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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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Commission file number: 33-60032
BUCKEYE CELLULOSE CORPORATION
Incorporated pursuant to the Laws of Delaware
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Internal Revenue Service -- Employer Identification No. 62-1518973
1001 Tillman Street, Memphis, TN 38112
901-320-8100
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Indicate by check mark whether the 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. Yes |X| No ____
As of November 8, 1996, there were outstanding 19,266,498 Common Shares of the
Registrant.
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<PAGE>
INDEX
BUCKEYE CELLULOSE CORPORATION
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ITEM PAGE
- ---- ----
PART I - FINANCIAL INFORMATION
1. Financial Statements (Unaudited):
Condensed Consolidated Statements of Income for the Three
Months Ended September 30, 1996 and 1995..................... 3
Condensed Consolidated Balance Sheets as of September 30, 1996
and June 30, 1996............................................ 4
Condensed Consolidated Statements of Cash Flows for the Three
Months Ended September 30, 1996 and 1995..................... 5
Notes to Condensed Consolidated Financial Statements............... 6
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................ 9
PART II - OTHER INFORMATION
6. Exhibits and Reports on Form 8-K................................... 11
SIGNATURES 12
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<PAGE>
BUCKEYE CELLULOSE CORPORATION
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except share data)
Three Months Ended
September 30
-------------------------
1996 1995
----------- -----------
Net sales............................................. $126,514 $108,566
Cost of goods sold.................................... 94,196 75,071
---------- ----------
Gross margin.......................................... 32,318 33,495
Selling, research and administrative expenses......... 7,775 6,192
---------- ----------
Operating income...................................... 24,543 27,303
Net interest expense and amortization of debt costs... 6,318 4,292
Other................................................. 140 153
Minority interest..................................... - 10,235
---------- ----------
Income before income taxes............................ 18,085 12,623
Income taxes.......................................... 6,143 4,886
---------- ----------
Net income............................................ $11,942 $7,737
========== ==========
Net income per share.................................. $0.62 $0.37
========== ==========
Weighted average shares outstanding................... 19,249,995 20,659,723
========== ==========
See accompanying notes.
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<PAGE>
BUCKEYE CELLULOSE CORPORATION
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
September 30 June 30
1996 1996
------------ -----------
ASSETS
Current assets:
Cash and cash equivalents....................... $ 6,419 $ -
Short-term investments.......................... 2,900 2,900
Accounts receivable--net........................ 63,800 66,805
Inventories..................................... 114,612 101,028
Deferred income taxes........................... 8,990 8,639
--------- ---------
Total current assets.......................... 196,721 179,372
Property, plant and equipment..................... 354,384 314,881
Less allowances for depreciation.................. (64,255) (57,283)
--------- ---------
290,129 257,598
Goodwill.......................................... 30,584 6,624
Deferred debt costs and other..................... 16,398 9,205
--------- ---------
Total assets.................................. $533,832 $452,799
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 20,034 $ 23,226
Accrued expenses................................ 39,540 36,561
Notes payable................................... 4,350 1,620
--------- ---------
Total current liabilities..................... 63,924 61,407
Noncurrent liabilities:
Long-term debt.................................. 323,838 217,873
Accrued postretirement benefit obligation....... 13,670 13,487
Deferred income taxes........................... 21,049 14,976
Other liabilities............................... 4,057 4,168
Stockholders' equity.............................. 107,294 140,888
--------- ---------
Total liabilities and stockholders' equity.... $533,832 $452,799
========= =========
See accompanying notes.
