities were the result of
      increases in taxes payable, incentive plans and general payables.  The
      change in deferred taxes was a result of our higher profits and the reversal
      of
      some federal and state valuation allowances being an offset to our net operating
      loss.





Net
      cash used in
      investing activities





Purchases
      of property, plant and
      equipment were consistent during the last three fiscal years.  We
      expect efficiency improvement and energy savings projects, maintenance capital,
      and environmental spending will result in total capital expenditures of
      approximately $64million
      for fiscal
      2009.We
      are moving ahead with the
      Foley Energy Project.  Our Board of Directors has approved total
      capital expenditures of $45 million over a three year period for this project,
      which was based on a design goal of an equivalent reduction of over 200,000
      barrels of #6 fuel oil annually.We have spent $6.3 million
      of this
      amount through June 30, 2008, and our capital budget
      for fiscal 2009
      includes $23 million related to this project.





We
      expect to incur significant capital
      expenditures in the future to comply with environmental obligations at our
      Perry,Floridaspecialty
      fibers
      facility.  Based on the requirementsanticipated inthe
      proposed permit, we expect to incur
      capital expenditures of approximately$9.0 million over the
      next two yearson in-plant process
      changes,
      and additional capital expenditures
      ofat least $50.0 millionover at least five years,
      possibly beginning as early as fiscal year 2012.  The amount and
      timing of these capital expenditures may vary depending on a number of
      factors.  For additional information on environmental matters, see
      Note 17, Contingencies,to
      the Consolidated
      Financial Statements.




24


Net
      cash used in
      financing activities





During
      fiscal year 2008, we used cash
      from operations and proceeds from stock option exercises to reduce our debt
      and
      capital leases by $50.8 million.





During
      fiscal year 2007, we used cash
      from operations and $9.9 million received from option exercises to reduce our
      debt and capital leases by $70.8 million.





Contractual
      Obligations




The
      following table summarizes our
      significant contractual cash obligations as of June 30, 2008.
      Certain of these contractual
      obligations are reflected in our balance sheet, while others are disclosed
      as
      future obligations under accounting principles generally accepted in theUnited States.




(millions)
            
            Payments
                Due by Period(6)Contractual
                Obligations
            
            Total
            
            Less
                than
              1
                year
            
            1-3
                years
            
            3-5
                years
            
            Greater
                than
              5
                yearsLong-term
                  obligations(1)
            
            $
            526.0
            
            $
            30.2
            
            $
            170.9
            
            $
            116.4
            
            $
            208.5Capital
                lease obligations(2)
            
            
            0.4
            
            
            0.4
            
            
            -
            
            
            -
            
            
            -Operating
                  lease obligations(2)
            
            
            4.5
            
            
            1.9
            
            
            2.1
            
            
            0.5
            
            
            -Timber
                commitments(3)
            
            
            28.5
            
            
            12.0
            
            
            16.5
            
            
            -
            
            
            -Linter
                  commitments(4)
            
            
            19.1
            
            
            19.1
            
            
            -
            
            
            -
            
            
            -Other
                purchase commitments(5)
            
            
            45.0
            
            
            27.0
            
            
            10.6
            
            
            6.0
            
            
            1.4Total
                  contractual cash
                  obligations
            
            $
            623.5
            
            $
            90.6
            
            $
            200.1
            
            $
            122.9
            
            $
            209.9





(1)Amounts
      include related interest
      payments. Interest payments for variable debt of $78.1million
      are based on the effective rate
      as of June 30, 2008of5.2%.
      See Note 8, Debt, to the Consolidated
      Financial Statements for further information on interest
      rates.





(2)Capital
      lease obligations represent
      principal and interest payments. See Note 9, Leases, to the Consolidated
      Financial Statements for further information.




(3)See
      Note 16, Commitments, to the
      Consolidated Financial Statements for further information.





(4)Linter
      commitments are take-or-pay
      contracts made in the ordinary course of business that usually are less than
      one
      year in length.





(5)The
      majority of other purchase
      commitments are take-or-pay contracts made in the ordinary course of business
      related to utilities and raw material purchases.





(6)Less
      than one year references fiscal
      2009;
      1-3 years references fiscal
      2010and
      2011;
      3-5 years references fiscal
      2012and
      2013.





Note:
            Additionally,
                the cash flow to
                fund postretirement benefit obligations, for ourU.S.plan,has
                an expected net present value
                of $23.7million.  The
                actuarially estimated annual benefit payments are as follows:
                2009-
                $1.9million;
                2010-2011-
                $3.7million;
                2012-
                2013-
                $3.6 million; and
                2014through
                2018-
                $10.1million.  These
                obligations are not included in the table above as the total obligation
                is
                based on the present value of the payments and would not be consistent
                with the contractual cash obligations disclosures included in the
                table
                above.  See Note 12, Employee Benefit Plans, to the Consolidated
                Financial Statements for further
                information.





Recent
      Accounting
      Pronouncements





See
      Note 2, Recent Accounting
      Pronouncements, to the Consolidated Financial Statements for a discussion of
      recent accounting pronouncements and their impact.





25


Critical
      Accounting Policies and
      Estimates





This
      discussion and analysis is based
      upon our consolidated financial statements. Our critical and significant
      accounting policies are more fully described in Note 1, Accounting Policies,
      totheConsolidated
      Financial Statements. Some
      of our accounting policies require us to make significant estimates and
      assumptions about future events that affect the amounts reported in our
      financial statements and the accompanying notes. Future events and their effects
      cannot be determined with certainty. Therefore, the determination of estimates
      underlying our financial statements requires the exercise of management’s
      judgment. Actual results could differ from those estimates, and any such
      differences may be material to our financial statements. Our management
      exercises critical judgment in the application of our accounting policies in
      the
      following areas, which significantly affect our financial condition and results
      of operation. Management has discussed the development and selection of these
      critical accounting policies and estimates with the Audit Committee of ourBoard of
      Directorsand with our
      independent auditors.





Allowance
      for doubtful
      accounts





We
      provide an allowance for receivables
      we believe we may not collect in full.  Management evaluates the
      collectability of accounts based on a combination of factors.  In
      circumstances in which we are aware of a specific customer’s inability to meet
      its financial obligations (i.e., bankruptcy filings or substantial downgrading
      of credit ratings), we record a specific reserve.  For all other customers,
      we recognize reserves for bad debts based on our historical collection
      experience.  If circumstances change (i.e., higher than expected defaults
      or an unexpected material adverse change in a major customer’s ability to meet
      its financial obligations), our estimates of the recoverability of amounts
      due
      could be reduced by a material amount.





Bad
      debt expense for fiscal years
      2008,
      2007and 2006was
      $0.1million,
      $0.3million
      and $0.1million,
      respectively.





Deferred
      income taxes and other
      liabilities





Deferred
      income tax assets and
      liabilities are recognized based on the difference between the financial
      statement and the tax law treatment of certain items. Realization of certain
      components of deferred tax assets is dependent upon the occurrence of future
      events. We record a valuation allowance to reduce our net deferred tax assets
      to
      the amount we believe is more likely than not to be realized. These valuation
      allowances can be impacted by changes in tax laws, changes to statutory tax
      rates, and future taxable income levels and are based on our judgment, estimates
      and assumptions regarding those future events.





In
      fiscal 2008, we decreased our
      valuation allowance recorded against certain foreign net operating losses by
      approximately $0.5 million.In fiscal 2007, we increased
      the
      valuation allowance recorded against certain foreign net operating losses by
      approximately $2.5 million and decreased the valuation allowances recorded
      against certain state net operating losses and tax creditsby approximately $2.5
      million.





In
      the event we were to determine that
      we would not be able to realize all or a portion of the net deferred tax assets
      in the future, we would increase the valuation allowance through a charge to
      income in the period that such determination is made. Conversely, if we were
      to
      determine that we would be able to realize our deferred tax assets in the
      future, in excess of the net carrying amounts, we would decrease the recorded
      valuation allowance through an increase to income in the period that such
      determination is made.





We
      record our world-wide tax provision
      based on the tax rules and regulations in the various jurisdictions in which
      we
      operate. Significant managerial judgment is required in determining our
      effective tax rate and evaluating our tax positions.  Where we believe that
      the deduction of an item is supportable for income tax purposes, the item is
      deducted in our income tax returns.





On
      July 1, 2007 we adopted the
      provisions of FIN 48, which clarifies the accounting for income taxes by
      prescribing the minimum recognition threshold a tax position is required to
      meet
      before being recognized in the financial statements.  We record our
      unrecognized tax benefits on the consolidated balance sheets in other
      liabilities.  Cumulative potential interest and penalties accrued
      related to unrecognized tax benefits are included as a component of income
      before income taxes.





Depreciation





We
      provide for depreciation on our
      production machinery and equipment at our cotton cellulose and airlaid nonwovens
      plants using the units-of-production depreciation method. Under this method,
      we
      calculate depreciation based on the expected total productive hours of the
      assets subject to a minimum level of depreciation. We review our estimate of
      total productive hours at least annually. If the estimated productive hours
      of
      these assets change based on changes in utilization and useful life assumptions,
      we adjust depreciation expense per unit of production accordingly. We use the
      straight-line method for determining depreciation on our other capital
      assets.





Long-lived
      assets





Long-lived
      assets are reviewed for
      impairment when circumstances indicate the carrying value of an asset may not
      be
      recoverable. For assets that are held and used, recoverability is evaluated
      based on the undiscounted cash flows expected to be generated by the asset.
      If
      the carrying value of the assets is determined to not be recoverable, we measure
      the potential impairment by comparing the carrying value of the assets to their
      fair value. If impairment exists, an adjustment is made to write the asset
      down
      to its fair value. Estimated fair values are determined based on quoted market
      values, discounted cash flows or internal and external appraisals, as
      applicable. Assets to be disposed of are carried at the lower of carrying value
      or estimated net realizable value.





Based
      on the estimated fair values of
      long-lived assets, we recorded no impairment charges in fiscal years 2008 and2007.  We
      recorded $2.1
      million for year ended June 30, 2006. If circumstances change, our estimated
      fair values may be impacted and have a material effect on our reported financial
      position and results of operations. See Note 3, Impairment of Long-Lived
      Assets and Assets Held forSale,totheConsolidated
      Financial Statements for
      further information concerning impairment charges.





We
      have made acquisitions in the past
      that included a significant amount of goodwill and other intangible assets.
      Wehave previouslyadopted
      Statement of
      Financial Accounting Standards No. 142,Goodwill
      and Other
      Intangible Assets(“SFAS
      142”), and, as a consequence, discontinued the amortization of goodwill. Under
      the guidelines of SFAS 142, goodwill is subject to an annual impairment test
      based on its estimated fair value. Unless circumstances otherwise dictate,
      we
      perform our annual impairment testing in the fourth quarter. We will continue
      to
      amortize other intangible assets that meet certain criteria over their useful
      lives. We utilize the present value of expected net cash flows to determine
      the
      estimated fair value of our reporting units. This present value model requires
      management to estimate future net cash flows, the timing of these cash flows
      and
      an appropriate discount rate (or weighted average cost of capital) representing
      the time value of money and the inherent risk and uncertainty of future cash
      flows. The discount rate is based on independently calculated beta risks for
      a
      composite group of companies, our target capital mix and an estimated market
      risk premium. The assumptions used in estimating future cash flows were
      consistent with the reporting unit’s internal planning. If the estimated fair
      value of the reporting unit exceeds its carrying amount, goodwill of the
      reporting unit is not impaired. The determination of an impairment loss is
      complex and requires that we make many assumptions and estimates. If our
      estimates of future cash flows or the underlying assumptions and estimates
      change, we may need to record impairment losses in the
      future.   See Note 1, Accounting Policies, to the Consolidated
      Financial Statements for further information on long-lived
      assets.





Item
      7a.
      Qualitative and Quantitative Disclosures About Market
      Risk





We
      are exposed to market risk from
      changes in foreign exchange rates, interest rates, raw material costs and the
      price of certain commodities used in our production processes. To reduce such
      risks, we selectively use financial instruments. All hedging transactions are
      authorized and executed pursuant to clearly defined policies and procedures.
      Further, we do not enter into financial instruments for trading
      purposes.





The
      following risk management discussion
      and the estimated amounts generated from the sensitivity analyses are
      forward-looking statements of market risk, assuming that certain adverse market
      conditions occur. Actual results in the future may differ materially from those
      projected results due to actual developments in the global financial markets.
      The analysis methods used to assess and mitigate risks discussed below should
      not be considered projections of future events or losses.





A
      discussion of our accounting policies
      for risk management is included in Note 1, Accounting Policies, to the
      Consolidated Financial Statements.





Interest
      Rates





The
      fair value of our long-term public
      debt is based on an average of the bid and offer prices at
      year-end.  The fair value of the credit facility approximates its
      carrying value due to its variable interest rate.  The carrying value
      and fair value of long-term debtand capital leasesat
      June 30, 2008were
      $394.3million
      and $395.6million
      and at June 30, 2007were
      $445.9million
      and $450.8million,
      respectively.  Market
      risk is estimated as the potential change in fair value resulting from a
      hypothetical 100 basis point decrease in interest rates and would amount to
      a
      $6.3million
      increase in the fair value of
      long-term debt as of June
      30, 2008.





We
      had $78.1million
      of variable rate long-term debt
      outstanding at June 30, 2008.  At
      this borrowing level, a
      hypothetical 100 basis point increase in interest rates would have a
      $0.8million
      unfavorable impact on our
      pre-tax earnings and cash flows.  The primary interest rate exposures
      on floating rate debt are with respect toLIBORrates
      andU.S.prime
      rates.





26


Foreign
      Currency Exchange
      Rates





Foreign
      currency exposures
      arisefrom
      transactions including firm
      commitments and anticipated transactions denominated in a currency other than
      an
      entity’s functional currency.Weand
      our subsidiaries generally enter
      into transactions denominated in their respective functional
      currencies.  Our primary foreign currency exposure arises from
      foreign-denominated revenues and costs and their translation into U.S.
      dollars.  The primary currencies to which we are exposed include the
      euro, Canadian dollar and the Brazilian real.Our euro exposure is
      internally hedged for the most part because a high percentage of both the sales
      and costs at our Steinfurt,Germanyplant
      are denominated in
      euros.  We do not have any hedges in place to protect against
      fluctuations in the Canadian dollar or the Brazilian real.  Our
      currency exposure to the Brazilian real is approximately a $1.3 million negative
      impact on profitability for every ten basis point strengthening of the real
      versus the U.S. dollar.  We are continuously evaluating our foreign
      currency exposure and our hedging policy is subject to
      change.





We
      generally view as long-term our
      investments in foreign subsidiaries with a functional currency other than the
      U.S. dollar.  As a result, we do not generally hedge these net
      investments.  However, we use capital structuring techniques to manage
      our net investment in foreign currencies as considered necessary.  The
      net investment in foreign subsidiaries translated into dollars using the
      year-end exchange rates is $234.7million
      and $201.3million
      at June 30, 2008and
      2007,
      respectively.  The potential
      foreign currency translation loss from investment in foreign subsidiaries
      resulting from a hypothetical 10% adverse change in quoted foreign currency
      exchange rates amounts to approximately $21.3million
      at June 30, 2008.  This
      change would be
      reflected in the equity section of our consolidated balance sheet in accumulated
      other comprehensive loss.  The primary foreign currency exposures on
      our long-term investments are with the euro, Canadian dollar and the Brazilian
      real.





Availability
      and Cost of Raw
      Materials





Amounts
      paid by us for wood, cotton
      fiber and fluff pulp represent the largest component of our variable costs
      of
      production.  The availability and cost of these materials are subject
      to market fluctuations caused by factors beyond our control, including weather
      conditions.  Significant decreases in availability or increases in the
      cost of wood or cotton fiber to the extent not reflected in prices for our
      products, could materially and adversely affect our business, results of
      operations and financial condition.  We have raw material availability
      issues in our specialty cotton fibers business in both North America andBrazil.  We
      havethe option to importcotton
      linters purchases for ourMemphisspecialty
      cotton fiber production
      facility in order to minimize the impact of the current constraints on North
      American cotton fiber availability.  Currently our production is
      constrained by lint availability.




Commodities




We
      are dependent on commodities in our
      production process.  Natural gas, electricity, fuel oil, caustic and
      other chemicals are just some of the commodities that our processes rely
      upon.  Exposure to these commodities can have a significant impact on
      our operating performance.





In
      May 2007, we entered into a seven
      year electrical power contract for power usage inBrazil.  This
      contract bypasses the
      local utility company thereby reducing our energy costs by approximately $0.5
      million each year.





In
      order to minimize market exposure, we
      may use forward contracts to reduce price fluctuations in a desired percentage
      of forecasted purchases of fossil fuels over a period of generally less than
      one
      year.  There were no fossil fuel contracts outstanding at June 30,
      2008or
      2007requiring
      fair value
      treatment.





Exposure
      to commodity products also
      creates volatility in pricing. If our research and development efforts do not
      result in the commercialization of new, proprietary products, we will continue
      to have significant exposure to fluff pulp and other commodity products, which
      could result in volatility in sales prices and profits.





Industry
      Cyclicality





The
      demand and pricing of our products,
      particularly fluff pulp, are influenced by the much larger market for
      papermaking pulps which is highly cyclical. The markets for most cellulose-based
      products are sensitive to both changes in general global economic conditions
      and
      to changes in industry capacity. Both of these factors are beyond our control.
      The price of these products can fluctuate significantly when supply and demand
      become imbalanced for any reason. Financial performance can be heavily
      influenced by these


pricing
      fluctuations and the general
      cyclicality of the industries in which we compete. It is not certain that
      current prices will be maintained, that any price increases will be achieved,
      or
      that industry capacity utilization will reach favorable levels. The demand,
      cost
      and prices for our products may thus fluctuate substantially in the future
      and
      downturns in market conditions could have a material adverse effect on our
      business, results of operations and financial condition.





27


Contingencies





Our
      operations are subject to extensive
      general and industry-specific federal, state, local and foreign environmental
      laws and regulations. We devote significant resources to maintaining compliance
      with such requirements. We expect that, due to the nature of our operations,
      we
      will be subject to increasingly stringent environmental requirements (including
      standards applicable to wastewater discharges and air emissions) and will
      continue to incur substantial costs to comply with such requirements. Given
      the
      uncertainties associated with predicting the scope of future requirements,
      there
      can be no assurance that we will not in the future incur material environmental
      compliance costs or liabilities. For additional information on environmental
      matters, see Note 17, Contingencies, to the Consolidated Financial
      Statements.





Forward-Looking
      Statements





Except
      for the historical information
      contained herein, the matters discussed in this Annual Report are
      forward-looking statements that involve risks and uncertainties, including,
      but
      not limited to, economic, competitive, governmental and technological factors
      affecting our operations, markets, products, services and prices and other
      factors. The forward-looking statements included in this document are only
      made
      as ofthedate
      of this document and we undertake
      no obligation to publicly release the result of any revisions to these
      forward-looking statements to reflect events or circumstances after the date
      hereof or to reflect the occurrence of unanticipated events.





Item
      8.
      Financial Statements and Supplementary Data





See
      Index to Financial Statements on
      page F-1.




Item
      9.
      Changes in and Disagreements with Accountants on Accounting and Financial
      Disclosure




We
      had no changes in or disagreements
      with Ernst & Young LLP, our independent auditors.




Item
      9A.
      Controls
      and Procedures





Management’s
                Evaluation of Disclosure Controls and
                Procedures




Under
      the supervision and with the
      participation of our management, including our principal executive officer
      and
      principal financial officer, we evaluated the effectiveness of our disclosure
      controls and procedures in ensuring that the information required to be
      disclosed in our filings under the Securities Exchange Act of 1934 is recorded,
      processed, summarized and reported within the time periods specified in the
      Securities and Exchange Commission’s rules and forms, including ensuring
      that such information is accumulated and communicated to Buckeye management
      as
      appropriate to allow timely decisions regarding required disclosure. Based
      on
      such evaluation, our principal executive and financial officers have concluded
      that such disclosure controls and procedures were effective, as of June 30,
      2008(the
      end of the period covered by this
      Annual Report on Form 10-K).





