Buckeye Technologies Inc. (NYSE:BKI) today announced second quarter net income of $17.1 million or $0.42 per share. Second quarter earnings included after-tax costs relating to early retirement of debt, restructuring, and accrued interest associated with the cellulosic biofuel credit totaling $3.2 million, or $0.08 per share. This compared to net income of $46.3 million or $1.18 per share in the prior year comparable period, which included net income of $37.5 million, or $0.96 per share, from alternative fuel mixture credits (“AFMC”).

Net sales were $209.5 million for the second quarter of fiscal 2011, up 14% versus net sales of $183.3 million in the second quarter of fiscal 2010 due to higher selling prices and improved mix. Shipment volume was down 4% year over year as we finished rebuilding inventories at our Foley mill and specialty cotton fibers shipments were impacted by limited availability and high prices of cotton linters.

Excluding AFMC and cellulosic biofuel tax credits, early debt retirement costs and restructuring expenses, adjusted net income was $20.3 million, or $0.50 per share versus second quarter fiscal 2010 adjusted net income* of $8.8 million, or $0.22 per share. The $0.28 per share increase in adjusted EPS*, compared to the prior year period, was largely driven by higher selling prices in the specialty fibers segment and reduced interest expense. Also, the final insurance settlement related to the June power outage at our Florida specialty wood pulp facility added $0.05 (net of expenses) to second quarter EPS, representing a partial recovery of related costs of $0.04 per share in the July-September 2010 quarter and $0.06 per share in the April-June 2010 quarter.

Comparing the second quarter to the first quarter of FY11, sales were up $7.4 million as increased shipment volume from the Company’s specialty cotton fibers plants combined with higher selling prices and improved mix in the specialty fibers segment offset the impact of reduced nonwovens shipment volumes. Adjusted EPS* was up $0.16 from the first quarter’s $0.34. The impact of the final insurance settlement on the second quarter versus the cost impact of the power outage on the first quarter accounted for $0.09 of the increase in adjusted EPS. Net interest expense was down $1.9 million due to the refinancing of $140 million of public debt at the beginning of the quarter with our lower cost bank revolver, accounting for another $0.03 improvement in EPS. The remaining $0.04 improvement was due to increased production volumes across our wood and cotton specialty fibers plants, an increase in specialty cotton shipment volume, and selling price increases for specialty cotton and fluff pulps, which were partially offset by lower operating income in nonwovens due to seasonally reduced volumes. Overall, gross margin improved from 18.0% in the first quarter to 21.2% in the second quarter.

Chairman and Chief Executive Officer John B. Crowe said, “We were very pleased with our second quarter financial results. Excluding special items such as the significant income we recognized in past quarters related to the various fuel tax credits, this was a record earnings quarter for Buckeye. Earnings showed strong improvement compared both to the same quarter a year ago and to the immediately preceding quarter, and we expect this upward trend to continue. The demand for specialty wood pulp remains very strong, with average selling prices up by about 17% on January 1 compared to the second quarter average and up more than 20% compared to the prior year quarter. Fluff pulp prices remain at high levels. We now have more than 90% of our Memphis cotton linter pulp demand covered by long-term sales contracts containing cost pass-through provisions. Input costs for specialty fibers remain fairly stable with the exception of cotton linters. After the seasonally weak second quarter, we expect nonwovens sales and earnings to improve in the third quarter on increased shipments, increased selling prices and stable fluff pulp prices. We should start to realize cost savings during the next two quarters as phase one of our Foley energy independence project continues to ramp up this quarter and from the recent move to one-machine operation at our Delta airlaid plant.”

Mr. Crowe continued, “In spite of increased capital spending for acquiring land adjacent to our Florida specialty wood facility and on our Foley energy independence project along with cash outflows for bond interest, retirement plan funding and property taxes, our long-term debt was reduced by $1 million during the second quarter. We expect to generate sufficient cash flow during the next two quarters which should allow us to reduce long-term debt to about $100 million by the end of the fiscal year. Based on several measures, this would be the lowest debt level in our history. Given our positive outlook going forward and our demonstrated ability to consistently generate strong cash flows, Buckeye will be increasing its quarterly cash dividend by 25% from $0.04 to $0.05 with its March 15th dividend payment. We continue to be encouraged about our outlook and ability to continue to increase shareholder value.”

Buckeye has scheduled a conference call for January 26, 2011 at 11:00 a.m. ET to discuss second quarter fiscal year 2011 results. Those interested in listening by telephone may dial in at (888) 466-4582 within the United States. International callers should dial (719) 457-2729. Supplemental material for the call will be available on the Company’s website at www.bkitech.com or at www.streetevents.com.

Buckeye, a leading manufacturer and marketer of specialty fibers and nonwoven materials, is headquartered in Memphis, Tennessee, USA. The Company currently operates facilities in the United States, Germany, Canada, and Brazil. Its products are sold worldwide to makers of consumer and industrial goods.

Note Regarding Non-GAAP Financial Measures

*This release includes certain financial information not derived in accordance with generally accepted accounting principles (“GAAP”). The non-GAAP measures presented are “adjusted operating income”, “adjusted net income”, and “adjusted earnings per share” and are equal to net income, operating income and earnings per share excluding the after-tax effects of alternative fuel mixture credits and cellulosic biofuel credits, restructuring cost and early debt extinguishment cost.

Note Regarding Forward-Looking Statements

This press release also contains forward-looking statements within the meaning of the federal securities laws and is intended to qualify for the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995. “Forward-looking statements” generally can be identified by the use of forward-looking terminology such as “assumptions,” “target,” “guidance,” “outlook,” “plans,” “projection,” “may,” “will,” “would,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “potential,” or “continue (or the negative or other derivatives of each of these terms or similar terminology). The “forward-looking statements” include, without limitation, statements regarding the economic outlook for the Company and the demand for its products, expected cost reductions associated with our recent move to one-machine operation at our Delta plant and the completion of our Foley energy independence project, and expected levels of cash flow and debt reduction. These statements are based on management’s estimates and assumptions with respect to future events and financial performance and are believed to be reasonable, though are inherently uncertain and difficult to predict. Actual results could differ materially from those projected as a result of certain factors. A discussion of factors that could cause results to vary is included in the Company’s Annual Report on Form 10-K and other period filings with the Securities and Exchange Commission.

We calculate EBITDA as earnings before cumulative effect of change in accounting plus interest expense, income taxes and depreciation and amortization. Adjusted EBITDA further adjusts EBITDA by adding back the following items: asset impairment charges, non-cash charges and other (gains) losses and deducting any non-cash expense associated with alternative fuel mixture credits. You should not consider adjusted EBITDA to be an alternative measure of our net income, as an indicator of operating performance; or our cash flow, as an indicator of liquidity. Adjusted EBITDA corresponds with the definition contained in our US revolving credit facility, established on October 22, 2010, and it provides useful information concerning our ability to comply with debt covenants. Although we believe adjusted EBITDA enhances your understanding of our financial condition, this measure, when viewed individually, is not a better indicator of any trend as compared to other measures (e.g., net sales, net earnings, net cash flows, etc.). Prior period amounts have been adjusted to conform to the definition contained in our new credit facility.