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<PAGE>
BUCKEYE CELLULOSE CORPORATION
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended
September 30
---------------------
1996 1995
-------- --------
OPERATING ACTIVITIES
Net income................................................. $11,942 $ 7,737
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest..................................... - 10,235
Depreciation.......................................... 7,008 5,872
Amortization of debt costs and other.................. 1,456 1,135
Deferred income taxes................................. 905 893
Changes in operating assets and liabilities:
Accounts receivable................................ 10,032 (4,830)
Inventories........................................ (4,228) (12,646)
Other assets....................................... 1,780 574
Accounts payable and other current liabilities..... (4,614) 4,127
-------- --------
Net cash provided by operating activities............. 24,281 13,097
INVESTING ACTIVITIES
Acquisition of Alpha Cellulose Holdings, Inc............... (60,774) -
Net purchases of property, plant and equipment............. (12,155) (4,829)
Other...................................................... (85) 455
-------- --------
Net cash used in investing activities...................... (73,014) (4,374)
FINANCING ACTIVITIES
Purchase of treasury stock................................. (50,000) -
Proceeds from sales of equity interests.................... - 72
Proceeds from revolving line of credit and long-term debt.. 138,247 -
Principal payments on revolving line of credit,
long-term debt and other............................... (29,500) (10,620)
Payments for debt issuance costs........................... (3,624) (300)
Distribution to minority interest.......................... - (345)
-------- --------
Net cash provided by (used in) financing activities........ 55,123 (11,193)
Effect of foreign currency rate fluctuations on cash....... 29 -
-------- --------
Increase (decrease) in cash and cash equivalents........... 6,419 (2,470)
Cash and cash equivalents at beginning of period........... - 11,789
-------- --------
Cash and cash equivalents at end of period................. $ 6,419 $ 9,319
======== ========
See accompanying notes.
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<PAGE>
BUCKEYE CELLULOSE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Buckeye Cellulose Corporation and its subsidiaries (the Company) have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended September 30, 1996
are not necessarily indicative of the results that may be expected for the year
ended June 30, 1997. The financial statements for the period ended September 30,
1995 are combined consolidated financial statements of Buckeye Cellulose
Corporation and Buckeye Florida Corporation. All significant intercompany
accounts and transactions have been eliminated in consolidation and combination.
For further information and a listing of the Company's significant accounting
policies, refer to the financial statements and notes thereto included in the
Company's annual report on Form 10-K for the year ended June 30, 1996.
NOTE B -- COMPANY STOCK REPURCHASE
On July 2, 1996, BKI Investment Corp., a newly formed, wholly-owned
subsidiary of the Company, purchased 2,259,887 shares of Common Stock from
Madison Dearborn Capital Partners (MDCP) for $22.125 per share (the Company
Stock Repurchase) for an aggregate purchase price of $50,000,000. Additionally,
on July 2, 1996, MDCP sold to certain individuals employed by the Company and
their related trusts, in an exempt transaction under the Securities Act of 1933,
as amended, an aggregate of 1,385,269 shares of Common Stock for $22.125 per
share (the Individuals' Stock Purchase). The purchase price for the Company
Stock Repurchase and the Individuals' Stock Purchase reflected the prevailing
market price when the parties decided to pursue definitive agreements and sought
board approval.
Concurrently with the completion of the Company Stock Repurchase and
the Individuals' Stock Purchase, MDCP sold 2,887,935 shares of Common Stock in a
public offering and the Company issued and sold $100,000,000 principal amount of
9 1/4% Senior Subordinated Notes due 2008. Upon completion of the equity
offering, the Company Stock Repurchase and the Individuals' Stock Purchase, the
Company had 19,147,336 shares of Common Stock outstanding, and MDCP's ownership
percentage was less than five percent. The proceeds of the 9 1/4% Senior
Subordinated Notes were used to fund the Company Stock Repurchase and together
with borrowings under the Company's existing credit facility (the Credit
Facility), to acquire the stock of Alpha Cellulose Holdings, Inc.
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<PAGE>
BUCKEYE CELLULOSE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE C -- BUSINESS COMBINATION
In November 1995, the Company exercised an option to acquire the
Procter & Gamble Cellulose Company's (P&GCC) limited partnership interest in
Buckeye Florida, Limited Partnership (BFLP). Effective May 1, 1996, the Company
purchased the specialty pulp business of Peter Temming AG (the Temming
Business). These transactions were as discussed and disclosed in the annual
report.
On September 1, 1996, the Company acquired all of the issued and
outstanding stock of Alpha Cellulose Holdings, Inc. (Holdings) for approximately
$61 million in cash and Company common stock valued at approximately $4 million,
plus assumed liabilities. The purchase price is based on a preliminary balance
sheet and may be adjusted based on the final audited closing balance sheet.