Assessment
                of Internal Control Over Financial
                Reporting




Management’s
      report on our internal
      control over financial reporting is presented on page F-3 of this Annual
      Report on Form 10-K.The
      report of Ernst & Young LLP
      with respect to internal control over financial reporting is presented on
      page F-4 of this Annual Report on Form 10-K.




Changes
                in Internal Control Over Financial
                Reporting




During
      our fiscal quarter ended June 30,
      2008,
      no change occurred in our internal
      control over financial reporting that has materially affected, or is reasonably
      likely to materially affect, our internal control over financial
      reporting.




Item
                9B.
                Other Information




None.







28





PART
      III




Item
      10.
      Directors,Executive
      Officersand
      Corporate Governance





Directors
      and Executive
      Officers





Information
      regarding members of theBoard of Directorswill
      be presented in our
      2008Annual
      Proxy Statement for the
      2008annual
      meeting of stockholders and is
      incorporated herein by reference.





Executive
      Officers of the
      Registrant




The
      names, ages and positions held by
      our executive officers onAugust 25,
      2008are:




Name
            Age
            Position
            Elected
                to Present
                PositionJohn
                B.
                Crowe
            61
            Chairman
                of the Board, Chief
                Executive Officer and Director
            July
                2006Kristopher
                J.
                Matula
            45
            President,
                Chief Operating Officer
                and Director
            July
                2006Charles
                S.
                Aiken
            58
            Sr.
                Vice President,
                Manufacturingand
                Sustainability
            October
                2003Jeffery
                T.
                Cook
            46
            Sr.
                Vice President,
                Marketing
            February
                2006Sheila
                Jordan
                Cunningham
            56
            Sr.
                Vice President, General
                Counsel and Secretary
            April
                2000Steven
                G.
                Dean
            52
            Sr.
                Vice President and Chief
                Financial Officer
            July
                2007Douglas
                L.
                Dowdell
            50
            Sr.
                Vice President, Specialty
                Fibers
            February
                2006William
                M.
                Handel
            62
            Sr.
                Vice President, LeanEnterprise
            February
                2006Paul
                N.
                Horne
            53
            Sr.
                Vice President, Product
                and Market Development
            February
                2006Marko
                M.
                Rajamaa
            46
            Sr.
                Vice President,
                Nonwovens
            October
                2006





John
      B. Crowe


Chairman
      of the Board, Chief Executive
      Officer and Director


Mr.
      Crowe has served as Chairman of the
      Board and Chief Executive Officer since July 1, 2006. He served as President
      and
      Chief Operating Officer from April 2003 to July 2006. Mr. Crowe was elected
      as a
      director of Buckeye in August 2004. He served as Senior Vice President, Wood
      Cellulose from January 2001 to April 2003. He served as Vice President, Wood
      Cellulose Manufacturing from January 1998 to January 2001. Prior to joining
      the
      Company, he was Executive Vice President/General Manager of Alabama River Pulp
      and Alabama Pine Pulp Operations, a division of Parsons and Whittemore, Inc.
      and
      was Vice President and Site Manager of Flint River Operations, a subsidiary
      of
      Weyerhauser Company. From 1979 to 1992, he was an employee of Procter &
Gamble.





Kristopher
      J. Matula


President,
      Chief Operating Officer and
      Director


Mr.
      Matula has served as President and
      Chief Operating Officer since July 1, 2006.  Mr. Matula was elected as
      a director of Buckeye in April 2007.  He served as Executive Vice
      President and Chief Financial Officer from October 2003 to July 2006. Mr. Matula
      served as Senior Vice President, Nonwovens and Corporate Strategy from April
      2003 to October 2003. He served as Senior Vice President, Nonwovens from January
      2001 to April 2003. He served as Senior Vice President, Commercial - Absorbent
      Products from July 1997 to January 2001 and as Vice President, Corporate
      Strategy from April 1996 to July 1997. Prior to joining Buckeye in 1994, he
      held
      various positions with Procter & Gamble and General
      Electric.





Charles
      S. Aiken


Senior
      Vice President,
      Manufacturingand
      Sustainability


Mr.
      Aiken has served as Senior Vice
      President, Manufacturing since October 1, 2003. He served as Senior Vice
      President, Nonwovens Manufacturing from April 2000 to October 2003. He served
      as
      Vice President, Business Systems from April 1998 to April 2000 and as Vice
      President, Foley Plant from June 1995 to April 1998. He was an employee of
      Procter & Gamble from 1977 to March 1993.





Jeffery
      T. Cook


Senior
      Vice President,
      Marketing


Mr.
      Cook has served as Senior Vice
      President, Marketing since February 1, 2006.   He served as Senior
      Vice President, Product and Market Development from February 2005 to
      February 2006. Mr. Cook served as Vice President, Product and Market Development
      from July 2003 to February 2005. He served as Vice President of Research and
      Development, Wood Cellulose from August 1999 to July 2003. He was an employee
      of
      Procter and Gamble from 1988 to 1998.





29


Sheila
      Jordan
      Cunningham


Senior
      Vice President, General Counsel
      and Secretary


Ms.
      Cunningham has served as Senior Vice
      President, General Counsel and Secretary since April 2000. She served as Vice
      President, General Counsel and Secretary from April 1998 to April 2000. She
      served as Assistant General Counsel from March 1997to April 1998and
      as Secretary from July 1997 to April
      1998. Prior to joining the Company, she was a partner in the law firm of Baker,
      Donelson, Bearman & Caldwell.





Steven
      G. Dean


SeniorVice
      President and Chief Financial
      Officer


Mr.
      Dean has served as SeniorVice
      President and Chief Financial
      Officer since July 1, 2007. He served as Vice President and Chief Financial
      Officer from July 2006 to July 2007. He served as Vice President and Controller
      from February 2006 to July 2006. Mr. Dean served as Company Controller from
      December 2005 to February 2006. Previously, he served as Controller for
      Buckeye's Specialty Fibers Division from December 2004 to November 2005 and
      Controller for Buckeye's Nonwovens Division from August 2001 to November 2004.
      Prior to joining Buckeye in 1999, he held various financial management positions
      with Thomas & Betts and Hewlett-Packard.





Douglas
      L. Dowdell


Senior
      Vice President, Specialty
      Fibers


Mr.
      Dowdell has served as Senior Vice
      President, Specialty Fibers since February 1, 2006.  He served as Senior
      Vice President, Nonwovens from February 2005 to February 2006. Mr. Dowdell
      served as Vice President, Nonwovens from October 2003 to February 2005. He
      served as Vice President, Absorbent Wood Fiber Sales from February 2002 to
      October 2003. He served as Vice President, Nonwovens Business Development from
      February 2001 to February 2002. He served as Vice President, Absorbent Products
      Business Development from August 2000 to February 2001. Prior to August 2000
      he
      held several positions in the Company including: Manager, Absorbent Fiber Sales;
      Manager, Business Development; and Manager, Wood Procurement. He was an employee
      of Procter & Gamble from 1988 to March 1993.





William
      M. Handel


Senior
      Vice President, LeanEnterprise


Mr.
      Handel has served as Senior Vice
      President, Lean Enterprise since February 1, 2006.  He served as Senior
      Vice President, Human Resources from April 2000 to February 2006. Mr. Handel
      served as Vice President, Human Resources from November 1995 to April 2000
      and
      as Human Resources Manager from March 1993 to November 1995. He was an employee
      of Procter & Gamble from 1974 to March 1993.





Paul
      N. Horne


Senior
      Vice President, Product and
      Market Development


Mr.
      Horne has served as Senior Vice
      President, Product and Market Development since February 1, 2006.  He
      served as Senior Vice President, Cotton Cellulose from January 2001 to February
      2006. Mr. Horne served as Senior Vice President, Commercial - Specialty
      Cellulose from July 1997 to January 2001 and as Vice President, North and South
      American Sales from October 1995 to July 1997. He was an employee of Procter
      & Gamble from 1982 to March 1993.





Marko
      M. Rajamaa


Senior
      Vice President,
      Nonwovens


Mr.
      Rajamaa has served as Senior Vice
      President, Nonwovens since October 26, 2006.  He served as Vice
      President, Nonwovens from February 2006 to October 2006 and as Vice President,
      Nonwovens Sales – Europe andMiddle Eastfrom
      January 2002 to February
      2006.  Previously, he served as Manager, Nonwoven Sales, Europe,
      Middle East andAfricafrom
      1999 to
      2002.  Prior to joining Buckeye in 1999, he held various sales
      management positions with Walkisoft / UPM-Kymmene.





Code
      of Business Conduct &
Ethics





We
      have a Code of Business
      Conduct & Ethics, which applies to all of our directors, officers and
      employees, including our principal executive officer and senior financial
      officers.Our
      Code of Business Conduct &
Ethics is available in the corporate governance section of the investor
      relations page of our website,www.bkitech.com.In
      addition, we intend to post in the
      corporate governance section of the investor relations page of our website
      information regarding any amendment to, or waiver from, the provisions of our
      Code of Business Conduct & Ethics to the extent such disclosure is
      required.The
      information on our website, however,
      does not form part of this Report.





30


Corporate
      Governance and Compliance with
      Section 16(a) of the Exchange Act





Information
      relating to corporate
      governance and compliance with Section 16(a) of the Exchange Act will be
      included in our 2008 Annual Proxy Statement and is incorporated herein by
      reference.  As part of this Annual Report on Form 10-K, we are filing
      the applicable certifications of our Chief Executive Officer and Chief Financial
      Officer required under Section 302 and 906 of the Sarbanes-Oxley Act of
      2002.  In addition, on November 8, 2007, we filed with the New York
      Stock Exchange the annual certification of our Chief Executive Officer stating
      that he is not aware of any violation by Buckeye Technologies Inc. of the New
      York Stock Exchange’s corporate governance listing
      standards.




Item
      11.
      Executive Compensation





Information
      relating to this item will
      be included in our 2008Annual
      Proxy Statement and
      is incorporated herein by reference.





Item
      12.
      Security Ownership of Certain Beneficial Owners and Managementand
      Related
      Stockholder Matters





Information
      relating to this item will
      be included under the captions “Security Ownership of Certain Beneficial Owners
      and Management” and “Equity
      Compensation Plan Information” in our 2008Annual
      Proxy Statement and is
      incorporated herein by reference.





Item
      13.
      Certain Relationships and Related Transactions,
      and
      DirectorIndependence





Information
      relating to this item will
      be included in our 2008Annual
      Proxy Statement and
      is incorporated herein by reference.





Item
      14.
      Principal Accountant Fees and Services




Information
      regarding principal
      accountant fees and services will be included in our 2008Annual
      Proxy Statement and is
      incorporated by reference herein.













31





PART
      IV




Item
      15.
      Exhibits and Financial Statement Schedules




(a)
            (1)
            Financial
                Statements-
                See Index to Consolidated
                Financial Statements and Schedule on page F-1.(2)
            Financial
                Statement
                Schedules-
                See Index to Consolidated
                Financial Statements and Schedule on page F-1. All other financial
                statement schedules are omitted as the information is not required
                or
                because the required information is presented in the financial statements
                or the notes thereto.(3)
            Listing
                of Exhibits. See exhibits
                listed under Item 15 (b).





Exhibit
      15 (b).  Exhibits
      required by Item 601 of Regulation S-K





Exhibit
            
            Incorporation
                by Reference
                orNumbers
            Description
            Filed
                Herewith3.1
            Second
                Amended and Restated
                Certificate of Incorporation
            Exhibit
                3.1 to Form 10-Q for
                quarter ended December 31, 1997 file no. 001-14030, filed on February
                13,
                19983.1(a)
            Articles
                of Amendment to the
                Second Amended and Restated Certificate of
                Incorporation
            Exhibit
                3.1(a) to Form S-4 file
                no. 333-59267, filed on July 16, 19983.2
            Amended
                and Restated
                By-laws
            Exhibit
                3.2 to Form 10-Q for
                quarter ended March 31, 2006 file no. 001-14030, filed on April
                27,20064.1
            First
                Amendment to the Rights
                Agreement
            Form
                8-A to Form 10-K for year
                ended June 30, 1997 file no. 001-41030, filed on September 26,
                19974.2
            Indenture
                for 8% Senior
                Subordinated Notes due 2010, dated June 11, 1998
            Exhibit
                4.3 to Form S-4 file no.
                333-59267, filed on July 16, 19984.3
            Indenture
                for 8.5%Senior
                Notes due 2013, dated
                September 22, 2003
            Exhibit
                4.4 to Form S-4, file no.
                333-110091, filed on October 30, 200310.1
            Amended
                and Restated 1995
                Management Stock Option Plan
            Exhibit
                10.1 to Form 10-K for year
                ended June 30, 1998 file no. 001-14030, filed on September 23,
                199810.2
            Second
                Amended and Restated 1995
                Incentive and Nonqualified Stock Option Plan for Management
                Employees
            Exhibit
                10.2 to Form S-4 file no.
                333-59267, filed on July 16, 199810.3
            Form
                of Management Stock Option
                Subscription Agreement
            Exhibit
                10.3 to Form 10-K for year
                ended June 30, 1998 file no. 001-14030, filed on September 23,
                199810.4
            Form
                of Stock Option Subscription
                Agreement
            Exhibit
                10.4 to Form 10-K for year
                ended June 30, 1998 file no. 001-14030, filed on September 23,
                199810.5
            Amended
                and Restated Formula Plan
                for Non-Employee Directors
            Exhibit
                10.1 to Form 10-Q for
                quarter ended December 31, 2000 file no. 001-14030, filed on February
                6,
                200110.6
            Amendment
                No. 1 to Timberlands
                Agreement dated January 1, 1999 by and Between Buckeye Florida, Limited
                Partnership and Foley Timber and Land Company.  Certain portions
                of the Agreement have been omitted pursuant to an Application for
                Confidential Treatment dated October 30, 1995
            Exhibit
                10.1  to Form
                10-Q/A for quarter ended March 31, 1999 file no. 001-14030, filed
                on May
                12, 199910.7
              
              10.8
            Form
                of Change in Control
                Agreement, dated August 8, 2006
              
              Amended
                and Restated Credit
                Agreement dated July 25, 2007 among the Registrant; Bank of America
                NA;
                Banc of America Securities LLC; Citizens Bank ofPennsylvania;
                Cobank, ACB; Regions Bank; and
                the other lenders party thereto
            Exhibit
                10.1 to Form 8-K filed no.
                001-14030, filed on August 11, 2006
              Exhibit
                10.10 to Form 8-K file no.
                001-14030, filed on July 31, 200710.9
            2007
                Omnibus Incentive
                Compensation Plan
            Exhibit
                A to Form DEF 14A file no.
                001-14030, filed on
                September 20, 200712.1
            Computation
                of Ratio of Earnings
                to Fixed Charges
            Filed
                herewith21.1
            Subsidiaries
            Filed
                herewith23.1
            Consent
                of  Ernst &
                Young LLP
            Filed
                herewith31.1
            Section
                302 Certification of Chief
                Executive Officer
            Filed
                herewith31.2
            Section
                302 Certification of Chief
                Financial Officer
            Filed
                herewith32.1
            Section
                1350 Certification of
                Chief Executive Officer
            Filed
                herewith32.2
            Section
                1350 Certification of
                Chief Financial Officer
            Filed
                herewith





32


SIGNATURES





Pursuant
      to the requirements of Section
      13 or 15(d) 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.





Buckeye
      Technologies
      Inc.




By:
            /s/
                John B.
                CroweJohn
                B. Crowe, Director, Chairman
                of the Board and Chief Executive OfficerDate:
            August
                26,
                2008





Pursuant
      to the requirements of the
      Securities Exchange Act of 1934, this report has been signed below by the
      following persons on behalf of the registrant and in the capacities and on
      the
      dates indicated.





By:
            /s/
                John B.
                CroweJohn
                B. Crowe, Director, Chairman
                of the Board and Chief Executive OfficerDate:
            August
                26,
                2008





By:
            /s/
                Kristopher J.
                MatulaKristopher
                J. Matula, Director,
                President and Chief Operating OfficerDate:
            August
                26,
                2008





By:
            /s/
                Katherine Buckman
                GibsonKatherine
                Buckman Gibson,
                DirectorDate:
            August
                26,
                2008





By:
            /s/
                Red
                CavaneyRed
                Cavaney,
                DirectorDate:
            August
                26,
                2008





By:
            /s/
                Lewis E.
                HollandLewis
                E. Holland,
                DirectorDate:
            August
                26,
                2008





By:
            /s/
                R. Howard
                CannonR.
                Howard Cannon,
                DirectorDate:
            August
                26,
                2008




By:
            /s/
                Steven G.
                DeanSteven
                G. Dean, Senior Vice
                President and Chief Financial OfficerDate:
            August
                26,
                2008





By:
            /s/
                Elizabeth J.
                WelterElizabeth
                J. Welter, Vice
                President and Chief Accounting OfficerDate:
            August
                26,
                2008





33





BUCKEYE
      TECHNOLOGIES
      INC.


INDEX
      TO CONSOLIDATED FINANCIAL
      STATEMENTS AND SCHEDULE





PAGEReport
                of
                Management
            F-2Management’s
                Report on Internal
                Control Over Financial Reporting
            F-3Reports
                of Independent Registered
                Public Accounting Firm
            F-4Financial
                Statements as of June
                30, 2008,
                June 30, 2007and
                for the Three Years Ended June
                30, 2008:Consolidated
                Statements of
                Income
            F-6Consolidated
                Balance
                Sheets
            F-7Consolidated
                Statements of
                Stockholders’ Equity
            F-8Consolidated
                Statements of Cash
                Flows
            F-9Notes
                to Consolidated Financial
                Statements
            F-10Schedule:Schedule
                II - Valuation and
                Qualifying Accounts
            F-36











F-1





Report
      of Management





The
      management of Buckeye Technologies
      Inc. is committed to providing financial reports that are complete, accurate
      and
      easily understood.





The
      consolidated financial statements
      and financial information included in this report have been prepared in
      accordance with accounting principles generally accepted in theUnited Statesand
      in the opinion of management fairly
      and completely present the Company’s financial results. Our independent auditor,
      Ernst & Young LLP, has examined our financial statements and expressed an
      unqualified opinion.





Ensuring
      the accuracy of financial
      statements starts at the top of the Company. OurBoard of Directorsprovides
      oversight as the representative
      of the stockholders. Our Audit Committee, consisting entirely of independent
      Directors, meets regularly with management, internal audit and the independent
      auditors to review our financial reports.





The
      Company’s senior management, our
      corporate leadership team, is actively involved in all aspects of the business.
      This group understands key strategies and monitors financial results. We
      maintain a system of internal control which provides reasonable assurance that
      transactions are accurately recorded and assets are safeguarded. All of the
      Company’s officers and financial executives adhere to the Company’s Code of
      Business Conduct and Ethics and provide written confirmation of their compliance
      annually.





Our
      Company was built on a foundation of
      integrity and honesty. We take responsibility for the quality and accuracy
      of
      our financial reporting.





/s/
                John B.
                Crowe
            /s/
                Kristopher J. Matula
            /s/
                Steven G.
                DeanJohn
                B.
                Crowe
            Kristopher
                J.
                Matula
            Steven
                G.
                DeanChairman
                of the Board
                and
            President
                and
            Senior
                Vice President
                andChief
                Executive
                Officer
            Chief
                Operating
                Officer
            Chief
                Financial
                Officer








F-2





Management’s
      Report on Internal Control
      Over Financial Reporting





Our
      management is responsible for
      establishing and maintaining adequate internal control over financial reporting
      (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange
      Act
      of 1934, as amended). Our internal control over financial reporting includes,
      among other things: defined policies and procedures for conducting and governing
      our business, a written Code of Business Conduct and Ethics adopted by ourBoard of Directorsand
      applicable to all
      directors and all officers and employees of Buckeye and our subsidiaries,
      sophisticated information systems for processing transactions and a properly
      staffed and professional internal audit department. Mechanisms are in place
      to
      monitor the effectiveness of our internal control over financial reporting
      and
      actions are taken to correct identified deficiencies. Our procedures for
      financial reporting include the active involvement of senior management, our
      Audit Committee and a staff of highly qualified financial and legal
      professionals.





Management,
      with the participation of
      our principal executive and financial officers, assessed our internal control
      over financial reporting as of June 30, 2008,
      the end of our fiscal year. Management
      based its assessment on criteria established in Internal Control—Integrated
      Framework issued by the Committee of Sponsoring Organizations of the Treadway
      Commission (the COSO criteria).