Holdings assets consisted solely of the capital stock of its wholly owned
subsidiary, Alpha Cellulose Corporation (Alpha), which is located in Lumberton,
North Carolina and whose primary business is the manufacture and sale of
specialty pulp. The consolidated operating results of Holdings have been
included in the consolidated statement of income from the date of acquisition.
The following unaudited pro forma results of operations assume that the
acquisition of P&GCC's limited partnership interest in BFLP, the acquisitions of
the Temming Business and Holdings, and the Company Stock Repurchase, together
with related financing transactions, all occurred as of the beginning of the
periods presented.
Three Months Ended
September 30
-------------------------------------
1996 1995
-------- --------
(In thousands, except per share data)
Net sales.............................. $137,483 $134,531
Income before extraordinary loss....... 9,367 12,381
Net income............................. 9,367 8,432
Earnings per common share:
Income before extraordinary loss.... .49 .60
Net income.......................... .49 .41
Pro forma results of operations for the three months ended September
30, 1996 include certain non-recurring charges incurred by Holdings prior to its
acquisition by the Company. These charges include acquisition related costs and
the excess of raw materials cost over replacement value and in the aggregate
reduced pro forma net income by $1.8 million or $0.09 per share.
The pro forma financial information is presented for information
purposes only and is not necessarily indicative of the operating results that
would have occurred had the business combinations been consummated as of the
above dates, nor is it necessarily indicative of future operating results.
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<PAGE>
BUCKEYE CELLULOSE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE D -- INVENTORIES
The components of inventory consist of the following:
September 30 June 30
1996 1996
------------ ---------
(In thousands)
Raw materials.......................... $ 21,899 $ 20,340
Finished goods......................... 76,764 65,276
Storeroom and other supplies........... 15,949 15,412
-------- --------
$114,612 $101,028
======== ========
NOTE E -- LONG TERM DEBT
The Company completed a public offering of $100 million principal
amount of 9 1/4% Senior Subordinated Notes due September 15, 2008 (the Notes)
during July 1996, which were sold for 99.449% of their principal amount. The
proceeds were used to fund the Company Stock Repurchase and together with
borrowings under the Credit Facility, to acquire the stock of Holdings. The
Company also amended the Credit Facility, effective August 30, 1996, to increase
the maximum principal that may be outstanding under the Credit Facility to $155
million.
The components of long term debt consist of the following:
September 30 June 30
1996 1996
------------ ---------
(In thousands)
8 1/2% Senior Subordinated Notes due December 15, 2005... $149,470 $149,460
10 1/4% Senior Notes due May 15, 2001.................... 6,913 6,913
9 1/4% Senior Subordinated Notes due September 15, 2008.. 99,455 -
Credit Facility.......................................... 68,000 61,500
-------- --------
$323,838 $217,873
======== ========
NOTE F -- INCOME TAXES
The increase in current and noncurrent deferred income taxes is the
result of assuming the net deferred tax liabilities associated with the purchase
of Holdings. The effective income tax rate of 34.0% for the quarter was down
4.7% from the same period last year, primarily as the result of establishing a
foreign sales corporation in November 1995.
NOTE G -- INTANGIBLE ASSETS
The amount attributed to goodwill and non-compete agreements increased
during the period as the result of the acquisition of Holdings. Goodwill of
approximately $24 million will be amortized over thirty years. The non-compete
agreements aggregating $4 million will be amortized over their two year terms.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
Net sales for the three months ended September 30, 1996 were $126.5
million compared to $108.6 million for the same period in 1995, an increase of
$17.9 million or 16.5%. The increase was primarily due to the acquisition of two
new businesses: the Temming Business in May 1996 and Holdings on September 1,
1996. Average unit sales prices, excluding the effect of product mix changes due
to the acquisitions, are down approximately 1%.
Operating income for the quarter ended September 30, 1996 was $24.5
million compared to $27.3 million for the same period in 1995, a decrease of
$2.8 million or 10.1%. The impact of higher sales volume discussed previously is
offset by a higher cost of goods sold due to increased cost for raw material and
supplies, resulting in a gross margin decrease of $1.2 million. Selling,
research and administrative expenses increased by $1.6 million as the result of
increased employment, the new business acquisitions, and the amortization of
non-compete agreements associated with the new businesses.