Based
      on this assessment, management has
      concluded that our internal control over financial reporting was effective
      as of
      June 30, 2008.





Our
      independent registered public
      accounting firm, Ernst & Young LLP, audited the effectiveness of our
      internal controls over financial reporting.  Ernst & Young has
      issued their report on the effectiveness of internal control over financial
      reporting which is included in this Annual Report on Form
      10-K.





/s/
                John B.
                Crowe
            /s/
                Steven G.
                DeanJohn
                B.
                Crowe
            Steven
                G.
                DeanChairmanof
                the Board
                and
            SeniorVice
                President
                andChief
                Executive
                Officer
            Chief
                Financial
                Officer








F-3





Report
      of Independent Registered Public
      Accounting Firm








TheBoard
      of Directorsand Stockholders
      of Buckeye Technologies
      Inc.








We
      have audited Buckeye
      TechnologiesInc.’s
      internal control over financial
      reporting as of June 30, 2008,
      based on criteria established in
      Internal Control—Integrated Framework issued by the Committee of Sponsoring
      Organizations of the Treadway Commission (the COSO criteria). Buckeye
      TechnologiesInc.’s
      management is responsible for
      maintaining effective internal control over financial reporting, and for its
      assessment of the effectiveness of internal control over financial reporting
      included in the accompanying Management’s Report on Internal Control Over
      Financial Reporting. Our responsibility is to express an opinion on the
      company’s internal control over financial reporting based on our
      audit.





We
      conducted our audit in accordance
      with the standards of the Public Company Accounting Oversight Board
      (United States).
      Those standards require that we plan
      and perform the audit to obtain reasonable assurance about whether effective
      internal control over financial reporting was maintained in all material
      respects. Our audit included obtaining an understanding of internal control
      over
      financial reporting, assessing the risk that a material weakness exists, testing
      and evaluating the design and operating effectiveness of internal control based
      on the assessed risk, and performing such other procedures as we considered
      necessary in the circumstances. We believe that our audit provides a reasonable
      basis for our opinion.





A
      company’s internal control over
      financial reporting is a process designed to provide reasonable assurance
      regarding the reliability of financial reporting and the preparation of
      financial statements for external purposes in accordance with generally accepted
      accounting principles. A company’s internal control over financial reporting
      includes those policies and procedures that (1) pertain to the maintenance
      of
      records that, in reasonable detail, accurately and fairly reflect the
      transactions and dispositions of the assets of the company; (2) provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of financial statements in accordance with generally accepted
      accounting principles, and that receipts and expenditures of the company are
      being made only in accordance with authorizations of management and directors
      of
      the company; and (3) provide reasonable assurance regarding prevention or timely
      detection of unauthorized acquisition, use, or disposition of the company’s
      assets that could have a material effect on the financial
      statements.





Because
      of its inherent limitations,
      internal control over financial reporting may not prevent or detect
      misstatements.  Also, projections of any evaluation of effectiveness
      to future periods are subject to the risk that controls may become inadequate
      because of changes in conditions, or that the degree of compliance with the
      policies or procedures may deteriorate.





In
      our opinion, Buckeye Technologies
      Inc. maintained, in all material respects, effective internal control over
      financial reporting as of June 30, 2008,
      based onthe
      COSO criteria.





We
      also have audited, in accordance with
      the standards of the Public Company Accounting Oversight Board (United States),
      the consolidated balance sheets of Buckeye Technologies Inc. as of June 30,
      2008and
      2007and
      the related consolidated statements
      of income, stockholders’ equity, and cash flows for each of the three years in
      the period ended June 30, 2008of
      Buckeye Technologies Inc. and our
      report datedAugust 26,
      2008expressed an
      unqualified opinion thereon.











Memphis,Tennessee/s/
      Ernst & Young LLP


August
      26, 2008

















F-4










Report
      of Independent Registered Public
      Accounting Firm





TheBoard
      of Directorsand Stockholders of Buckeye
      Technologies
      Inc.





We
      have audited the accompanying
      consolidated balance sheets of Buckeye Technologies Inc. as of June 30,
      2008and
      2007and
      the related consolidated statements
      of income, stockholders' equity, and cash flows for each of the three years
      in
      the period ended June 30, 2008.
      Our audits also included the financial
      statement schedule listed inthe Index atItem
      15 (a).These
      financial statements and schedule
      are the responsibility of the Company’s management. Our responsibility is to
      express an opinion on these financial statements and schedule based on our
      audits.





We
      conducted our audits in accordance
      with the standards of the Public Company Accounting Oversight Board
      (United States).  Those
      standards require
      that we plan and perform the audit to obtain reasonable assurance about whether
      the financial statements are free of material misstatement.  An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the financial statements. An audit also includes assessing the
      accounting principles used and significant estimates made by management, as
      well
      as evaluating the overall financial statement presentation. We believe that
      our
      audits provide a reasonable basis for our opinion.





In
      our opinion, the financial statements
      referred to above present fairly, in all material respects, the consolidated
      financial position of Buckeye Technologies Inc. as of June 30, 2008and
      2007,
      and the consolidated results of its
      operations and its cash flows for each of the three years in the period ended
      June 30, 2008,
      in conformity with U.S. generally
      accepted accounting principles.  Also, in our opinion, therelatedfinancial
      statement schedule, when
      considered in relation to the basic financial statements taken as a whole,
      presents fairly in all material respects the information set forth
      therein.





As
      discussed in Note 2 to the
      consolidated financial statements, the Company adopted FASB Interpretation
      No.
      48, “Accounting for Uncertainty in Income Taxes an Interpretation of FASB
      Statement No. 109,” effective July 1, 2007.





We
      also have audited, in accordance with
      the standards of the Public Company Accounting Oversight Board (United States),
      Buckeye Technologies Inc.’s internal control over financial reporting as of June
      30, 2008,
      based on criteria established in
      Internal Control-Integrated Framework issued by the Committee of Sponsoring
      Organizations of the Treadway Commission and our report datedAugust 26, 2008expressed
      an unqualified opinion
      thereon.











Memphis,Tennessee/s/
      Ernst & Young LLP


August
      26, 2008




















F-5





Consolidated
      Statements of
      Income


(In
      thousands, except per share
      data)


Year
                Ended June
                302008
            
            2007
            
            2006Net
                sales
            
            $
            825,517
            
            $
            769,321
            
            $
            728,485Cost
                  of goods
                  sold
            
            
            675,955
            
            
            637,505
            
            
            628,687Gross
                margin
            
            
            149,562
            
            
            131,816
            
            
            99,798Selling,
                  research and
                  administrative expenses
            
            
            47,277
            
            
            47,021
            
            
            47,762Amortization
                of intangibles and
                other
            
            
            1,856
            
            
            2,335
            
            
            2,000Impairment
                  of long-lived
                  assets
            
            
            -
            
            
            -
            
            
            2,090Restructuring
                costs
            
            
            96
            
            
            1,249
            
            
            3,526Operating
                  income
            
            
            100,333
            
            
            81,211
            
            
            44,420Other
                income
                (expense):Interest
                  income
            
            
            571
            
            
            355
            
            
            635Interest
                expense and
                amortization of debt costs
            
            
            (33,557
            )
            
            (39,153
            )
            
            (43,868
            )Loss
                  on early extinguishment
                  of debt
            
            
            (623
            )
            
            (832
            )
            
            (151
            )Gain
                on sale of assets held
                for sale
            
            
            -
            
            
            355
            
            
            -Foreign
                  exchange and
                  other
            
            
            581
            
            
            1,902
            
            
            (352
            )Income
                  before income
                  taxes
            
            
            67,305
            
            
            43,838
            
            
            684Income
                  tax expense
                  (benefit)
            
            
            20,203
            
            
            13,720
            
            
            (1,296
            )Net
                income
            
            $
            47,102
            
            $
            30,118
            
            $
            1,980Earnings
                per
                shareBasic
            
            $
            1.21
            
            $
            0.80
            
            $
            0.05Diluted
            
            $
            1.20
            
            $
            0.79
            
            $
            0.05Weighted
                average shares for
                earnings per shareBasic
            
            
            
            38,888
            
            
            37,842
            
            37,622Effect
                of diluted
                shares
            
            
            513
            
            
            376
            
            36Diluted
            
            
            39,401
            
            
            38,218
            
            37,658






See
      accompanying
      notes.





F-6





Consolidated
      Balance
      Sheets




(In
      thousands, except share
      data)


June
                302008
            
            2007AssetsCurrent
                assets:Cash
                  and cash
                  equivalents
            
            $
            10,393
            
            $
            14,790Accounts
                receivable - trade, net
                of allowance for doubtful accounts of $1,457in
                2008and
                $1,399in
                2007
            
            
            121,400
            
            
            112,251Accounts
                  receivable –
                  other
            
            
            6,121
            
            
            4,614Inventories
            
            
            110,254
            
            
            86,777Deferred
                  income
                  taxes
            
            
            5,812
            
            
            4,630Prepaid
                expenses and
                other
            
            
            5,718
            
            
            4,822Total
                  current
                  assets
            
            
            259,698
            
            
            227,884Property,
                  plant and equipment,
                  net
            
            
            555,708
            
            
            537,655Goodwill
            
            
            163,622
            
            
            155,937Intellectual
                  property and other,
                  net
            
            
            30,197
            
            
            30,346Total
                assets
            
            $
            1,009,225
            
            $
            951,822Liabilities
                and stockholders’
                equityCurrent
                  liabilities:Trade
                accounts
                payable
            
            $
            49,157
            
            $
            41,030Accrued
                  expenses
            
            
            50,451
            
            
            49,532Current
                portion of capital lease
                obligation
            
            
            358
            
            
            399Short-term
                  debt
            
            
            207
            
            
            -Total
                current
                liabilities
            
            
            100,173
            
            
            90,961Long-term
                debt
            
            
            393,910
            
            
            445,138Accrued
                  postretirement
                  benefits
            
            
            23,868
            
            
            24,509Deferred
                income
                taxes
            
            
            57,963
            
            
            41,761Capital
                  lease
                  obligation
            
            
            -
            
            
            356Other
                liabilities
            
            
            3,754
            
            
            1,943Commitments
                and contingencies
                (Notes 9, 16, and 17)Stockholders’
                equity:Preferred
                  stock, $.01 par value;
                  10,000,000 shares authorized; none issued or
                  outstanding
            
            
            -
            
            
            -Common
                stock, $.01 par value;
                100,000,000 shares authorized; 43,142,770 shares issued;39,160,377and
                38,845,682shares
                outstanding at June 30, 2008and 2007,
                respectively
            
            
            431
            
            
            431Additional
                  paid-in
                  capital
            
            
            46,975
            
            
            48,032Accumulated
                other comprehensive
                income
            
            
            81,056
            
            
            49,491Retained
                  earnings
            
            
            354,075
            
            
            307,851Treasury
                shares, 3,982,393and4,297,088shares
                at June 30, 2008and
                2007,
                respectively
            
            
            (52,980
            )
            
            (58,651
            )Total
                  stockholders’
                  equity
            
            
            429,557
            
            
            347,154Total
                liabilities and
                stockholders’ equity
            
            $
            1,009,225
            
            $
            951,822


See
      accompanying
      notes.





F-7





Consolidated
      Statements of Stockholders'
      Equity


(In
      thousands, except share
      data)


Common
              stock
            
            Additional
              paid-in
              capital
            
            Accumulated
              other
              comprehensive
              income
                (loss)
            
            Retained
              Earnings
            
            Treasury
              shares
            
            TotalBalance
                at June 30,
                2005
            
            $
            431
            
            $
            52,446
            
            $
            16,791
            
            $
            275,753
            
            $
            (75,832
            )
            $
            269,589Comprehensive
                income:Net
                  income
            
            
            -
            
            
            -
            
            
            -
            
            
            1,980
            
            
            -
            
            
            1,980Other
                comprehensive
                income:Foreign
                  currency translation
                  adjustment
            
            
            -
            
            
            -
            
            
            17,028
            
            
            -
            
            
            -
            
            
            17,028Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            19,008Issuance
                of313,670shares
                of common
                stock
            
            
            -
            
            
            (3,733
            )
            
            -
            
            
            -
            
            
            4,282
            
            
            549Stock-based
                  compensation
                  expense
            
            
            -
            
            
            561
            
            
            -
            
            
            -
            
            
            -
            
            
            561Directors
                stock compensation
                (1,255shares)
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            10
            
            
            10Balance
                  at June 30,
                  2006
            
            $
            431
            
            $
            49,274
            
            $
            33,819
            
            $
            277,733
            
            $
            (71,540
            )
            $
            289,717Comprehensive
                  income:Net
                income
            
            
            -
            
            
            -
            
            
            -
            
            
            30,118
            
            
            -
            
            
            30,118Other
                  comprehensive
                  income:Foreign
                currency translation
                adjustment
            
            
            -
            
            
            -
            
            
            18,707
            
            
            -
            
            
            -
            
            
            18,707Comprehensive
                  income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            48,825Adjustment
                to apply SFAS 158, net
                of tax
            
            
            -
            
            
            -
            
            
            (3,035
            )
            
            -
            
            
            -
            
            
            (3,035
            )Issuance
                  of 944,348 shares of
                  common stock
            
            
            -
            
            
            (3,032
            )
            
            -
            
            
            -
            
            
            12,889
            
            
            9,857Stock-based
                compensation
                expense
            
            
            -
            
            
            785
            
            
            -
            
            
            -
            
            
            -
            
            
            785Tax
                  benefit from stock-based
                  awards
            
            
            -
            
            
            1,005
            
            
            -
            
            
            -
            
            
            -
            
            
            1,005Balance
                at June 30,
                2007
            
            $
            431
            
            $
            48,032
            
            $
            49,491
            
            $
            307,851
            
            $
            (58,651
            )
            $
            347,154Comprehensive
                income:Net
                  income
            
            
            -
            
            
            -
            
            
            -
            
            
            47,102
            
            
            -
            
            
            47,102Other
                comprehensive
                income(loss):Foreign
                  currency translation
                  adjustment
            
            
            -
            
            
            -
            
            
            31,184
            
            
            -
            
            
            -
            
            
            31,184Net
                prior service
                credit and actuarial gain onpost
                retirement
                obligations, net of tax of($450)
            
            
            
            
            
            
            
            
            767
            
            
            
            
            
            
            
            
            767Net
                unrealized loss
                from cash flow hedging
              instrument,
                net of tax
                of ($227)
            
            
            
            
            
            
            
            
            (386
            )
            
            
            
            
            
            
            
            (386
            )Comprehensive
                income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            78,667Adjustment
                to applyFIN 48,
                net of
                tax
            
            
            -
            
            
            -
            
            
            -
            
            
            (878
            )
            
            -
            
            
            (878
            )Issuance
                  of614,695shares
                  of common
                  stock
            
            
            -
            
            
            (2,572
            )
            
            -
            
            
            -
            
            
            8,391
            
            
            5,819Repurchase
                of 300,000 shares of
                common stock
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            (2,720
            )
            
            (2,720
            )Stock-based
                compensation
                expense
            
            
            -
            
            
            914
            
            
            -
            
            
            -
            
            
            -
            
            
            914Tax
                  benefit from stock-based
                  awards
            
            
            -
            
            
            601
            
            
            -
            
            
            -
            
            
            -
            
            
            601Balance
                at June 30,
                2008
            
            $
            431
            
            $
            46,975
            
            $
            81,056
            
            $
            354,075
            
            $
            (52,980
            )
            $
            429,557See
                accompanying
                notes.











F-8


Consolidated
      Statements of Cash
      Flows


(In
      thousands)


Year
                Ended June
                302008
            
            2007
            
            2006Operating
                activitiesNet
                  income
            
            $
            47,102
            
            $
            30,118
            
            $
            1,980Adjustments
                to reconcile net
                income to net cash provided by operating
                activities:Impairment
                  of long-lived
                  assets
            
            
            -
            
            
            -
            
            
            2,090Depreciation
                and
                depletion
            
            
            50,873
            
            
            49,212
            
            
            46,903Amortization
            
            
            2,155
            
            
            3,258
            
            
            3,336Loss
                on early extinguishment of
                debt
            
            
            623
            
            
            832
            
            
            151Deferred
                  income
                  taxes
            
            
            12,850
            
            
            7,205
            
            
            (5,464
            )Gain
                  on sale of assets held for
                  sale
            
            
            -
            
            
            (355
            )
            
            -Provision
                for bad
                debts
            
            
            116
            
            
            277
            
            
            123Excess
                  tax benefit from stock
                  based compensation
            
            
            (44
            )
            
            (24
            )
            
            -Other
            
            
            941
            
            
            2,161
            
            
            2,192Changes
                in operating assets and
                liabilities:Accounts
                  receivable
            
            
            (5,975
            )
            
            (1,931
            )
            
            7,611Inventories
            
            
            (20,185
            )
            
            13,159
            
            
            10,900Other
                  assets
            
            
            (1,205
            )
            
            (1,041
            )
            
            (5,030
            )Accounts
                payable and other current
                liabilities
            
            
            5,055
            
            
            8,490
            
            
            (6,071
            )Net
                  cash provided by operating
                  activities
            
            
            92,306
            
            
            111,361
            
            
            58,721Investing
                  activitiesPurchases
                of property, plant and
                equipment
            
            
            (49,197
            )
            
            (45,200
            )
            
            (45,591
            )Proceeds
                  from sales of
                  assets
            
            
            17
            
            
            521
            
            
            1,163Other
            
            
            (451
            )
            
            (539
            )
            
            (467
            )Net
                  cash used in investing
                  activities
            
            
            (49,631
            )
            
            (45,218
            )
            
            (44,895
            )Financing
                  activitiesNet
                borrowings (payments) under
                revolving line of credit
            
            
            78,235
            
            
            (3,000
            )
            
            350Payments
                  on long-term debt andother
            
            
            (129,019
            )
            
            (67,752
            )
            
            (16,813
            )Payments
                for debt issuance
                costs
            
            
            (1,321
            )
            
            -
            
            
            -Purchase
                  of treasury
                  shares
            
            
            (2,720
            )
            
            -
            
            
            -Net
                  proceeds from sale of equity
                  interests
            
            
            5,819
            
            
            9,857
            
            
            549Excess
                tax benefit from stock
                based compensation
            
            
            44
            
            
            24
            
            
            -Net
                cash used in financing
                activities
            
            
            (48,962
            )
            
            (60,871
            )
            
            (15,914
            )Effect
                  of foreign currency rate
                  fluctuations on cash
            
            
            1,890
            
            
            784
            
            
            896Increase
                (decrease) in cash and
                cash equivalents
            
            
            (4,397
            )
            
            6,056
            
            
            (1,192
            )Cash
                  and cash equivalents at
                  beginning of year
            
            
            14,790
            
            
            8,734
            
            
            9,926Cash
                and cash equivalents at end
                of year
            
            $
            10,393
            
            $
            14,790
            
            $
            8,734


See
      accompanying
      notes.








F-9


Notes
      to Consolidated Financial
      Statements


(In
      thousands, except share
      data)





NOTE
      1: ACCOUNTING
      POLICIES





Business
      Description and Basis of
      Presentation




Our
      financial statements are
      consolidated financial statements of Buckeye Technologies Inc. We manufacture
      and distribute value-added cellulose-based specialty products used in numerous
      applications including disposable diapers, personal hygiene products, engine
      air
      and oil filters, food casings, rayon filament, acetate plastics, thickeners
      and
      papers.





Fiscal
      Year




Except
      as otherwise specified,
      references to years indicate our fiscal year ended June 30, 2008or
      ended June 30 of the year
      referenced.





Reclassifications




Certain
      prior year amounts have been
      reclassified to conform to current year classifications.





Principles
      of
      Consolidation




The
      consolidated financial statements
      include the accounts of Buckeye Technologies Inc. and our subsidiaries, all
      of
      which are wholly owned. All significant intercompany accounts and transactions
      have been eliminated.





Summary
      of Significant Accounting
      Policies





Cash
      and Cash
      Equivalents




We
      consider cash equivalents to be
      temporary cash investments with a maturity of three months or less when
      purchased.





Inventories




Inventories
      are valued at the lower of
      cost or market. The costs of manufactured cotton-based specialty fibers and
      costs for nonwoven raw materials are generally determined on the first-in,
      first-out (FIFO) basis. Other manufactured products and raw materials are
      generally valued on an average cost basis. Manufactured inventory costs include
      material, labor and manufacturing overhead. Slash pine timber, cotton fibers
      and
      chemicals are the principal raw materials used in the manufacture of our
      specialty fiber products. Fluff pulp is the principal raw material used in
      our
      nonwoven materials products. We take physical counts of inventories at least
      annually, and we review periodically the provision for potential losses from
      obsolete, excess or slow-moving inventories.





Allowance
      for Doubtful
      Accounts




We
      provide an allowance for receivables
      we believe we may not collect in full.Management
      evaluates the
      collectability
      of accounts based on a combination
      of factors.In
      circumstances where we are aware of a
      specific customer’s inability to meet its financial obligations (i.e.,
      bankruptcy filings or substantial downgrading of credit ratings), we record
      a
      specific reserve.For
      all other customers, we recognize
      reserves for bad debts based on our historical collection experience.If
      circumstances change (i.e., higher
      than expected defaults or an unexpected material adverse change in a major
      customer’s ability to meet its financial obligations), our estimates of the
      recoverability of amounts due could differ by a material amount.We
      have established credit limits for
      each customer. We generally require the customer to provide a letter of credit
      for export sales in high-risk countries.Credit
      limits are monitored
      routinely.





F-10


Property,
      Plant and
      Equipment




Property,
      plant and equipment are
      recorded at cost. Cost includes the interest cost associated with significant
      capital additions. Interest capitalized for the years ended June30, 2008, 2007 and 2006
      was
      $631, $269and
      $1,866,
      respectively. Depreciation on
      production machinery and equipment at the cotton cellulose and airlaid nonwovens
      plants is determined by the units-of-production method which is based on the
      expected productive hours of the assets, subject to a minimum level of
      depreciation. The straight-line method is used for determining depreciation
      on
      other capital assets.  Depreciation under the straight-line method is
      computed over the following estimated useful lives: buildings—30 to 40 years;
      machinery and equipment—3 to 20 years. Depreciation and amortization expense
      includes the amortization of assets under capital lease.





Long-Lived
      Assets




Long-lived
      assets are reviewed for
      impairment when circumstances indicate the carrying value of an asset may not
      be
      recoverable.  For assets that are to be held and used, recoverability
      is evaluated based on the undiscounted cash flows expected to be generated
      by
      the asset.  If the carrying values of the assets are determined to not
      be recoverable, we measure the potential impairment by comparing the carrying
      value of the assets to their fair value. If impairment exists, an adjustment
      is
      made to write the asset down to its fair value.  Estimated fair values
      are determined based on quoted market values, discounted cash flows or internal
      and external appraisals, as applicable.  Assets to be disposed of are
      carried at the lower of carrying value or fair value less costs to sell. See
      Note 3 for information concerning impairment charges.





Goodwill
      is recognized for the excess of
      the purchase price over the fair value of tangible and identifiable intangible
      net assets of businesses acquired.  Goodwill of businesses
      acquired is specifically identified to the reporting units to which the
      businesses belong.  We have determined that our reporting units for
      Goodwill are the same as our operating segmentsbefore aggregation.  See
      Note 14, “Segment
      Information,” for further discussion of our operating
      segments.  Goodwill is reviewed at least annually for
      impairment.  Unless circumstances otherwise dictate, we perform our
      annual impairment testing in the fourth quarter.  We utilize the
      present value of expected net cash flows to determine the estimated fair value
      of our reporting units.  This present value model requires management
      to estimate future net cash flows, the timing of these cash flows and an
      appropriate discount rate (or weighted average cost of capital) representing
      the
      time value of money and the inherent risk and uncertainty of future cash
      flows.  The discount rate is based on independently calculated beta
      risks for a composite group of companies, our target capital mix and an
      estimated market risk premium.  The assumptions used in estimating
      future cash flows were consistent with the reporting unit’s internal
      planning.  If the estimated fair value of the reporting unit exceeds
      its carrying amount, goodwill of the reporting unit is not
      impaired.  The determination of an impairment loss is complex and
      requires that we make many assumptions and estimates.  If our
      estimates of future cash flows or the underlying assumptions and estimates
      change, we may need to record impairment losses in the
      future.   No impairment of goodwill was recorded during the years
      ending June 30, 2008,
      2007and
      2006.  The
      change in goodwill
      resulted from changes in foreign currency exchange rates.Prior to adoption of
      SFAS
      No. 142, we amortized goodwill.  Accumulated amortization totaled
      $33,742 and $33,179 at June 30, 2008 and 2007, respectively.





Intellectual
      Property and
      Other




At
      June 30, 2008and
      2007,
      we had intellectual property totaling
      $16,613and
      $18,016,
      respectively, which includes patents
      (including application and defense costs), licenses, trademarks, and tradenames,
      the majority of which were obtained in the acquisition of airlaid nonwovens
      businesses and Stac-PacTMtechnology.  During
      fiscal
      year 2007,
      we reduced the amount recorded for
      Stac-PacTMpatents
      by $5,000 when we cancelled a
      contingent note to Stac-PacTMTechnologies
      Inc. that was issued in
      conjunction with the acquisition in 2000.  Intellectual property is
      amortized by the straight-line method over 5 to 20 years and is net of
      accumulated amortization of $16,968and
      $15,112at
      June 30, 2008and
      2007,
      respectively. Intellectual property
      amortization expense of $1,856,
      $2,335and
      $2,000was
      recorded during the years June 30,
      2008,
      2007and
      2006,
      respectively. Estimated amortization
      expense for the five succeeding fiscal years follows: $1,865in
      2009,
      $1,870in
      2010,
      $1,875in
      2011,
      $1,880in
      2012and
      $1,880in
      2013.




Deferred
      debt costs of $5,121and
      $5,407at
      June 30, 2008and
      2007,
      respectively,are
      amortized by the effective interest
      method over the life of the related debt and are net of accumulated amortization
      of $4,510and $7,159at
      June 30, 2008and
      2007,
      respectively. We recorded amortizationof deferred debt costs
      of
      $1,088, $1,300and
      $1,487during
      the years ending June 30,
      2008,
      2007and
      2006,
      respectively.





F-11


Income
      Taxes




We
      provide for income taxes under the
      liability method. Accordingly, deferred income taxes reflect the net tax effects
      of temporary differences between the carrying amounts of assets and liabilities
      for financial reporting purposes and the amounts used for income tax purposes.
      No provision is made forU.S.income
      taxes applicable to undistributed
      earnings of foreign subsidiaries that are indefinitely reinvested in foreign
      operations. It is not practicable to compute the potential deferred tax
      liability associated with these undistributed foreign
      earnings.





Risk
      Management




We
      are exposed to certain market risks
      as a part of our ongoing business operations and use derivative financial
      instruments, where appropriate, to manage these risks. Derivatives are financial
      instruments whose value is derived from one or more underlying financial
      instruments. Examples of underlying instruments are currencies, commodities
      and
      interest rates.  We record the fair value of all outstanding
      derivatives in other assets or other liabilities. Gains and losses related
      to
      non-designated instruments or the ineffective portion of any hedge are recorded
      in various costs and expenses, depending on the nature of the
      derivative.




We
      periodically use derivatives and
      other financial instruments to hedge exposures to fossil fuels, interest rates
      and currency risks. For hedges which meet the Statement of Financial Accounting
      Standards No. (“SFAS”) 133and SFAS No. 138,Accounting
      forCertain
      Derivative Instruments and Certain Hedging Activities,criteria,
      we formally designate and
      document the instrument as a hedge of a specific underlying exposure, as well
      as
      the risk management objective and strategy for undertaking each hedge
      transaction. Because of the high degree of effectiveness between the hedging
      instrument and the underlying exposure being hedged, fluctuations in the value
      of the derivative instruments are generally offset by changes in the value
      or
      cash flows of the underlying exposures being hedged.




From
      time to time, we utilize forward
      foreign exchange contracts for the sale or purchase of foreign currencies.
      These
      contracts are not designated as hedging instruments and do not qualify for
      hedge
      accounting treatment under the provisions of SFAS No. 133 and SFAS No.
      138,Accounting
      for
      Certain Derivative Instruments and Certain Hedging Activities.Mark-to-market
      gains and losses for
      forward foreign exchange contracts are recorded in foreign exchange and
      other.




In
      order to minimize market
      exposure, at times we use forward contracts to reduce price fluctuations in
      a
      desired percentage of forecasted purchases of fossil fuel over a period of
      generally less than one year.  There were no fossil fuel contracts
      outstanding at June 30, 2008or
      2007requiring
      fair value
      treatment.





Derivatives
      are recorded in the
      consolidated balance sheet at fair value. At June 30, 2008and
      2007,
      we hadinterest rate swaps outstanding
      as
      discussed in Note 8.





Labor
      Agreements





As
      ofJune 30,2008,
      we employedapproximately 1,500
      employees.Approximately45%
      of theglobal workforce is covered
      under
      collective bargaining agreements.  Theseemployees are represented
      by unions at
      threeplants,
      two in the U.S. atPerry, FloridaandMemphis,
      Tennesseeand one in Canada at
      Delta, British
      Columbia.Our
      Foley Plant’s labor agreement
      expired on March 31, 2008 and a new agreement is currently being
      negotiated.  The agreement for the Memphis
      Plant is in effect
      through March 18, 2009.  The union at our Canadian facility ratified a
      new labor agreement effective through June
      30,
      2009.





Environmental
      Costs




Liabilities
      are recorded when
      environmental assessments are probable and the cost can be reasonably estimated.
      Generally, the timing of these accruals coincides with the earlier of completion
      of a feasibility study or our commitment to a plan of action based on the then
      known facts.





Revenue
      Recognition




We
      recognize revenue when the following
      criteria are met: persuasive evidence of an agreement exists, delivery has
      occurred, our price to the buyer is fixed and determinable, and collectability
      is reasonably assured. Delivery is not considered to have occurred until the
      customer takes title and assumes the risks and rewards of ownership. The timing
      of revenue recognition is largely dependent on shipping terms. Discounts and
      allowances reduce net sales and are comprised of trade allowances, cash
      discounts and sales returns.





F-12


Shipping
      and Handling
      Costs




Amounts
      related to shipping and handling
      which are billed to a customer in a sales transaction have been classified
      as
      revenue. Costs incurred for shipping and handling have been classified as costs
      of goods sold.





Repairs
      and Maintenance
      Costs





Repairs
      and maintenance costs are
      expensed as incurred.





Foreign
      Currency
      Translation




Management
      has determined that the local
      currency of our German, Canadian, and Brazilian subsidiaries is the functional
      currency, and accordingly European euro, Canadian dollar, and Brazilian real
      denominated balance sheet accounts are translated intoUnited Statesdollars
      at the rate of exchange in
      effect at fiscal year end. Income and expense activity for the period is
      translated at the weighted average exchange rate during the period. Translation
      adjustments are included as a separate component of stockholders'
      equity.




Transaction
      gains and losses that arise
      from exchange rate fluctuations on transactions denominated in a currency other
      than the local functional currency are included in “Other income (expense)” in
      the results of operations.  Transaction gains and (losses)
      of
      $396, $18and
      $(551)
      were recorded during the years ended
      June 30, 2008,
      2007and
      2006,
      respectively.The cumulative amount
      of
      Foreign Currency Translation adjustments included in Accumulated Other
      Comprehensive Income was $83,710 and $52,526 for fiscal years 2008 and 2007,
      respectively.





Use
      of Estimates




The
      preparation of the consolidated
      financial statements in conformity with accounting principles generally accepted
      in theUnited
      Statesrequires management
      to make estimates and assumptions that affect the amounts reported in the
      consolidated financial statements and accompanying notes.  Actual
      results could differ from the estimates and assumptions
      used.





Changes
      in estimates are recognized in
      accordance with the accounting rules for the estimate, which is typically in
      the
      period when new information becomes available to management. Areas where the
      nature of the estimate makes it reasonably possible that actual results could
      materially differ from amounts estimated include: impairment assessments on
      long-lived assets (including goodwill), allowance for doubtful accounts,
      inventory reserves, income tax liabilities, and contingent
      liabilities.





Earnings
      Per Share




Basic
      earnings per share has been
      computed based on the average number of common shares outstanding excluding
      restricted stock. Diluted earnings per share reflects the increase in average
      common shares outstanding that would result from the assumed exercise of
      outstanding stock options and restricted stock awards calculated using the
      treasury stock method.





Stock-Based
      Compensation




In
      December 2004, the Financial
      Accounting Standards Board (“FASB”) issued Statement of Financial Accounting
      Standard (“SFAS”) 123 (revised 2004),Share-Based
      Payments(“SFAS
      123(R)”).





On
      July 1, 2005 (the first day of our
      2006 fiscal year), we adopted SFAS 123(R) using a modified prospective
      application, as permitted. Accordingly, prior period amounts have not been
      restated. Under this application, we are required to record compensation expense
      for all share-based awards granted after the date of adoption and for the
      unvested portion of previously granted share-based awards that remain
      outstanding at the date of adoption.





F-13


On
      June 7, 2005, prior to our adoption
      of SFAS 123(R), the Compensation Committee of ourBoard of Directorsapproved
      the acceleration of vesting of
      out-of-the-money options with an exercise price greater than $8.32 to purchase
      shares of our common stock that remained unvested at June 30,
      2005.  The acceleration of vesting of these out-of-the-money options
      was undertaken primarily to eliminate any future compensation expense we would
      otherwise recognize in our income statement with respect to these options with
      the implementation of SFAS 123(R).  We estimate the compensation
      expense, before tax, which was avoided as a result of the acceleration, would
      have totaled approximately $4,900 (approximately $2,100 in 2006, $1,400 in
      2007,
      $800 in 2008 and $600 in 2009) based on fair value calculations using the
      Black-Scholes methodology.





Stock-based
      compensation expense was
      $914($575after
      tax and $0.01per
      share),$785($539after
      tax and $0.01 per share)and $561 ($365 after
      tax
      and $0.01 per share)for
      2008, 2007and
      2006, respectively.  Stock-based
      compensation is recorded in selling, research and administrative expenses on
      the
      consolidated statements of income.





NOTE
      2: RECENT ACCOUNTING
      PRONOUNCEMENTS





The
      FASB issued FASB Interpretation No.
      (“FIN”) 48, “Accounting for Uncertainty in Income Taxes,” on July 13,
      2006.We adopted
      the new ruleson
      July 1, 2007.FIN
      48 clarifies the accounting for
      income taxes by prescribing the minimum recognition threshold a tax position
      is
      required to meet before being recognized in the financial
      statements.  As a result of the adoption, we recorded an adjustment of
      approximately $878 to reduce the opening balance of retained
      earnings.  At adoption, our unrecognized tax benefits totaled
      $1,806.  Cumulative potential interest and penalties accrued related
      to unrecognized tax benefits at the date of adoption totaled $164.  We
      include interest and penalties related to income tax matters as a component
      of
      income before income taxes.  All unrecognized tax benefits at adoption
      would affect the effective tax rate, if recognized.  See Note 11 for
      further discussion of the implementation and impact of adoption of FIN
      48.





In
      September 2006, the FASB issued SFAS
      157,Fair
      Value
      Measurements(SFAS 157) and
      SFAS 158Employers
      Accounting
      for Defined Benefit Pension and Other Postretirement Plansan amendment of FASB
      Statements No. 87,
      88, 106 and 132(R) (SFAS 158). SFAS 157 provides enhanced guidance for using
      fair value measurements.  It establishes a framework for measuring
      fair value under GAAP and expands disclosures about fair value measurements.
      This statement is effective for financial statements issued for fiscal years
      beginning after November 15, 2007and for interim periods
      within those
      fiscal years.We are
      currently evaluating the provisions of SFAS 157.





Effective
      for fiscal year 2007, we
      adopted the disclosure provisions of SFAS No. 158.  SFAS No. 158
      requires that the funded status of defined-benefit postretirement plans be
      recognized in our consolidated balance sheet, with a corresponding adjustment
      to
      accumulated other comprehensive income, net of tax.  The adjustment to
      accumulated other comprehensive income at adoption represents the net
      unrecognized actuarial losses, unrecognized prior service costs, and
      unrecognized transition obligation remaining from the initial adoption of SFAS
      No. 106, all of which were previously netted against the plan’s funded status in
      our consolidated balance sheet pursuant to the provisions of SFAS No.
      106.  These amounts will be subsequently recognized as net periodic
      benefit cost.  Actuarial gains and losses that arise in subsequent
      periods and are not recognized as net periodic benefit cost in the same periods
      will be recognized as a component of other comprehensive
      income.  Those amounts will be subsequently recognized as a component
      of net periodic benefit cost on the same basis as the amounts recognized in
      accumulated other comprehensive income at adoption of SFAS No.
      158.  SFAS No. 158 also requires the measurement date of the plan’s
      funded status to be the same as our fiscal year end.  However, the
      measurement date provision is not required to be adopted until fiscal year
      2009and we are currently
      evaluating the effect this will have on our financial statements.  See Note 12 for further
      discussion of the implementation and impact of adoption of SFAS No.
      158.





In
      February 2007, the FASB issued SFAS
      No. 159,The
      Fair Value
      Option for Financial Assets and Financial Liabilities, including an amendment
      for SFAS 115
      (“SFAS 159”).  SFAS 159 permits all entities the option to measure
      most financial instruments and certain other items at fair value at specified
      election dates and to report related unrealized gains and losses in
      earnings.  The fair value option will generally be applied on an
      instrument-by-instrument basis and is generally an irrevocable
      election.  SFAS 159 is effective for fiscal years beginning after
      November 15, 2007.  We have evaluated the new statement and have
      determined that the adoption of SFAS 159 is not expected to have a material
      effect on our consolidated financial position, results of operation or cash
      flows.





InDecember2007,
      the FASB issued SFAS No.
      160,Noncontrolling
      Interests in Consolidated Financial Statements, including an amendment
      forARBNo.
      51(“SFAS 160”).  SFAS
      160amends
      ARB No. 51 to establish
      accounting and reporting standards for the noncontrolling interest in a
      subsidiary and for the deconsolidation of a subsidiary.  It clarifies
      that a noncontrolling interest in a subsidiary is an ownership interest in
      the
      consolidated entity that should be reported as equity in the consolidated
      financial statements.SFAS 160is
      effective for fiscal years beginningon orafterDecember15,
      2008 and for interim periods
      within those
      fiscal years.We
      have evaluated the new statement and
      have determined that the adoption of SFAS 160is
      not expected to have a material
      effect on our consolidated financial position, results of operation or cash
      flows.





InMarch2008,
      the FASB issued SFAS No. 161,Disclosures
      about
      Derivative Instruments and Hedging Activities,anamendmentofSFAS
      No. 133(“SFAS 161”).  SFAS
      161amends
      SFAS No. 133 to change the
      disclosure requirements for derivative instruments and hedging
      activities.  Entities are required to provide enhanced disclosures
      about how and why an entity uses derivative instruments, how derivative
      instruments and related hedged items are accounted for under SFAS No. 133 and
      its related interpretations, and how derivative instruments and related hedged
      items affect an entity’s financial position, financial performance, and cash
      flows.SFAS
      161is
      effective for fiscal years beginning
      afterNovember15,
      2008 and for interim periods
      within those
      fiscal years.  We
      are currently evaluating
      the provisions of SFAS 161.





InMay2008,
      the FASB issued SFAS No. 162,The
      Hierarchy of
      Generally Accepted Accounting Principles, (“SFAS 162”).SFAS
      162 identifies the sources
      of accounting
      principles and the framework for selecting the principles to be used in the
      preparation of financial statements of nongovernmental entities that are
      presented in conformity with generally accepted accounting principles (GAAP)
      in
      theUnited
      States.  SFAS No.
      162is effective60
      days after the SEC’s
      approval of the Public Company Accounting Oversight Board amendments to AU
      section 411.We
      have evaluated the new statement and have determined that the adoption of SFAS
      162is
      not expected to have a material
      effect on our consolidated financial position, results of operation or cash
      flows.