Net interest and amortization of debt costs for the quarter ended
September 30, 1996 were $6.3 million compared to $4.3 million for the same
period in 1995, an increase of $2.0 million. This increase was due to higher
average debt balances partially offset by lower average interest rates.
There was no minority interest charge for the three months ended
September 30, 1996 compared to a $10.2 million charge for the same period in
1995. The elimination of minority interest is the result of the purchase of
P&GCC's remaining partnership interest in BFLP in November 1995.
The effective income tax rate decreased to 34.0% for the quarter ended
September 30, 1996 as compared to 38.7% for the same period in 1995, primarily
as the result of establishing a foreign sales corporation in November 1995.
The Company's net income for the quarter ended September 30, 1996 was
$11.9 million, or $0.62 per share, compared to $7.7 million or $0.37 per share
for the same period of the prior year.
FINANCIAL CONDITION
Cash Flow
---------
Cash provided by operating activities for the quarter ended September
30, 1996 was $24.3 million. The increased funds primarily resulted from net
income of $11.9 million and a decrease in accounts receivable of $10.0 million.
The decrease in accounts receivable was primarily the result of the timing of
shipments.
Liquidity and Capital Resources
-------------------------------
On July 2, 1996 (fiscal year 1997), the Company completed a stock
repurchase of 2,259,887 shares of common stock for $50 million, reducing the
total number of shares outstanding to 19,147,336. On the same date, the Company
completed a public offering for $100 million in 9 1/4% Senior Subordinated
Notes. The Company used $50 million of the proceeds from the debt offering to
fund the stock repurchase. On September 1, 1996, the remaining proceeds of the
debt offering together with borrowings from the Company's bank credit facility,
were used to fund the purchase of Holdings and its related pulp production
facility located in Lumberton, North Carolina.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (continued)
On August 30, 1996, the Company increased its borrowing capacity under
its credit facility by $20 million to $155 million of which $83.6 million was
available for borrowing at September 30, 1996.
The Company believes that its cash flow from operations, together with
the borrowings available under its existing bank credit facility, will be
sufficient to fund capital expenditures (including environmental expenditures),
meet operating expenses, fund any common stock repurchases, and service all debt
requirements for the foreseeable future.
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<PAGE>
BUCKEYE CELLULOSE CORPORATION
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
1. Exhibit 27 Financial Data Schedule
2. Reports on 8-K
During the quarter ended September 30, 1996, the following report was filed
on Form 8-K:
- Report dated September 16, 1996, pursuant to Item 2 and Item 7 of that
form. No financial statements were filed as part of that report.
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<PAGE>
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 CELLULOSE CORPORATION
By: /s/ DAVID B. FERRARO
--------------------------------
David B. Ferraro, Director, President, and Chief Operating Officer
Date: November 14, 1996
By: /s/ DAVID H. WHITCOMB
--------------------------------
David H. Whitcomb, Vice President and Comptroller
Date: November 14, 1996
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> SEP-30-1996
<CASH> 6,419
<SECURITIES> 2,900
<RECEIVABLES> 64,780
<ALLOWANCES> 980
<INVENTORY> 114,612
<CURRENT-ASSETS> 196,721
<PP&E> 354,384
<DEPRECIATION> 64,255
<TOTAL-ASSETS> 533,832
<CURRENT-LIABILITIES> 63,924
<BONDS> 323,838
0
0
<COMMON> 216
<OTHER-SE> 107,078
<TOTAL-LIABILITY-AND-EQUITY> 533,832
<SALES> 126,514
<TOTAL-REVENUES> 126,514
<CGS> 94,196
<TOTAL-COSTS> 101,971
<OTHER-EXPENSES> 140
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,318
<INCOME-PRETAX> 18,085
<INCOME-TAX> 6,143
<INCOME-CONTINUING> 11,942
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,942
<EPS-PRIMARY> 0.62
<EPS-DILUTED> 0.62
</TABLE>