NOTE
      3: IMPAIRMENT OF LONG-LIVED ASSETS
      AND ASSETS HELD FORSALE




Lumberton,North
      CarolinaFacility




During
      fiscal year 2006, we began to
      actively market idled cotton linter pulping equipment at ourLumberton,North
      Carolinafacility which had a
      carrying value of
      $1,451.  Management determined that the classification as held for
      sale criteria in SFAS No. 144,Accounting
      for the
      Impairment or Disposal of Long-lived Assets(“SFAS 144”), had been
      met.  Accordingly, management evaluated its estimate of fair value
      less the cost to sell the assets and determined an impairment should be
      recognized for the equipment.  Current markets and third party
      interest for the equipment indicated we would not be able to recover the
      carrying value through the sales process.  Therefore, we wrote down
      the carrying value of the equipment to its fair value less costs to sell of
      $963
      and recorded an impairment charge of $488 during fiscal year 2006. Subsequent
      to
      this impairment, we sold the equipment for net proceeds of
      $963.





Glueckstadt,GermanyFacility





In
      January 2005, we announced our
      decision to discontinue producing cotton linter pulp at our Glueckstadt facility
      and we ceased production in December 2005.





During
      fiscal year 2006, we began to
      actively market the land and buildings, and the equipment which had carrying
      values of $1,600 and $496, respectively.  Management determined that
      the classification as held for sale criteria in SFAS 144 had been
      met.  Accordingly, management reevaluated its estimate of fair value
      less the cost to sell the assets and determined an additional impairment should
      be recognized for the land and buildings.  Current markets and third
      party interest for the land and buildings indicated we would not be able to
      recover the carrying value through the sales process.  Therefore, we
      wrote down the carrying value of the land and buildings to their fair value
      less
      costs to sell of $121 and recorded an impairment charge of $1,470during
      fiscal year
      2006.  Subsequent to this impairment, we sold the land and building
      for $127.  As of June 30, 2006, management re-evaluated its estimate
      of fair value less the cost to sell the remaining assets and determined an
      additional impairment should be recognized for equipment with a carrying value
      of $297.  Therefore, we wrote down the carrying value of the remaining
      equipment to its fair value less costs to sell of $165 and recorded an
      impairment charge of $132.





In
      September 2006, the remaining
      assets were sold for $520 and we recognized a net gain of $355 ($244 net of
      tax
      and $0.01 per share net of tax) during fiscal 2007.  The gain is
      presented under the “Gain on sale of assets held for sale” caption in the
      statement of operations.





F-14


NOTE
      4: RESTRUCTURING
      COSTS




The
      closure of the Glueckstadt facility
      resulted in the termination of 103 employees.  The restructuring
      expenses related to this closure were $6,593 of which $3,526 was expensed in
      fiscal 2006.





During
      fiscal 2007, we entered into a
      restructuring program that complements our operations’ consolidations and
      involves consolidation in our European sales offices, product and market
      development and corporate overhead.The
      total cost of this program
      was$1,358and
      wascompleted
      during the first quarter of
      the 2008 fiscal year.The remaining accrual
      of $116 will be
      paid in fiscal year 2009.As a result of this restructuring,
      22positions
      were eliminated.





Restructuring
      expenses are included in
“Restructuring costs” in our consolidated statements of income. The additional
      charges below reflect severance and employee benefits accrued over the retention
      period, and other miscellaneous expenses which are expensed as incurred. Accrual
      balances are included in “Accrued expenses” in the consolidated balance sheet.
      The following table summarizes the expenses and accrual balances by reporting
      segments for the year ended June 30, 2008.





Year
                Ended June 30,
                2008Accrual
              Balance
              as
                of
              June
                30,
              2007
            
            
            Additional
              Charges
            
            
            Impact
                of Foreign
                Currency
            
            Payments
            
            
            Accrual
              Balance
              as
                of
              June
                30,
              2008
            
            
            Program
              Charges
              to
                Date2007
                  Restructuring
                  ProgramSeverance
                and employee
                benefitsSpecialty
                  fibers
            
            $
            -
            
            $
            26
            
            $
            -
            $
            (26
            )
            $
            -
            
            $
            791Corporate
            
            
            199
            
            
            68
            
            
            -
            
            (267
            )
            
            -
            
            
            432OtherSpecialty
                fibers
            
            
            128
            
            
            2
            
            
            15
            
            (29
            )
            
            116
            
            
            135Total
                  2007
                  Program
            
            $
            327
            
            $
            96
            
            $
            15
            $
            (322
            )
            $
            116
            
            $
            1,358




NOTE
      5: INVENTORIES




Components
                of
                inventoriesJune
                302008
            
            2007Raw
                  materials
            
            $
            40,758
            
            $
            25,816Finished
                goods
            
            
            45,184
            
            
            39,335Storeroom
                  and other
                  supplies
            
            
            24,312
            
            
            21,626$
            110,254
            
            $
            86,777





NOTE
      6: PROPERTY, PLANT AND
      EQUIPMENT




Components
                of property, plant and
                equipmentJune
                302008
            
            2007Land
                  and land
                  improvements
            
            $
            17,746
            
            $
            16,745Buildings
            
            
            142,949
            
            
            136,568Machinery
                  and
                  equipment
            
            
            885,646
            
            
            832,854Construction
                in
                progress
            
            
            47,418
            
            
            30,1321,093,759
            
            
            1,016,299Accumulated
                depreciation
            
            
            (538,051
            )
            
            (478,644
            )$
            555,708
            
            $
            537,655





F-15


NOTE
      7: ACCRUED
      EXPENSES




Components
                of accrued
                expensesJune
                302008
            
            2007Income
                  taxes
            
            $
            5,088
            
            $
            7,172Interest
            
            
            6,695
            
            
            8,585Retirement
                  plans
            
            
            6,640
            
            
            6,351Salaries
                and incentive
                pay
            
            
            11,350
            
            
            8,080Customer
                  incentive
                  programs
            
            
            4,412
            
            
            3,760Vacation
                pay
            
            
            4,597
            
            
            4,723Other
            
            
            11,669
            
            
            10,861$
            50,451
            
            $
            49,532





NOTE
      8: DEBT




Components
                of long-term
                debtJune
                302008
            
            2007Senior
                Notes
                due:2013
            
            $
            200,000
            
            $
            200,000Senior
                Subordinated Notes
                due:2008
            
            
            -
            
            
            59,9482010
            
            
            115,830
            
            
            151,568Credit
                  Facilities
            
            
            78,080
            
            
            33,622$
            393,910
            
            $
            445,138




Senior
      Notes




During
      September 2003, we placed
      privately $200,000 in aggregate principal amount of 8.5% senior notes due
      October 1, 2013 (the “2013 Notes”). In fiscal year 2004, we exchanged these
      outstanding notes for public notes with the same terms.  The notes are
      unsecured obligations and are senior to any of our subordinated
      debt.  The notes are guaranteed by our direct and indirect domestic
      subsidiaries that are also guarantors on our senior secured indebtedness. The
      senior notes are redeemable at our option, in whole or part, at any time on
      or
      after October 1, 2008, at redemption prices varying from 104.25% of principal
      amount to 100% of principal amount on or after October 1, 2011, together with
      accrued and unpaid interest to the date of redemption.





Senior
      Subordinated
      Notes




During
      July 1996, we completed a public
      offering of $100,000 principal amount of 9.25% unsecured Senior Subordinated
      Notes due September 15, 2008 (the “2008 Notes”).  These notes have
      been redeemable at our option, in whole or in part, at any time since September
      15, 2004, at a redemption price of 100% of principal amount together with
      accrued and unpaid interest to the date of redemption.





During
      fiscal years2008,2007,
      and 2006we redeemed$60,000,
      $5,000, and$35,000,
      respectively,of the 2008 notes.As
      a result ofthe fiscal year 2008
      redemption, we wrote offthe
      remaining balanceof the deferred financing
      costs and
      unamortized discount related to2008 notes.  During
      fiscal years
      2008,
      2007and
      2006,
      we recorded non-cash expenses of
      $205,
      $26and
      $151,
      respectively,related
      to the early extinguishment of
      this debt.





During
      June 1998, we completed a private
      placement of $150,000 principal amount of 8% unsecured Senior Subordinated
      Notes
      due October 15, 2010(the
“2010 Notes”).In
      fiscal 1999, we exchanged these
      outstanding notes for public notes with the same terms.These
      notes have been redeemable at our
      option, in whole or in part, at any time since October 15, 2006, at a redemption
      price of 100% of principal amount together with accrued and unpaid interest
      to
      the date of redemption.





F-16


During
      fiscal year 2008, we redeemed
      $35,000 of the 2010 notes.  As a result of this redemption, we wrote
      off a portion of the deferred financing costs and unamortized discount related
      to the 2010 notes.During fiscal year 2008,
      we recorded non-cash expense of
      $240related
      to the early extinguishment of
      this debt.




Revolving
      Credit
      Facility





On
      July 25, 2007, we established a
      $200,000 senior secured revolving credit facility with a maturity date of July
      25, 2012.  This facility amendedand
      restatedthe
      Company'soldcredit
      facility.  Initially,
      we used the proceeds from this new credit facility to pay the outstanding
      balance on the former credit facility plus fees and expenses.  The
      interest rate applicable to borrowings under the revolver is the agent’s prime
      rate plus 0.25% to 1.00% or a LIBOR-based rate ranging from LIBOR plus 1.25%
      to
      LIBOR plus 2.00%.  We usedthe
      proceeds from this facility to
      redeem the remaining $60,000 of our 2008 notes, to redeem $20,000 of the 2010
      notes in mid-September 2007, and for general corporate purposes.  The
      credit facility is secured by substantially all of our assets located in theUnited States.





Thecredit
      facility contains covenants
      customary for financing of this type. The financial covenants include: maximum
      total leverage ratio of consolidated total debt to consolidated earnings before
      interest, taxes, depreciation and amortization (“EBITDA”), and minimum ratio of
      consolidated EBITDA to consolidated interest expense.  During fiscal
      year 2008 and at June 30,
      2008, we were in compliance
      with the financial covenants under our credit facility.




On
      June 30, 2008,
      we had $10,393of
      cash and cash equivalents andwe had$116,704borrowing
      capacity on our credit
      facility.The
      credit facility also contains a
      $50,000increase
      option.  The portion
      of this capacity that we could borrow on a particular date will depend on our
      financial results and ability to comply with certain borrowing conditions under
      the revolving credit facility.Our credit facility allows
      for a
      sublimit on letters of credit of $50,000.  As of June 30, 2008,
      $44,784 of the limit was unused.


The
      commitment fee on the unused portion
      of the revolving credit facility ranges from 0.25% to 0.40% per annum based
      on a
      grid related to our leverage ratio.  Total costs for the issuance of
      the facility were approximately $1,300andarebeingamortized
      to interest expense using the
      effective interest method over the life of the facility.During fiscal years 2008
      and
      2007, $178 and $806, respectively, was expensed as early extinguishment of
      debt
      related to the write-off of deferred financing costs for the term loan portion
      of the former credit facility.





Aggregate
      maturities of long-term debt
      for the next five fiscal years and beyond are as follows: 2009-$0,
      2010-$0,
      2011-$115,
      2012-$0,
      2013-$78and
      thereafter $200.  Terms
      of long-term debt
      agreements require compliance with certain covenants including interest coverage
      ratios, and limitations on restricted payments and levels of indebtedness.
      At
      June 30, 2008,
      the amount available for the payment
      of dividends and/or the acquisition of treasury stock was limited. Under our
      most restrictive debt agreements the amount available for the payment of
      dividends and/or the acquisition of treasury stock will depend on our financial
      results and ability to comply with certain conditions.




Interest
      Rate Swaps




In
      May 2001, we entered into an interest
      rate swap on $100,000 of 8% fixed rate notes maturing in October 2010. The
      swap
      converted interest payments from a fixed rate to a floating rate of LIBOR plus
      1.97%. This arrangement qualified as a fair value hedge under SFAS No. 133,Accounting
      for
      Derivative Instruments and Hedging Activities. As such, the net effect
      from the
      interest rate swap was recorded as part of interest expense. On October 15,
      2003, the swap counter party exercised its right to change the termination
      date
      of the swap from October 15, 2010 to October 15, 2003.  By exercising this
      right, the swap counter party paid us $4,000 as an early termination fee, which
      is being amortized as a reduction to interest expense through October 15, 2010.During fiscal year 2008,
      we
      accelerated a portion of the amortization of the termination fee that coincided
      with the redemption of the 2010 notes.At June 30, 2008and
      2007,the
      unamortized portion of the
      termination fee was recorded as an increase in debt of $1,004and
      $1,881,
      respectively. During the years ended
      June 30, 2008,
      2007and
      2006,
      the swap reduced our interest expense
      by
      $877, $571and
      $572,
      respectively,and
      will continue to reduce interest
      expense through the original termination date.





On
      September 17, 2007, we entered into
      an interest rate swap agreement for $30,000 of debt under our revolving credit
      facility maturing on September 17, 2009.  The swap involves the
      exchange of interest payments from a floating-rate three month LIBOR plus the
      applicable margin on the revolving credit facility to a fixed rate of 4.79%
      plus
      the same applicable margin.  This arrangement qualifies as a cash flow
      hedge under SFAS 133.  Therefore, the net effect from the interest
      rate swap is being recorded as part of interest expense.  During the
      fiscal year ended June 30, 2008, the swap increased our interest expense by
      $91.  On June 30, 2008 the swap was marked-to-market and is recorded
      in other liabilities on the balance sheet at $613.





F-17


Other





During
      fiscal year 2007, we reduced the
      amount recorded for Stac-PacTMpatents by $5,000 when
      we
      cancelled a contingent note to Stac-PacTMTechnologies Inc. that
      was
      issued in conjunction with the acquisition in 2000.  As a result of
      this cancellation, we reversed $1,867 of accrued interest related to this
      note.





Total
      cash interest payments for the
      years ended June 30,2008,
      2007 and 2006 was $35,615,
      $41,043and
      $44,303,
      respectively.




We
      had no off-balance sheet financing
      except for operating leases as disclosed in Note 9.





NOTE
      9: LEASES




Capital
      Leases




We
      entered into capital lease agreements
      for certain airlaid nonwovens plant equipment.  As of June 30,
      2008,
      the total cost of the assets covered
      by these agreements was $2,565and
      the accumulated depreciation on
      these assets was $531.
      At June 30, 2008,
      our future minimum lease payments,
      including interest totaling $12,
      for these assets were as
      follows:  2009—$369.Amortization
      of assets recorded under
      capital lease agreements is included in depreciation
      expense.




Operating
      Leases





We
      lease office and warehouse facilities
      and equipment under various operating leases. Operating lease expense was
      $2,401,
      $2,684and
      $2,940during
      the years ended June 30,
      2008,
      2007and
      2006,
      respectively.Theaggregatecommitments
      under the operating leases
      at June 30, 2008were
      as follows:
      2009—$1,947;
      2010—$1,420;
      2011—$681;2012—$448;2013—$29and
      thereafter—$0.





NOTE
      10: COMMON STOCKHOLDERS’
EQUITY




Stock
      Compensation
      Plans





In
      November 2007, the 2007 Omnibus
      Incentive Compensation Plan (the “2007 Plan”) was approved by the
      stockholders.  The following is a general description of certain
      features of the 2007 Plan.





The
      2007 Plan authorizes the grant of
      restricted stock or options to purchase shares of common stock as
      awards.  Options granted may be either “incentive stock options” as
      defined in Section 422 of the Code, or nonqualified stock options, as determined
      by the Compensation Committee of the Board of Directors (the “Compensation
      Committee”).





The
      aggregate number of shares of common
      stock initially available for awards under the 2007 Plan was
      3,500,000.  The 2007 Plan provides that the number of shares available
      for issuance is reduced by a factor of one and three-fourths (1.75) to one
      for
      each share issued pursuant to an award of restricted
      stock.  Accordingly, if the Compensation Committee granted all awards
      under the 2007 Plan in the form of restricted stock, the number of shares
      available for issuance would be 2,000,000.





Grants
      under the 2007 Plan are subject
      to terms and conditions determined by the Compensation Committee, are generally
      exercisable in increments of one-third per year beginning one year from the
      date
      of grant and expire ten years from the date of grant.  During fiscal
      year 2008, 320,951 options and 200,637 shares of restricted stock were granted
      under the 2007 Plan.  At June 30, 2008, 2,827,934 shares were
      available to grant under this plan.  Since our previous stock option
      plans expired during fiscal 2006, there were no options available for grant
      at
      June 30, 2007 or 2006, respectively.





In
      August 1997, theBoard of Directorsauthorized
      a restricted stock plan and
      set aside 800,000 treasury shares to fund this plan.  At June 30,
      2008,342,332restricted
      shares had been awarded since
      inception of thisplan.Under
      this plan,the vesting period is
      from the
      date of grant to the dateofthe
      recipient’s death or the recipient’s
      retirement from Buckeye.  Based on historic experience, the forfeiture
      rate used for employees whose vesting period is greater than 10 years is 15%
      and
      no forfeiture rate is applied for employees whose vesting period is less than
      10
      years.





Restricted
      stock may be voted by the
      recipient, however, the restricted stock may not be sold, pledged, or otherwise
      transferred before it is vested.





F-18


We
      use the Black-Scholes option-pricing
      model to calculate the fair value of options for determining our option related
      compensation expensewhich
      is recognized on a straight-line basis over the required service period of
      the
      award in the “selling, research and administrative expenses” caption of the
      consolidated statements of income.  The key assumptions for
      this valuation method include the expected life of the option, stock price
      volatility, risk-free interest rate, dividend yield and forfeiture
      rate.  Many of these assumptions are judgmental and highly sensitive
      in the determination of compensation expense.  Due to the expiration
      of the plans, no options were granted in fiscal year 2007.  The table
      below indicates the key assumptions used in the option valuation calculations
      for options granted during fiscal years 2008and
      2006and
      a discussion of our methodology for
      developing each of the assumptions used in the valuation
      model:




2008
            2006Expected
                  lives
            6.0years
            6.3yearsExpected
                volatility
            60%
            55%Risk-free
                  interest
                  rate
            3.3%
            4.4%Forfeiture
                rate
            10%
            11%




Expected
      Lives
      -This is the
      period of time over which the options granted are expected to remain
      outstanding. Options granted have a maximum term of ten
      years.   An increase in the expected life will increase
      compensation expense.





Expected
      Volatility
      -This is a
      measure of the amount by which a price has fluctuated or is expected to
      fluctuate. We use actual changes in the market value of our stock to calculate
      the volatility assumption. We calculate daily market value changes from the
      date
      of grant over a past period representative of the expected life of the options
      to determine volatility. An increase in the expected volatility will increase
      compensation expense.





Risk-Free
      Interest
      Rate -This is
      the U.S. Treasury rate for thedayof
      the grant having a term approximating
      the expected life of the option. An increase in the risk-free interest rate
      will
      increase compensation expense.





Dividend
      Yield
      -We did not
      make any dividend payments during the last five fiscal years and we have no
      plans to pay dividends in the foreseeable future.  An increase in the
      dividend yield will decrease compensation expense.





Forfeiture
      Rate -This is the estimated
      percentage of options granted that are expected to be forfeited or canceled
      before becoming fully vested.  An increase in the forfeiture rate will
      decrease compensation expense.  The forfeiture rate is based on our
      historic forfeiture experienceand is only applied to
      grants to
      employees who are not officers of Buckeye.  No forfeiture rate is
      applied to grants to our officers.





Restricted
      stock under the 2007 Plan is
      recognized as compensation expense on a straight-line basis over the three
      year
      vesting period.  Restricted stock under the restricted stock plan is
      recognized as compensation expense on a straight line basis from the date of
      grant to the date each recipient reaches age 62.The weighted-average
      fair value of
      restricted stock awards is the closing price of the common stock on the New
      York
      Stock Exchange on the date of the grant.





The
      following table summarizes
      information about our stock option plans for the years ended June
      30:




2008
            
            2007
            
            2006Shares
            
            Weighted-
              Average
              Exercise
              Price
            
            Shares
            
            Weighted-
              Average
              Exercise
              Price
            
            Shares
            
            Weighted-
              Average
              Exercise
              PriceOutstanding
                  at beginning of
                  year
            
            
            3,005,850
            
            $
            14.06
            
            
            4,240,400
            
            $
            13.34
            
            
            4,765,150
            
            $
            13.57Granted
                at
                market
            
            
            320,951
            
            
            9.03
            
            
            -
            
            
            -
            
            
            358,000
            
            
            7.64Exercised
            
            
            (415,650
            )
            
            13.76
            
            
            (938,950
            )
            
            10.61
            
            
            (73,500
            )
            
            7.47Forfeited
            
            
            (3,200
            )
            
            7.62
            
            
            (29,600
            )
            
            7.62
            
            
            (4,000
            )
            
            7.62Expired
            
            
            (953,800
            )
            
            17.75
            
            
            (266,000
            )
            
            15.50
            
            
            (805,250
            )
            
            12.75Outstanding
                at end of
                year
            
            
            1,954,151
            
            $
            11.51
            
            
            3,005,850
            
            $
            14.06
            
            
            4,240,400
            
            $
            13.34Exercisable
                  at end of
                  year
            
            
            1,491,600
            
            $
            12.41
            
            
            2,807,050
            
            $
            14.52
            
            
            3,854,800
            
            $
            13.91








F-19


The
      total intrinsic value of options
      exercised during fiscal years 2008, 2007 and 2006 was $1,423, $3,203, and $108,
      respectively.  The fair value of options vested during fiscal years
      2008, 2007 and 2006 was $258, $1,205, and $1, respectively.  The fair
      value of options nonvested at June 30, 2008 and 2007 was $2,333 and $902,
      respectively.Using the Black-Scholes
      valuation method
      calculated under the assumptions indicated above, the weighted-average fair
      value of the grants at market was$5.26 per option in 2008
      and$4.37per
      option in 2006.  No
      options were granted during fiscal year 2007.  As of June 30,
      2008,
      the total future compensation cost
      related to non-vested stock option grants was $2,010 and will be recognizedover a weighted average
      period of2.6years.  The
      aggregate
      intrinsic value of vested options outstanding, defined as the excess fair value
      over the exercise price of the options, at June 30, 2008was
      $281.







The
      following summary provides
      information about stock options outstanding and exercisable at June 30,
      2008:




Outstanding
            
            ExercisableExercise
                Price
            
            Options
            
            Average
                Exercise
                Price
            
            Average
                Remaining Life
                (Years)
            
            Options
            
            Average
                Exercise
                Price$
                  6.50-$12.00
            
            
            1,400,551
            
            $
            9.72
            
            
            6.1
            
            
            938,000
            
            $
            10.27$12.01-$18.00
            
            
            513,600
            
            
            15.42
            
            
            1.2
            
            
            513,600
            
            
            15.42$18.01-$24.00
            
            
            40,000
            
            
            24.00
            
            
            2.2
            
            
            40,000
            
            
            24.00Total
            
            
            1,954,151
            
            $
            11.51
            
            
            4.7
            
            
            1,491,600
            
            $
            12.41





Stock
      options that could potentially
      dilute basic earnings per share in the future, which were not included in the
      fully diluted computation because the grant prices were greater than the average
      market price of common shares for the period, were
      1,827,571,1,649,000and
      4,411,466for
      the years ended June 30,
      2008,
      2007and
      2006,
      respectively.




Restricted
      Stock




The
      following table summarizes
      information about our restricted stock for the years ended June
      30:




2008
            
            2007
            
            2006Shares
            
            Weighted-
              Average
              Price
            
            Shares
            
            Weighted-
              Average
              Price
            
            Shares
            
            Weighted-
              Average
              PriceNonvested
                  at beginning of
                  year
            
            
            262,792
            
            $
            7.73
            
            
            291,610
            
            $
            8.23
            
            
            51,440
            
            $
            12.49Granted
                at
                market
            
            
            205,045
            
            
            9.23
            
            
            5,398
            
            
            11.95
            
            
            240,170
            
            
            7.31Vested
            
            
            -
            
            
            -
            
            
            (34,216
            )
            
            (12.61
            )
            
            -
            
            
            -Forfeited
            
            
            (6,000
            )
            
            7.27
            
            
            -
            
            
            -
            
            
            -
            
            
            -Nonvested
                  at end of
                  year
            
            
            461,837
            
            $
            8.40
            
            
            262,792
            
            $
            7.73
            
            
            291,610
            
            $
            8.23





As
      of June 30, 2008,
      the total future compensation cost
      related to non-vested restricted stock awards was $2,706 and will be recognizedover a weighted average
      period of5.5years.




Treasury
      Shares




On
      August 8, 2008 theBoard
      of Directorsauthorized the repurchase
      of5,000,000 shares of common
      stock in addition to the6,000,000 shares of common
      stockpreviously
      authorized.Repurchased
      shares will be held as
      treasury stock and will be available for general corporate purposes, including
      the funding of employee benefit and stock-related plans.During
      fiscal year 2008, were
      purchased300,000shares
      of our common stockat a total cost of $2,720.At
      June 30, 2008, atotal of5,309,300shares
      have been
      repurchased.




F-20


NOTE
      11: INCOME
      TAXES




The
      components of income (loss) before
      income taxes were taxed under the following jurisdictions:




Year
                Ended June
                302008
            
            2007
            
            2006Domestic
            
            $
            60,059
            
            $
            42,421
            
            $
            2,505Foreign
            
            
            7,246
            
            
            1,417
            
            
            (1,821
            )Income
                before income
                taxes
            
            $
            67,305
            
            $
            43,838
            
            $
            684





Income
      tax expense
      (benefit):





Year
                Ended June
                302008
            
            2007
            
            2006Current
                tax
                expense:Federal
            
            $
            2,206
            
            $
            827
            
            $
            435Foreign
            
            
            5,082
            
            
            5,915
            
            
            4,458State
                  and
                  other
            
            
            926
            
            
            52
            
            
            (120
            )Current
                tax
                expense
            
            
            8,214
            
            
            6,794
            
            
            4,773Deferred
                tax expense
                (benefit):Federal
            
            
            16,672
            
            
            11,402
            
            
            (2,133
            )Foreign
            
            
            (5,674)
            
            
            (2,057
            )
            
            (2,048
            )State
                  and
                  other
            
            
            991
            
            
            (2,394
            )
            
            (1,381
            )Deferred
                tax
                expense
            
            
            11,989
            
            
            6,951
            
            
            (5,562
            )Noncurrent
            
            
            -
            
            
            (25
            )
            
            (507
            )Income
                tax expense
                (benefit)
            
            $
            20,203
            
            $
            13,720
            
            $
            (1,296
            )





Noncurrent
      tax relates primarily to
      matters not resolved with various taxing authorities.





The
      difference between reported income
      tax expense (benefit) and a tax determined by applying the applicableU.S.federal
      statutory income tax rate to
      income before income taxes is reconciled as follows:




Year
                Ended June
                302008
            
            2007
            
            2006Expected
                  tax
                  expense
            
            $
            23,557
            
            
            35.0
            %
            $
            15,343
            
            
            35.0
            %
            $
            239
            
            
            35.0
            %Extraterritorial
                income
                exclusion
            
            
            -
            
            
            -
            
            
            (425
            )
            
            (1.0
            )
            
            (1,542
            )
            
            (225.4
            )Effect
                  of foreign
                  operations
            
            
            (2,745
            )
            
            (4.1
            )
            
            (111
            )
            
            (0.3
            )
            
            (681
            )
            
            (99.6
            )Change
                in tax
                reserves
            
            
            -
            
            
            -
            
            
            (25
            )
            
            (0.1
            )
            
            362
            
            
            52.9Research
&
development
                  tax
                  credit
            
            
            (1,407
            )
            
            (2.1
            )
            
            -
            
            
            -
            
            
            -
            
            
            -Change
                  in valuation
                  allowances
            
            
            (501
            )
            
            (0.7
            )
            
            114
            
            
            0.3
            
            
            3,842
            
            
            561.7Adjustment
                of prior year
                provisionestimates
            
            
            (234
            )
            
            (0.4
            )
            
            (1,535
            )
            
            (3.5
            )
            
            (1,711
            )
            
            (250.1
            )State
                taxes and other,
                net
            
            
            1,533
            
            
            2.3
            
            
            359
            
            
            0.9
            
            
            (1,805
            )
            
            (263.9
            )Income
                  tax expense
                  (benefit)
            
            $
            20,203
            
            
            30.0
            %
            $
            13,720
            
            
            31.3
            %
            $
            (1,296
            )
            
            (189.4
            )%





During
      fiscal year 2008, we decreasedour
      valuation allowance related to
      deferred tax assets for net operating losses of theAmericana,Braziloperations
      by $501 due to tax planning
      associated with intercompany interest charges offsetting the operating
      losses.During
      fiscal year 2007, we increased
      our valuation allowance related to deferred tax assets for net operating losses
      of theAmericana,Braziloperations
      by $2,482.  This
      was almost entirely offset by a reduction of valuation allowances in the amount
      of $2,481 related to certain state net operating losses and tax credits due
      to
      tax planning efforts.The increase in our valuation
      allowance
      in fiscal year 2006 was primarily due to the allowance for losses of theAmericana,Braziloperation.





F-21


Effective
      June 22, 2006, many of the tax
      measures introduced in the 2006 Canadian Federal budget were passed into
      law.  Included in the budget was a reduction in the general corporate
      tax rate to 20.5% for 2008, 20% for 2009, and 19% for 2010 and later
      years.  As a result, the company remeasured its Canadian deferred tax
      balances based on the reversal pattern of our temporary differences, resulting
      in a $791 net tax benefitin
      fiscal 2006.Effective
      December 2007,
      Canada enacted Canada Bill C-28 which further reduced its Canadian corporate
      tax
      rates to 19.5% for 2008, 19% for 2009, 18% for 2010, 16.5% for 2011 and 15%
      for
      2012 and later years.  This further reduction in corporate rates
      resulted in an additional remeasurement of Canadian deferred tax balances with
      a
      net tax benefit of $165 in fiscal 2008.  Furthermore, changes in
      estimates and tax planning resulted in a net tax benefit of $438 in fiscal
      2008
      related to utilization of Canadian net operating loss
      carryforwards.





Effective
      July 2007, Germany reduced its
      tax rates resulting in a $2,245 net tax benefit for fiscal 2008 related to
      remeasurement of German deferred tax liabilities based on reversal of temporary
      differences.





On
      July 1, 2007, we adopted the
      provisions of FASB Interpretation No. (“FIN”) 48, “Accounting
      for
      Uncertainty in Income Taxes.”FIN 48 clarifies the
      accounting for
      income taxes by prescribing the minimum recognition threshold a tax position
      is
      required to meet before being recognized in the financial
      statements.  As a result of the adoption, we recorded an adjustment of
      $878 to reduce retained earnings at July 1, 2007.  At adoption and
      June 30, 2008, our unrecognized tax benefits totaled $1,806 and cumulative
      potential interest and penalties accrued related to unrecognized tax benefits
      totaled $164.  We include interest and penalties related to income tax
      matters as a component of income before income taxes.  All
      unrecognized tax benefits at adoption would affect the effective tax rate,
      if
      recognized.





We
      file income tax returns with federal,
      state, local and foreign jurisdictions.  As of June 30, 2008, we
      remained subject to examinations of our U.S. federal and state income tax
      returns for the years ended June 30, 2002 through June 30, 2008, Canadian income
      tax returns for the years ended June 30, 2002 through June 30, 2008 and German
      tax filings for the years ended June 30, 2003 through June 30,
      2008.





The
      tax effects of temporary differences
      that give rise to significant portions of the deferred tax assets (liabilities)
      are as follows:




June
                302008
            
            2007Deferred
                tax
                liabilities:Property,
                  plant and
                  equipment
            
            $
            (75,320
            )
            $
            (85,838
            )Inventory
            
            
            (185
            )
            
            (2,290
            )Other
            
            
            (19,251
            )
            
            (16,874
            )Total
                deferred tax
                liabilities
            
            
            (94,756
            )
            
            (105,002
            )Deferred
                tax
                assets:Postretirement
                  benefits
            
            
            9,155
            
            
            8,899Net
                  operating
                  losses
            
            
            27,270
            
            
            53,733Nondeductible
                reserves
            
            
            2,001
            
            
            2,204Credit
                  carryforwards
            
            
            12,912
            
            
            11,979Other
            
            
            4,668
            
            
            2,776Total
                  deferred tax
                  assets
            
            
            56,006
            
            
            79,591Valuation
                allowances
            
            
            (13,401
            )
            
            (11,720
            )Deferred
                  tax assets, net of
                  valuation allowances
            
            
            42,605
            
            
            67,871Net
                deferred tax
                liability
            
            $
            (52,151
            )
            $
            (37,131
            )





The
      valuation allowances at June
      30, 2008 and
      2007 relate specifically tonet operating losses
      in certain state
      and foreign jurisdictions. Based on the future reversal of deferred tax
      liabilities and the actions management has taken and will continue to take
      to
      improve financial performance, management believes it is more likely than not
      that the net deferred taxassets recorded at June
      30, 2008will be fully utilized
      after consideration of the valuation allowance recorded.




Taxes
      paid in fiscal 2008 and fiscal
      2007 were $10,077 and $2,162, respectively.  We paid nocash taxes during
      fiscal 2006.





F-22


At
      June 30, 2008, foreign net operating
      loss
      carryforwards total
      approximately $69,414.  Of this total,$47,324hasno
      expiration dateand $22,090 have expiration
      dates from
      2010 to 2028.  All federalnet
      operating loss carryforwards were
      utilized during 2008.State
      net operating loss carryforwards
      total
      $111,797
      and expire between 2018 and 2028.
      Additionally, at June 30, 2008, we have a minimum
      tax carryforward of $8,083which has an indefinite
      life and general business creditsof $4,272which
      will expire between 2021
      and
      2028.State
      tax credits of $557
      are recorded and are expected to be utilized over the next few
      years.





NOTE
      12: EMPLOYEE BENEFIT
      PLANS




Defined
      Contribution
      Plans




We
      have defined contribution retirement
      plans covering certainU.S.employees.  We
      contribute 1%
      of the employee's gross compensation plus 1/2% for each year of service up
      to a
      maximum of 11% of the employee's gross compensation.We
      match employees’ voluntary
      contributions to their retirement accounts up to the lesser of $2,000 per year
      or 2% of their eligible gross earnings.  Contribution expense for the
      retirement plans for the years ended June 30, 2008, 2007 and 2006
      was
      $7,870, $7,388and
      $7,153,
      respectively.




Postretirement
      Healthcare
      Plans




We
      also provide medical, dental, and
      life insurance postretirement plans covering certainU.S.employees
      who meet specified age and
      service requirements. Certain employees who met specified age and service
      requirements on March 15, 1993 are covered by their previous employer and are
      not covered by these plans. Our current policy is to fund the cost of these
      benefits as payments to participants are required. We have established cost
      maximums to more effectively control future medical costs. Effective July 1,
      2002, we amended our postretirement medical plan to, among other things, reduce
      the level of cost maximums per eligible employee. Effective January 1, 2006,
      Medicare eligible retirees age 65 or older will not continue coverage under
      the
      self-funded plan. Instead,they
      are provided a subsidy
      towards the purchase of supplemental insurance. This amendment reduced the
      accumulated postretirement benefit obligation by $4,089.  The benefit
      obligation reduction is being amortized over 7.75 years.





Effective
      for fiscal year 2007, we
      adopted the disclosure provisions of SFAS No. 158.  SFAS No. 158
      requires that the funded status of defined-benefit postretirement plans be
      recognized in our consolidated balance sheet, with a corresponding adjustment
      to
      accumulated other comprehensive income, net of tax.  The adjustment to
      accumulated other comprehensive income at adoption represents the net
      unrecognized actuarial losses, unrecognized prior service credits,
      and unrecognized transition obligation
      remaining from the initial adoption of SFAS No. 106, all of which were
      previously netted against the plan’s funded status in our consolidated balance
      sheet pursuant to the provisions of SFAS No. 106.  These amounts will
      be subsequently recognized as net periodic benefit cost.  Actuarial
      gains and losses that arise in subsequent periods and are not recognized as
      net
      periodic benefit cost in the same periods will be recognized as a component
      of
      other comprehensive income.  Those amounts will be subsequently
      recognized as a component of net periodic benefit cost on the same basis as
      the
      amounts recognized in accumulated other comprehensive income at adoption of
      SFAS
      No. 158.  SFAS No. 158 also requires the measurement date of the
      plan’s funded status to be the same as our fiscal year end.  However,
      the measurement date provision is not required to be adopted until fiscal year
      2009.





The
      adoption of the disclosure
      provisions of SFAS No. 158 resulted in an increase in accrued postretirement
      benefits of $4,817, an increase in deferred tax assets of $1,782 and a decrease
      in accumulated other comprehensive income of $3,035.  The adoption of
      SFAS No. 158 had no effect on our consolidated statement of income for the
      year
      ended June 30, 2007or
      for any prior period
      presented, and it will not affect our operating results in future
      periods.





The
      components of net periodic benefit costs are as follows:




Year
                Ended June
                302008
            
            2007
            
            2006Service
                  cost for benefits
                  earned
            
            $
            604
            
            $
            598
            
            $
            629Interest
                cost on benefit
                obligation
            
            
            1,401
            
            
            1,408
            
            
            1,258Amortization
                  of prior service
                  credit
            
            
            (1,002
            )
            
            (1,002
            )
            
            (1,055
            )Amortization
                of actuarial
                loss
            
            
            583
            
            
            567
            
            
            597Total
                  cost
            
            $
            1,586
            
            $
            1,571
            
            $
            1,429





F-23


The
      following table provides a
      reconciliation of the changes in the plans’ benefit obligations over the
      two-year period ending June 30, 2008,
      and a statement of the plans’ funded
      status as of June 30, 2008and
      2007.  The amount included below
      entitled “other plans” represents benefit obligations for certain current and
      former employees of one of our German subsidiaries.




June
                302008
            
            2007Change
                in benefit
                obligation:Obligation
                  at
                  beginning of year
            
            $
            24,564
            
            $
            22,459Service
                cost
            
            
            604
            
            
            598Interest
                  cost
            
            
            1,401
            
            
            1,408Participant
                contributions
            
            
            684
            
            
            565Actuarial
                  loss (gain)
            
            
            (1,637
            )
            
            1,289Benefits
                paid
            
            
            (1,918
            )
            
            (1,755
            )Obligation
                  at end of
                  year
            
            
            23,698
            
            
            24,564Change
                in plan
                assets:Fair
                  value of plan
                  assets at beginning of year
            
            
            -
            
            
            -Employer
                contributions
            
            
            1,234
            
            
            1,190Plan
                  participant contributions
            
            
            684
            
            
            565Benefits
                paid
            
            
            (1,918
            )
            
            (1,755
            )Fair
                  value of plan
                  assets at end of year
            
            
            -
            
            
            -Funded
                status at end of
                year
            
            
            (23,698
            )
            
            (24,564
            )Otherplans
            
            
            (2,020
            )
            
            (1,687
            )Accrued
                post retirement benefit
                obligation
            
            
            (25,718
            )
            
            (26,251
            )Less
                  current portion included in
                  accrued expenses
            
            
            1,850
            
            
            1,742Noncurrent
                obligation recognized
                in the consolidated balance sheet
            
            $
            (23,868
            )
            $
            (24,509
            )




As
      a result of the adoption of SFAS No.
      158 on June 30, 2007, the accrued benefit obligation recorded on the
      consolidated balance sheet at June 30, 2008 and 2007
      reflects the accumulated benefit
      obligation less any portion that is currently funded.  The accumulated
      actuarial loss and prior service cost that had not yet been reflected in the
      net
      periodic benefit costs were included in accumulated other comprehensive income
      at June 30 as follows:





June
                  302008
            
            2007Prior
                  service credit
            
            $
            3,545
            
            $
            4,548Accumulated
                actuarial
                loss
            
            
            (7,145
            )
            
            (9,365
            )Accumulated
                  other comprehensive
                  income
            
            
            (3,600
            )
            
            (4,817
            )Tax
                effect
            
            
            1,332
            
            
            1,782Accumulated
                  other comprehensive
                  income, net of tax
            
            $
            (2,268
            )
            $
            (3,035
            )





The
      prior service creditand
      accumulated actuarial loss included
      in other comprehensive income and expected to be recognized in net periodic
      benefit cost duringthefiscal
      yearended
      June 30, 2009is
      $1,002,
      ($631net
      of tax) and $399($249net
      of tax),
      respectively.





Expected
      annual benefit payments are as
      follows: 2009-
      $1,850;
      2010-
      $1,838;
      2011 - $1,837; 2012 -
      $1,800;2013-
      $1,836; and 2014 to 2018
      -
      $10,117.Expected
      employer
      contributions for fiscal year 2009 are approximately $1,060.




The
      weighted average assumptions used to
      determine benefit obligations were as follows:





2008
            
            
            2007Discount
                  rate
            
            6.40%
            
            
            5.90%Measurement
                date
            
            April
                30,
                2008
            
            
            April
                30,
                2007




The
      weighted average assumptions used to
      determine net periodic benefit cost were as follows:





2008
            
            2007
            
            2006Discount
                  rate
            
            
            5.90%
            
            
            6.25%
            
            
            5.75%Measurement
                date
            
            
            April
                30,
                2007
            
            
            April
                30, 2006
            
            
            April
                30, 2005





During
      fiscal year ended June 30, 2008,
      our net employer cost reached the net employer cost cap.  Therefore no
      assumption has been made for a rate increase in the per capita cost of covered
      benefits.  In fiscal year 2007, the weighted average annual
      assumed rate
      of increase in the per capita cost of covered benefits (i.e. health care cost
      trend rate) for the medical planswas9.0%.The
      health care cost trend rate
      assumption does not have a significant effect on the amounts
      reported.





We
      use currently available high quality
      long-term corporate bond indices to determine the appropriate discount rate.
      Due
      to the long-term nature of these indexes, they have a similar maturity to
      expected benefit payments.




The
      Medicare Modernization Act provided
      prescription drug benefits to Medicare eligible participants effective January
      1, 2006. Since our plan only provides a subsidy toward supplemental Medicare
      insurance coverage, there is no impact on our plan as a result of the Medicare
      Modernization Act.





NOTE
      13: SIGNIFICANT
      CUSTOMER




Net
      sales to The Procter & Gamble
      Company and its affiliates for the years ended June 30, 2008,
      2007and
      2006were10%,
      12%
      and 13%,
      respectively, of total net
      sales.Specialty
      fibers accounted for
      66%,38%
      and40%
      of these sales in fiscal years
      2008,
      2007and
      2006,
      respectively.  The remainder
      of these sales were derived from thenonwoven materialssegment.





NOTE
      14: SEGMENT
      INFORMATION




We
      report results for two segments,
      specialty fibers and nonwoven materials. The specialty fiberssegmentconsists
      of our chemical cellulose,
      customized fibers and fluff pulp product lines which are cellulosic fibers
      based
      on both wood and cotton.
      Management makes financial decisions and allocates resources based on the sales
      and operating income of each segment. We allocate selling, research, and
      administration expenses to each segment and management uses the resulting
      operating income to measure the performance of the segments. The financial
      information attributed to these segments is included in the following
      table:





Specialty
              Fibers
            
            Nonwoven
              Materials
            
            Corporate
            
            TotalNet
                  sales
            
            
            2008
            
            $
            595,782
            
            $
            263,551
            
            $
            (33,816
            )
            $
            825,5172007
            
            
            543,831
            
            
            258,843
            
            
            (33,353
            )
            
            769,3212006
            
            
            515,855
            
            
            240,873
            
            
            (28,243
            )
            
            728,485Operating
                income
                (loss)
            
            
            2008
            
            
            90,640
            
            
            15,300
            
            
            (5,607
            )
            
            100,3332007
            
            
            65,847
            
            
            22,210
            
            
            (6,846
            )
            
            81,2112006
            
            
            36,683
            
            
            16,284
            
            
            (8,547
            )
            
            44,420Depreciation
                  and amortization of
                  intangibles
            
            
            2008
            
            
            33,168
            
            
            16,134
            
            
            3,425
            
            
            52,7272007
            
            
            31,770
            
            
            16,047
            
            
            3,775
            
            
            51,5922006
            
            
            29,945
            
            
            15,835
            
            
            3,398
            
            
            49,178Total
                assets
            
            
            2008
            
            
            525,147
            
            
            279,688
            
            
            204,390
            
            
            1,009,2252007
            
            
            479,121
            
            
            270,168
            
            
            202,533
            
            
            951,8222006
            
            
            472,559
            
            
            276,589
            
            
            199,065
            
            
            948,213Capital
                  expenditures
            
            
            2008
            
            
            42,347
            
            
            4,855
            
            
            1,995
            
            
            49,1972007
            
            
            36,614
            
            
            4,316
            
            
            4,270
            
            
            45,2002006
            
            
            42,410
            
            
            1,939
            
            
            1,242
            
            
            45,591





The
      accounting policies of the segments
      are the same as those described in the summary of significant accounting
      policies.  Management evaluates operating performance of the specialty
      fibers and nonwoven materials segments, excluding amortization of intangibles,
      the impact of impairment of long-lived assets,charges
      related to
      restructuring, unallocated
      at-risk compensation and unallocated stock-based compensation for executive
      officers and certain other employees.Therefore, the corporate
      segment includes operating elements such as segment eliminations, amortization
      of intangibles, impairment of long-lived assets,charges
      related to
      restructuring, unallocated
      at-risk compensation and unallocated stock-based compensation for executive
      officers and certain other employees.We
      have reclassified the at-risk
      compensation and stock based compensation from the specialty fibers and
      nonwovens segments for fiscal years 2007 and 2006 for
      comparability.Corporate net sales represents
      the
      elimination of intersegment sales included in the specialty fibers reporting
      segment.  We account for intersegment sales as if the sales were to
      third parties, that is, at current market prices.  Certain partially
      impaired assets are included in the total assets for the reporting segments,
      but
      the associated asset impairment charges are included in the corporate
      category.  These asset impairment charges and the segments they relate
      to are discussed further in Note 3.  Corporate assets primarily
      include cash, goodwill and intellectual property.




F-24


Our
      identifiable product lines are
      chemical cellulose, customized fibers, fluff pulp and nonwoven
      materials.  Chemical cellulose is used to impart purity, strength and
      viscosity in the manufacture of diverse products such as food casings, cigarette
      filters, rayon filament, acetate fibers, thickeners for consumer products,
      cosmetics and pharmaceuticals.  Customized fibers are used to provide
      porosity, color permanence, strength and tear resistance in filters, premium
      letterhead, currency paper and personal stationery as well as absorbency and
      softness in cotton balls and cotton swabs.  Fluff pulp and nonwoven
      materials are used to increase absorbency and fluid transport in products such
      as disposable diapers, feminine hygiene products and adult incontinence
      products. Additionally, nonwoven materials are used to enhance fluid management
      and strength in wipes, tabletop items, food pads, household wipes and
      mops.  The following provides relative net sales to unaffiliated
      customers by product line:





Year
                Ended June
                302008
            
            2007
            
            2006Chemical
                  cellulose
            
            
            32
            %
            
            33
            %
            
            32
            %Customized
                fibers
            
            
            17
            %
            
            16
            %
            
            17
            %Fluff
                  pulp
            
            
            19
            %
            
            18
            %
            
            18
            %Nonwoven
                materials
            
            
            32
            %
            
            33
            %
            
            33
            %100
            %
            
            100
            %
            
            100
            %




We
      are domiciled in theUnited Statesand
      have manufacturing operations in theUnited States,Canada,GermanyandBrazil.  The
      following provides a
      summary of net sales to unaffiliated customers, based on point of origin,
      long-lived assets by geographic areas and net sales by point of
      destination:




Year
                Ended June
                30Net
                sales by point of
                origin:
            
            2008
            
            2007
            
            2006United
                  States
            
            $
            624,741
            
            
            76
            %
            $
            578,047
            
            
            75
            %
            $
            539,233
            
            
            74
            %Germany
            
            
            110,077
            
            
            13
            
            
            104,031
            
            
            14
            
            
            120,970
            
            
            17Other
            
            
            90,699
            
            
            11
            
            
            87,243
            
            
            11
            
            
            68,282
            
            
            9Total
            
            $
            825,517
            
            
            100
            %
            $
            769,321
            
            
            100
            %
            $
            728,485
            
            
            100
            %








Year
                Ended June
                30Net
                sales by point of
                destination:
            
            2008
            
            2007
            
            2006North
                  America
            
            $
            346,717
            
            
            42
            %
            $
            332,825
            
            
            43
            %
            $
            302,527
            
            
            42
            %Europe
            
            
            305,441
            
            
            37
            
            
            288,754
            
            
            38
            
            
            274,157
            
            
            38Asia
            
            
            90,807
            
            
            11
            
            
            71,967
            
            
            9
            
            
            76,851
            
            
            10South
                America
            
            
            33,021
            
            
            4
            
            
            28,072
            
            
            4
            
            
            25,865
            
            
            4Other
            
            
            49,531
            
            
            6
            
            
            47,703
            
            
            6
            
            
            49,085
            
            
            6Total
            
            $
            825,517
            
            
            100
            %
            $
            769,321
            
            
            100
            %
            $
            728,485
            
            
            100
            %





As
                of June
                302008
            
            2007
            
            2006Long-lived
                assets by geographical
                area:United
                  States
            
            $
            463,768
            
            $
            458,421
            
            $
            464,637Canada
            
            
            140,476
            
            
            137,911
            
            
            134,102Germany
            
            
            57,878
            
            
            53,596
            
            
            54,658Brazil
            
            
            87,368
            
            
            73,970
            
            
            66,195Other
            
            
            37
            
            
            40
            
            
            89Total
                long-lived
                assets
            
            $
            749,527
            
            $
            723,938
            
            $
            719,681





NOTE
      15: RESEARCH AND DEVELOPMENT
      EXPENSES




Research
      and development costs of
      $8,194,
      $8,316and
      $9,182were
      charged to expense as incurred for
      the years ended June 30, 2008,
      2007and
      2006,
      respectively.





F-25


NOTE
      16: COMMITMENTS




We
      have significant purchase contracts
      for both timber and energy under separate agreements expiring at various dates
      through fiscal year 2014.  Under two separate timber contracts we are
      required to purchase certain timber from specified tracts of land that is
      available for harvest.  The energy contract is for ourAmericana,Braziloperation
      and requires us to purchase a
      minimum amount of contracted energy each year.  The contract prices
      under the terms of thetimberagreements
      are fixed annually based on
      market pricesand the
      contract prices under the energy contract are adjusted annually based on
      inflation indices.  At June 30, 2008,
      total estimated annual purchase
      obligations for those agreements noted above were as
      follows:  2009—$16,359;
      2010—$13,917;
      2011—$8,475;
      2012—$2,950;
      2013—$2,950;
      thereafter—$1,475.  Purchases
      under these
      agreements for the years ended June 30, 2008,
      2007and
      2006 were $16,743,$11,988and
      $12,978,
      respectively.





NOTE
      17:
      CONTINGENCIES




Our
      operations are subject to extensive
      general and industry-specific federal, state, local and foreign environmental
      laws and regulations.  We devote significant resources to maintaining
      compliance with these laws and regulations.  We expect that, due to
      the nature of our operations, we will be subject to increasingly stringent
      environmental requirements (including standards applicable to wastewater
      discharges and air emissions) and will continue to incur substantial costs
      to
      comply with these requirements.  Because it is difficult to predict
      the scope of future requirements, there can be no assurance that we will not
      incur material environmental compliance costs or liabilities in the
      future.





The
      Foley Plant, located inPerry,Florida,
      discharges treated wastewater into theFenhollowayRiver.  Under
      the terms of an
      agreement with the Florida Department of Environmental Protection (“FDEP”),
      approved by the U. S. Environmental Protection Agency (“the EPA”) in 1995, we
      agreed to a comprehensive plan to attain Class III (“fishable/swimmable”) status
      for the Fenholloway River under applicable Florida law (the “Fenholloway
      Agreement”).  The Fenholloway Agreement requires us, among other
      things, to (i) make process changes within the Foley Plant to reduce the
      coloration of its wastewater discharge, (ii) restore certain wetlands areas,
      (iii) relocate the wastewater discharge point into the Fenholloway River to
      a
      point closer to the mouth of the river, and (iv) provide oxygen enrichment
      to
      the treated wastewater prior to discharge at the new location.  We
      have completed the process changes within the Foley Plant as required by the
      Fenholloway Agreement.  In making these in-plant process changes, we
      incurred significant expenditures, and, as discussed in the following paragraph,
      we expect to incur significant additional capital expenditures to comply with
      the remaining obligations under the Fenholloway Agreement.





The
      EPA objected to the draft National
      Pollutant Discharge Elimination System (NPDES) permit prepared in connection
      with the Fenholloway Agreement and requested additional environmental studies
      to
      identify possible alternatives to the relocation of the wastewater discharge
      point.  The studies’ focus was to determine if more cost effective
      technologies are available to address both Class III water quality standards
      for
      the Fenholloway River and the anticipated EPA “cluster rules” applicable to
      wastewater discharges from dissolving kraft pulp mills, like the Foley
      Plant.  While these studies were being conducted, implementation of
      the non in-plant process changesset out inthe
      Fenholloway Agreement was
      deferred.  The studieswerecompleted,
      and the EPA provided comments
      to FDEP on the steps that would be required to overcome the EPA’s objections to
      the draft NPDES permit.  In August 2005 FDEP redrafted the Buckeye
      NPDES permit to address the EPA’s comments.The
      proposed permit recognizes that the
      in-plant process changes already completed and the additional process
      changes planned as part of
      the proposedNPDES permit
      will satisfy the EPA’s cluster rule requirements applicable to dissolving kraft
      pulp mills.  FDEP
      completed the required public notice, review and comment process and issued
      the formal Notice of Intent
      to Issue Permit in November 2005, without EPA objection.  The proposed
      permit was challenged by some members of the public.In
      January 2008, the pending
      administrative hearing was dismissed due to anticipated revisions to the
      proposed permit based on additional studies and development of a total maximum
      daily load.The
      additional studies necessary to
      support revisions to the proposed permit will likely require several years
      to
      complete.  Buckeye is currently addressing the permit revision
      timetable with FDEP.  As a result, the timing for the issuance of the
      revised permit and the requisite public notice and review process is not known
      at this time.Based on the requirementsanticipated
      inthe proposed permit,
      we expect to incur
      capital expenditures of approximately$9,000 over the next
      two yearson in-plant process
      changes,
      and additional capital expenditures
      ofat least $50,000over
      at least five years,
      possibly beginning as early as fiscal year 2012.  The amount and
      timing of these capital expenditures may vary depending on a number of factors
      including when the permit is issued and whether there are any further changes
      to
      the proposed permit.




The
      EPA and FDEP have listed theFenhollowayRiveras
      an impaired water (not meeting all
      applicable water quality standards) under the Clean Water Act for certain
      pollutants.  The permitting proceedings discussed above are expected
      to address these water-quality issues.




The
      Foley Plant is also subject to FDEP
      and EPA air emission standards.  The EPA had recently adopted new
      boiler air emission regulations that are applicable to the Foley Plant and
      plans
      had been developed to comply with these regulations.  However, these
      regulations have now been vacated and the impact of the anticipated revision
      of
      these regulations is not yet known.





F-26


We
      are involved in certain legal actions
      and claims arising in the ordinary course of business.  It is the
      opinion of management that such litigation and claims will be resolved without
      a
      materially adverse effect on our financial statements as a
      whole.





On
      January 3, 2008, K.T. Equipment
      (International)(K.T.),
      Inc. filed a claim in the United
      States District Court, Western District of Tennessee, againstus,
      in which K.T. alleged thatwebreachedourobligation
      under the Stac-Pac®
acquisition agreement to pay K.T.a
      contingent promissory note in the
      principal amount of $5,000plus
      accrued interest of
      approximately $2,567 as of
      June 30, 2008.  Payment of the contingent
      note was dependent
      on the satisfaction of certain
      specified conditions relating to the rights obtained byuswith
      regard to the intellectual property
      assets.  When these conditions were not met pursuant to the terms of
      the Stac-Pac® acquisition agreement,wecanceled
      the contingent note in the year
      ended June 30, 2007.  Webelievewehave
      emeritorious defenses
      to K.T.’s
      claim and intend to defend against
      the claimvigorously.





NOTE
      18: FAIR VALUES OF FINANCIAL
      INSTRUMENTS




For
      certain of our financial
      instruments, including cash and cash equivalents, short-term investments,
      accounts receivableaccounts
      payable,and short-term debt,the
      carrying amounts approximate fair
      value due to their short maturities.  The fair value of our long-term
      public debt is based on an average of the bid and offer prices.  The
      fair value of the credit facilities approximates its carrying value due to
      its
      variable interest rate.  The carrying value and fair value of
      long-term debt and capital leases at June 30, 2008,were
      $394,268and
      $395,557,
      respectively,and
      at June 30, 2007were
      $445,893and
      $450,833,
      respectively.





NOTE
      19: QUARTERLY RESULTS OF OPERATIONS
      (UNAUDITED)





First
                Quarter
            
            Second
                Quarter
            
            Third
                Quarter
            
            Fourth
                QuarterYear
                ended June 30,
                2008Net
                  sales
            
            $
            197,399
            
            $
            210,922
            
            $
            201,865
            
            $
            215,331Gross
                margin
            
            
            40,655
            
            
            41,979
            
            
            34,201
            
            
            32,727Operating
                  income
            
            
            28,524
            
            
            29,822
            
            
            22,263
            
            
            19,724Net
                income
            
            
            13,497
            
            
            13,866
            
            
            10,422
            
            
            9,317Earnings
                  per
                  shareBasic
            
            $
            0.35
            
            $
            0.36
            
            $
            0.27
            
            $
            0.24Diluted
            
            $
            0.34
            
            $
            0.35
            
            $
            0.26
            
            $
            0.24Year
                  ended June 30,
                  2007Net
                  sales
            
            $
            191,406
            
            $
            184,730
            
            $
            193,009
            
            $
            200,176Gross
                margin
            
            
            29,335
            
            
            29,019
            
            
            32,939
            
            
            40,523Operating
                  income
            
            
            17,487
            
            
            17,338
            
            
            19,558
            
            
            26,828Net
                income
            
            
            3,807
            
            
            3,820
            
            
            6,573
            
            
            15,918Earnings
                  per
                  shareBasic
            
            $
            0.10
            
            $
            0.10
            
            $
            0.17
            
            $
            0.42Diluted
            
            $
            0.10
            
            $
            0.10
            
            $
            0.17
            
            $
            0.41





(1)           
      During the fourth quarter of
      fiscal 2007, we incurred a pretax benefit of $2,000 ($1,274 after tax) from
      a
      water partnership payment, $1,867 ($1,171 after tax) from reversal of accrued
      interest related to cancellation of a contingent note, anda $2,481 tax benefit
      from adjustments
      related to state valuation allowances and credits.





NOTE
      20:
      CONDENSED
      CONSOLIDATING FINANCIAL STATEMENTS




The
      guarantor subsidiaries presented
      below represent our subsidiaries that are subject to the terms and conditions
      outlined in the indenture governing the senior notes and that guarantee the
      notes, jointly and severally, on a senior unsecured basis.  The
      non-guarantor subsidiaries presented below represent the foreign subsidiaries
      which do not guarantee the senior notes.  Each subsidiary guarantor is
      100% owned directly or indirectly by Buckeye Technologies Inc. and all
      guarantees are full and unconditional.




Supplemental
      financial information for
      Buckeye Technologies Inc. and our guarantor subsidiaries and non-guarantor
      subsidiaries for the senior notes is presented in the following
      tables.








F-27





STATEMENTS
      OF
      OPERATIONS


Year
      ending June 30, 2008


Buckeye
                Technologies
              Inc.
            
            Guarantors
              US
              Subsidiaries
            
            Non-
              Guarantor
              Subsidiaries
            
            Consolidating
              Adjustments
            
            ConsolidatedNet
                  sales
            
            $
            123,263
            
            $
            538,444
            
            $
            201,515
            
            $
            (37,705
            )
            $
            825,517Cost
                of goods
                sold
            
            
            108,297
            
            
            422,226
            
            
            182,964
            
            
            (37,532
            )
            
            675,955Gross
                  margin
            
            
            14,966
            
            
            116,218
            
            
            18,551
            
            
            (173
            )
            
            149,562Selling,
                  research and
                  administrative expenses, and other
            
            
            (17,729
            )
            
            55,872
            
            
            10,990
            
            
            -
            
            
            49,133Restructuring
                and impairment
                costs
            
            
            69
            
            
            -
            
            
            27
            
            
            -
            
            
            96Operating
                income
                (loss)
            
            
            32,626
            
            
            60,346
            
            
            7,534
            
            
            (173
            )
            
            100,333Other
                income/(expense):Net
                  interestincome/(expense)and
                  amortization of
                  debt
            
            
            (33,712
            )
            
            272
            
            
            454
            
            
            -
            
            
            (32,986
            )Other
                income/(expense), including
                equity income in affiliates
            
            
            50,966
            
            
            156
            
            
            208
            
            
            (51,372
            )
            
            (42
            )Intercompany
                  interest
                  income/(expense)
            
            
            26,961
            
            
            (26,014
            )
            
            (947
            )
            
            -
            
            
            -Income/(loss)
                  before income
                  taxes
            
            
            76,841
            
            
            34,760
            
            
            7,249
            
            
            (51,545
            )
            
            67,305Income
                  tax
                  expense/(benefit)
            
            
            29,739
            
            
            7,612
            
            
            (654
            )
            
            (16,494
            )
            
            20,203Net
                  income
                  (loss)
            
            $
            47,102
            
            $
            27,148
            
            $
            7,903
            
            $
            (35,051
            )
            $
            47,102








STATEMENTS
      OF
      OPERATIONS


Year
      ending June 30, 2007


Buckeye
              Technologies
              Inc.
            
            Guarantors
              US
              Subsidiaries
            
            Non-
              Guarantor
              Subsidiaries
            
            Consolidating
              Adjustments
            
            ConsolidatedNet
                  sales
            
            $
            118,258
            
            $
            496,269
            
            $
            191,635
            
            $
            (36,841
            )
            $
            769,321Cost
                of goods
                sold
            
            
            98,736
            
            
            402,463
            
            
            172,656
            
            
            (36,350
            )
            
            637,505Gross
                  margin
            
            
            19,522
            
            
            93,806
            
            
            18,979
            
            
            (491
            )
            
            131,816Selling,
                  research and
                  administrative expenses, and other
            
            
            8,574
            
            
            29,381
            
            
            11,401
            
            
            -
            
            
            49,356Restructuring
                and impairment
                costs
            
            
            501
            
            
            51
            
            
            697
            
            
            -
            
            
            1,249Operating
                income(loss)
            
            
            10,447
            
            
            64,374
            
            
            6,881
            
            
            (491
            )
            
            81,211Other
                income/(expense):Net
                  interestincome/(expense)and
                  amortization of
                  debt
            
            
            (38,919
            )
            
            (131
            )
            
            252
            
            
            -
            
            
            (38,798
            )Other
                income/(expense), including
                equity income inaffiliates
            
            
            39,700
            
            
            1,998
            
            
            288
            
            
            (40,561
            )
            
            1,425Intercompany
                  interest
                  income/(expense)
            
            
            28,345
            
            
            (22,346
            )
            
            (5,999
            )
            
            -
            
            
            -Income/(loss)
                  before income
                  taxes
            
            
            39,573
            
            
            43,895
            
            
            1,422
            
            
            (41,052
            )
            
            43,838Income
                  tax
                  expense/(benefit)
            
            
            9,455
            
            
            14,161
            
            
            3,857
            
            
            (13,753
            )
            
            13,720Net
                  income
                  (loss)
            
            $
            30,118
            
            $
            29,734
            
            $
            (2,435
            )
            $
            (27,299
            )
            $
            30,118





F-28





STATEMENTS
      OF
      OPERATIONS


Year
      ending June 30, 2006


Buckeye
                Technologies
              Inc.
            
            Guarantors
              US
              Subsidiaries
            
            Non-
              Guarantor
              Subsidiaries
            
            Consolidating
              Adjustments
            
            ConsolidatedNet
                  sales
            
            $
            109,164
            
            $
            461,613
            
            $
            190,984
            
            $
            (33,276
            )
            $
            728,485Cost
                of goods
                sold
            
            
            94,527
            
            
            395,369
            
            
            172,403
            
            
            (33,612
            )
            
            628,687Gross
                  margin
            
            
            14,637
            
            
            66,244
            
            
            18,581
            
            
            336
            
            
            99,798Selling,
                  research and
                  administrative expenses, and other
            
            
            12,977
            
            
            29,021
            
            
            7,764
            
            
            -
            
            
            49,762Restructuring
                and impairment
                costs
            
            
            1
            
            
            498
            
            
            5,117
            
            
            -
            
            
            5,616Operating
                income
            
            
            1,659
            
            
            36,725
            
            
            5,700
            
            
            336
            
            
            44,420Other
                income/(expense):Net
                  interestincome/(expense)and
                  amortization of
                  debt
            
            
            (45,187
            )
            
            311
            
            
            1,643
            
            
            -
            
            
            (43,233
            )Other
                income/(expense), including
                equity income inaffiliates
            
            
            17,596
            
            
            69
            
            
            (632
            )
            
            (17,536
            )
            
            (503
            )Intercompany
                  interest
                  income/(expense)
            
            
            28,340
            
            
            (19,809
            )
            
            (8,531
            )
            
            -
            
            
            -Income/(loss)
                  before income
                  taxes
            
            
            2,408
            
            
            17,296
            
            
            (1,820
            )
            
            (17,200
            )
            
            684Income
                  tax expense
                  (benefit)
            
            
            428
            
            
            1,889
            
            
            2,407
            
            
            (6,020
            )
            
            (1,296
            )Net
                  income
                  (loss)
            
            $
            1,980
            
            $
            15,407
            
            $
            (4,227
            )
            $
            (11,180
            )
            $
            1,980











F-29





BALANCE
      SHEETS


As
      of June 30, 2008





Buckeye
              Technologies
              Inc.
            
            Guarantors
              US
              Subsidiaries
            
            Non-
              Guarantor
              Subsidiaries
            
            Consolidating
              Adjustments
            
            ConsolidatedAssetsCurrent
                assetsCash
                  and cash
                  equivalents
            
            $
            491
            
            $
            137
            
            $
            9,765
            
            $
            -
            
            $
            10,393Accounts
                receivable,
                net
            
            
            18,909
            
            
            70,379
            
            
            38,233
            
            
            -
            
            
            127,521Inventories
            
            
            31,034
            
            
            57,499
            
            
            22,826
            
            
            (1,105
            )
            
            110,254Other
                current
                assets
            
            
            3,565
            
            
            6,702
            
            
            1,263
            
            
            -
            
            
            11,530Intercompany
                  accounts
                  receivable
            
            
            -
            
            
            87,036
            
            
            -
            
            
            (87,036
            )
            
            -Total
                current
                assets
            
            
            53,999
            
            
            221,753
            
            
            72,087
            
            
            (88,141
            )
            
            259,698Property,
                plant and equipment,
                net
            
            
            60,090
            
            
            334,367
            
            
            161,251
            
            
            -
            
            
            555,708Goodwill
                  and intangibles,
                  net
            
            
            36,843
            
            
            27,347
            
            
            116,045
            
            
            -
            
            
            180,235Intercompany
                notes
                receivable
            
            
            368,217
            
            
            -
            
            
            -
            
            
            (368,217
            )
            
            -Other
                  assets, including investment
                  in subsidiaries
            
            
            411,183
            
            
            262,661
            
            
            116,461
            
            
            (776,721
            )
            
            13,584Total
                assets
            
            $
            930,332
            
            $
            846,128
            
            $
            465,844
            
            $
            (1,233,079
            )
            $
            1,009,225Liabilities
                and stockholders’
                equityCurrent
                  liabilitiesTrade
                accounts
                payable
            
            $
            10,353
            
            $
            29,211
            
            $
            9,593
            
            $
            -
            
            $
            49,157Other
                  current
                  liabilities
            
            
            18,360
            
            
            22,009
            
            
            10,647
            
            
            -
            
            
            51,016Intercompany
                accounts
                payable
            
            
            78,510
            
            
            -
            
            
            8,526
            
            
            (87,036
            )
            
            -Total
                  current
                  liabilities
            
            
            107,223
            
            
            51,220
            
            
            28,766
            
            
            (87,036
            )
            
            100,173Long-term
                  debt
            
            
            393,910
            
            
            -
            
            
            -
            
            
            -
            
            
            393,910Deferred
                income
                taxes
            
            
            (10,211
            )
            
            51,551
            
            
            16,623
            
            
            -
            
            
            57,963Other
                  long-term
                  liabilities
            
            
            9,853
            
            
            15,749
            
            
            2,020
            
            
            -
            
            
            27,622Intercompany
                notes
                payable
            
            
            -
            
            
            258,728
            
            
            109,489
            
            
            (368,217
            )
            
            -Stockholders’/invested
                  equity
            
            
            429,557
            
            
            468,880
            
            
            308,946
            
            
            (777,826
            )
            
            429,557Total
                liabilities and
                stockholders’ equity
            
            $
            930,332
            
            $
            846,128
            
            $
            465,844
            
            $
            (1,233,079
            )
            $
            1,009,225











F-30





BALANCE
      SHEETS


As
      of June 30, 2007





Buckeye
              Technologies
              Inc.
            
            Guarantors
              US
              Subsidiaries
            
            Non-
              Guarantor
              Subsidiaries
            
            Consolidating
              Adjustments
            
            ConsolidatedAssetsCurrent
                assetsCash
                  and cash
                  equivalents
            
            $
            6,329
            
            $
            447
            
            $
            8,014
            
            $
            -
            
            $
            14,790Accounts
                receivable,
                net
            
            
            15,147
            
            
            71,753
            
            
            29,965
            
            
            -
            
            
            116,865Inventories
            
            
            18,468
            
            
            48,739
            
            
            20,501
            
            
            (931
            )
            
            86,777Other
                current
                assets
            
            
            2,724
            
            
            5,690
            
            
            1,038
            
            
            -
            
            
            9,452Intercompany
                  accounts
                  receivable
            
            
            -
            
            
            96,305
            
            
            -
            
            
            (96,305
            )
            
            -Total
                current
                assets
            
            
            42,668
            
            
            222,934
            
            
            59,518
            
            
            (97,236
            )
            
            227,884Property,
                plant and equipment,
                net
            
            
            58,941
            
            
            328,480
            
            
            150,234
            
            
            -
            
            
            537,655Goodwill
                  and intangibles,
                  net
            
            
            15,805
            
            
            49,786
            
            
            108,361
            
            
            -
            
            
            173,952Intercompany
                notes
                receivable
            
            
            304,310
            
            
            -
            
            
            -
            
            
            (304,310
            )
            
            -Other
                  assets, including investment
                  in subsidiaries
            
            
            451,638
            
            
            327,254
            
            
            99,443
            
            
            (866,004
            )
            
            12,331Total
                assets
            
            $
            873,362
            
            $
            928,454
            
            $
            417,556
            
            $
            (1,267,550
            )
            $
            951,822Liabilities
                and stockholders’
                equityCurrent
                  liabilitiesTrade
                accounts
                payable
            
            $
            7,799
            
            $
            25,473
            
            $
            7,758
            
            $
            -
            
            $
            41,030Other
                  current
                  liabilities
            
            
            18,843
            
            
            17,684
            
            
            13,409
            
            
            (5
            )
            
            49,931Intercompany
                accounts
                payable
            
            
            84,733
            
            
            -
            
            
            11,571
            
            
            (96,304
            )
            
            -Total
                  current
                  liabilities
            
            
            111,375
            
            
            43,157
            
            
            32,738
            
            
            (96,309
            )
            
            90,961Long-term
                  debt
            
            
            445,138
            
            
            -
            
            
            -
            
            
            -
            
            
            445,138Deferred
                income
                taxes
            
            
            (38,450
            )
            
            61,034
            
            
            19,177
            
            
            -
            
            
            41,761Other
                  long-term
                  liabilities
            
            
            8,145
            
            
            16,976
            
            
            1,687
            
            
            -
            
            
            26,808Intercompany
                notes
                payable
            
            
            -
            
            
            193,789
            
            
            110,520
            
            
            (304,309
            )
            
            -Stockholders’/invested
                  equity
            
            
            347,154
            
            
            613,498
            
            
            253,434
            
            
            (866,932
            )
            
            347,154Total
                liabilities and
                stockholders’ equity
            
            $
            873,362
            
            $
            928,454
            
            $
            417,556
            
            $
            (1,267,550
            )
            $
            951,822








F-31





STATEMENTS
      OF CASH
      FLOWS


Year
      ending June 30, 2008


Buckeye
              Technologies
              Inc.
            
            Guarantors
              US
              Subsidiaries
            
            Non-
              Guarantor
              Subsidiaries
            
            ConsolidatedNet
                  cash
                  provided by operations
            
            $
            49,605
            
            $
            39,561
            
            $
            3,140
            
            $
            92,306Investing
                  activities:Purchases
                of property, plant and
                equipment
            
            
            (6,722
            )
            
            (39,023
            )
            
            (3,452
            )
            
            (49,197
            )Other
            
            
            -
            
            
            (451
            )
            
            17
            
            
            (434
            )Net
                cash used
                in investingactivities
            
            
            (6,722
            )
            
            (39,474
            )
            
            (3,435
            )
            
            (49,631
            )Financing
                activitiesPurchase
                  of treasury
                  shares
            
            
            (2,720
            )
            
            -
            
            
            -
            
            
            (2,720
            )Netborrowingsunder
                  revolving line of
                  credit
            
            
            78,079
            
            
            -
            
            
            156
            
            
            78,235Net
                payments on long-term debt and
                other
            
            
            (124,080
            )
            
            (397
            )
            
            -
            
            
            (124,477
            )Net
                  cashprovided
                  by (used in)financing
                  activities
            
            
            (48,721
            )
            
            (397
            )
            
            156
            
            
            (48,962
            )Effect
                  of foreign currency rate
                  fluctuations on cash
            
            
            -
            
            
            -
            
            
            1,890
            
            
            1,890Increase(decrease)in
                  cash and cash
                  equivalents
            
            
            (5,838
            )
            
            (310
            )
            
            1,751
            
            
            (4,397
            )Cash
                and cash equivalents at
                beginning of period
            
            
            6,329
            
            
            447
            
            
            8,014
            
            
            14,790Cash
                  and cash equivalents at end
                  of period
            
            $
            491
            
            $
            137
            
            $
            9,765
            
            $
            10,393








STATEMENTS
      OF CASH
      FLOWS


Year
      ending June 30, 2007


Buckeye
              Technologies
                Inc.
            
            Guarantors
              US
              Subsidiaries
            
            Non-
              Guarantor
              Subsidiaries
            
            ConsolidatedNet
                  cash
                  provided by operations
            
            $
            74,074
            
            $
            33,395
            
            $
            3,892
            
            $
            111,361Investing
                  activities:Purchases
                of property, plant and
                equipment
            
            
            (9,040
            )
            
            (31,945
            )
            
            (4,215
            )
            
            (45,200
            )Other
            
            
            -
            
            
            (538
            )
            
            520
            
            
            (18
            )Net
                cash used
                in investingactivities
            
            
            (9,040
            )
            
            (32,483
            )
            
            (3,695
            )
            
            (45,218
            )Financing
                activitiesNetpaymentsunder
                  revolving line of
                  credit
            
            
            (3,000
            )
            
            -
            
            
            -
            
            
            (3,000
            )Net
                payments on long-term debt and
                other
            
            
            (57,244
            )
            
            (627
            )
            
            -
            
            
            (57,871
            )Net
                  cash used in financing
                  activities
            
            
            (60,244
            )
            
            (627
            )
            
            -
            
            
            (60,871
            )Effect
                  of foreign currency rate
                  fluctuations on cash
            
            
            -
            
            
            -
            
            
            784
            
            
            784Increase
                  in cash and cash
                  equivalents
            
            
            4,790
            
            
            285
            
            
            981
            
            
            6,056Cash
                and cash equivalents at
                beginning of period
            
            
            1,539
            
            
            162
            
            
            7,033
            
            
            8,734Cash
                  and cash equivalents at end
                  of period
            
            $
            6,329
            
            $
            447
            
            $
            8,014
            
            $
            14,790











F-32





STATEMENTS
      OF CASH
      FLOWS


Year
      ending June 30, 2006


Buckeye
                Technologies
              Inc.
            
            Guarantors
              US
              Subsidiaries
            
            Non-
              Guarantor
              Subsidiaries
            
            ConsolidatedNet
                  cash
                  provided by(used
                  in)operations
            
            $
            29,990
            
            $
            29,445
            
            $
            (714
            )
            $
            58,721Investing
                  activities:Purchases
                of property, plant and
                equipment
            
            
            (4,899
            )
            
            (18,627
            )
            
            (22,065
            )
            
            (45,591
            )Other
            
            
            -
            
            
            505
            
            
            191
            
            
            696Net
                cash used
                in investingactivities
            
            
            (4,899
            )
            
            (18,122
            )
            
            (21,874
            )
            
            (44,895
            )Financing
                activitiesNet
                  borrowings under revolving
                  line of credit
            
            
            350
            
            
            -
            
            
            -
            
            
            350Netborrowings
                (payments)on
                long-term debt and
                other
            
            
            (24,762
            )
            
            (11,312
            )
            
            19,810
            
            
            (16,264
            )Net
                  cashprovided
                  by (used in)financing
                  activities
            
            
            (24,412
            )
            
            (11,312
            )
            
            19,810
            
            
            (15,914
            )Effect
                  of foreign currency rate
                  fluctuations on cash
            
            
            -
            
            
            -
            
            
            896
            
            
            896Increase
                  (decrease) in cash and
                  cash equivalents
            
            
            679
            
            
            11
            
            
            (1,882
            )
            
            (1,192
            )Cash
                and cash
                equivalents at beginningof
                period
            
            
            860
            
            
            151
            
            
            8,915
            
            
            9,926Cash
                  and cash equivalents at end
                  of period
            
            $
            1,539
            
            $
            162
            
            $
            7,033
            
            $
            8,734








F-33





SCHEDULE
      II


VALUATION
      AND QUALIFYING
      ACCOUNTS








Column
                B
            
            Column
                C
            
            Column
                D
            
            Column
                EDescription
            
            Balance
              at
              Beginning
              of
              Period
            
            Additions
              Charged
              to
              Expenses
            
            Deductions
            
            Balance
              at
              End
              of
              PeriodAllowance
                for doubtful
                accountsYear
                  ended June 30,
                  2008
            
            $
            1,399
            
            $
            116
            
            $
            (58)(a
            )
            $
            1,457Year
                  ended June 30,
                  2007
            
            $
            1,904
            
            $
            277
            
            $
            (782)(a
            )
            $
            1,399Year
                  ended June 30,
                  2006
            
            $
            5,602
            
            $
            123
            
            $
            (3,821)(a
            )
            $
            1,904Accrual
                  for
                  restructuringYear
                ended June 30,
                2008
            
            $
            327
            
            $
            96
            
            $
            (307)(b
            )
            $
            116Year
                ended June 30,
                2007
            
            $
            20
            
            $
            1,249
            
            $
            (942)(b
            )
            $
            327Year
                ended June 30,
                2006
            
            $
            2,471
            
            $
            3,550
            
            $
            (6,001)(b
            )
            $
            20Deferred
                tax assets valuation
                allowanceYear
                  ended June 30,
                  2008
            
            $
            11,720
            
            $
            -
            
            $
            1,681(c
            )
            $
            13,401Year
                  ended June 30,
                  2007
            
            $
            10,065
            
            $
            114
            
            $
            1,541(c
            )
            $
            11,720Year
                  ended June 30,
                  2006
            
            $
            5,813
            
            $
            3,842
            
            $
            410(c
            )
            $
            10,065


(a)Uncollectible
      accounts written off, net
      of recoveries, translation adjustments and changes in quality
      claims.  Quality claims are recorded as reduction in
      sales.


(b)Severance
                payments, lease
                cancellations, relocation expenses,impact of foreign
                currency
                exchangeand
                miscellaneous expenses.


(c)Impact
                of change in exchange rate
                betweenBrazilian
                reals and US dollars.














F-34