FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended 3-31-96
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 Cellulose Corporation
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
Delaware 62-1518973
Buckeye Cellulose Corporation
1001 Tillman Street
Memphis, TN 38112
901-320-8100
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 ofv1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject tosuch filing
requirements for the past 90 days. Yes X__ No ____
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Title Outstanding
Common Stock 21,407,223
<PAGE>
INDEX
BUCKEYE CELLULOSE CORPORATION
PAGE
----
PART I--FINANCIAL INFORMATION:
ITEM 1--FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Balance Sheets as of March 31, 1996 and June 30, 1995 3
Condensed Consolidated Statements of Income for the Three Months Ended
March 31, 1996 and 1995; Nine Months Ended March 31, 1996 and 1995 4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
March 31, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 10
PART II--OTHER INFORMATION:
ITEM 6--EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
<PAGE>
PART I - FINANCIAL INFORMATION
BUCKEYE CELLULOSE CORPORATION
Condensed Consolidated Balance Sheets
March 31, June 30,
1996 1995
----------- -----------
(Unaudited)
(In Thousands)
Assets
Current assets:
Cash and cash equivalents $ - $ 11,789
Short-term investments 2,900 9,706
Accounts receivable, net 48,900 44,067
Inventories 90,581 61,947
Deferred income taxes and other 8,466 3,071
------------ -------------
Total current assets 150,847 130,580
Property, plant and equipment 292,971 282,171
Less allowance for depreciation (50,382) (54,072)
------------ -------------
242,589 228,099
Deferred debt costs and other 14,929 20,377
============ =============
$408,365 $379,056
============ =============
Liabilities and shareholders' equity
Current liabilities:
Accounts payable $ 18,305 $ 15,596
Accrued expenses 31,515 29,377
Notes payable - 8,500
------------ -------------
Total current liabilities 49,820 53,473
Noncurrent liabilities:
Long-term debt 197,364 166,202
Deferred income taxes 16,450 5,848
Accrued postretirement employee benefits 12,802 12,400
Other 4,321 4,408
Minority interest - 52,104
Shareholders' equity:
Common stock 214 4
Additional paid-in capital 58,807 45,233
Retained earnings 68,587 39,384
------------ -------------
127,608 84,621
------------ -------------
$408,365 $379,056
============ =============
See accompanying notes.
<PAGE>
PART I - FINANCIAL INFORMATION
BUCKEYE CELLULOSE CORPORATION
Condensed Consolidated Statements of Income
<TABLE>
<CAPTION>
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
1996 1995 1996 1995
-------------------------------- --------------------------------
(In thousands, (In thousands,
except share data) except share data)
<S> <C> <C> <C> <C>
Net sales $ 113,246 $ 104,231 $ 338,825 $ 301,318
Cost of goods sold 78,866 78,417 237,149 230,247
-------------------------------- --------------------------------
Gross margin 34,380 25,814 101,676 71,071
Selling, research and administrative
expenses 6,376 5,267 18,497 16,446
-------------------------------- --------------------------------
Operating income 28,004 20,547 83,179 54,625
Net interest expense and amortization
of debt costs 4,318 5,120 12,784 16,510
Other 51 154 372 462
Minority interest - 6,488 16,628 14,881
Secondary offering costs 161 1,335
-------------------------------- --------------------------------
Income before income taxes and
extraordinary loss 23,474 8,785 52,060 22,772
Income taxes 7,961 3,193 18,908 8,308
-------------------------------- --------------------------------
Income before extraordinary loss 15,513 5,592 33,152 14,464
Extraordinary loss, net of tax benefit 721 3,949
-------------------------------- --------------------------------
Net income $ 14,792 $ 5,592 $ 29,203 $ 14,464
=============================== ================================
Earnings per share:
Income before extraordinary loss $ 0.72 $ 1.58
Extraordinary loss, net of tax
benefit (0.03) (0.19)
-------------- --------------
Net income per share $ 0.69 $ 1.39
============== ==============
Weighted average shares outstanding 21,407,223 21,014,032
============== ==============
</TABLE>
See accompanying notes.
<PAGE>
PART I - FINANCIAL INFORMATION
BUCKEYE CELLULOSE CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
March 31,
1996 1995
-------------------- -------------------
(In Thousands)
Operating activities
<S> <C> <C>
Net income $ 29,203 $ 14,464
Adjustments to reconcile net income to net
cash provided by operating activities:
Extraordinary loss, net of tax benefit 3,949 -
Minority interest 16,628 14,881
Depreciation 18,127 17,874
Amortization of debt costs and other 2,268 3,580
Deferred income taxes 3,329 2,828
Changes in operating assets and liabilities:
Accounts receivable (4,833) (5,551)
Inventories (28,634) 9,542
Other assets (3,479) (1,706)
Accounts payable and other liabilities 5,634 5,576
-------------------- -------------------
Net cash provided by operating activities 42,192 61,488
Investing activities
Purchase of minority interest in Buckeye Florida, L.P. (62,078) -
Net purchases of property, plant and equipment (22,334) (20,713)
Other 6,120 (503)
-------------------- -------------------
Net cash used in investing activities (78,292) (21,216)
Financing activities
Net proceeds from sale of common stock 13,149 81
Net proceeds from revolving line of credit and
long-term debt 207,439 -
Payments to redeem revolving line of credit,
long-term debt and other (189,181) (28,245)
Payments for debt issuance costs (5,506) -
Partners' capital distributions to minority interest (1,590) (2,838)
-------------------- -------------------
Net cash provided by (used in) financing activities 24,311 (31,002)
-------------------- -------------------
Increase (decrease) in cash and cash equivalents (11,789) 9,270
Cash and cash equivalents at beginning of period 11,789 7,101
-------------------- -------------------
Cash and cash equivalents at end of period $ $ 16,371
-
==================== ===================
</TABLE>
See accompanying notes.
<PAGE>
PART I: 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 and nine months ended March 31,
1996 are not necessarily indicative of the results that may be expected for the
year ended June 30, 1996. The financial statements at and for the period ended
March 31, 1995 are combined consolidated financial statements of Buckeye
Cellulose Corporation, Buckeye Florida Corporation, and Buckeye Partners. 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 Registration Statements on Form S-1 (Registration numbers 33-97836 and
33-97840) under the Securities Act of 1933 as effective with Securities and
Exchange Commission on November 21, 1995. Historical net income per share has
not been presented as it is not considered relevant to the combined consolidated
financial statements for the quarter and nine months ended March 31, 1995.
NOTE B--BUSINESS COMBINATION
On November 28, 1995, shareholders of Buckeye Florida Corporation exchanged all
of their outstanding common stock for common stock of Buckeye Cellulose
Corporation and Buckeye Florida Corporation became a wholly-owned subsidiary of
Buckeye Cellulose Corporation. All periods presented have been restated to
reflect this combination of equity interests. Concurrently, the Company
exercised an option to acquire Procter & Gamble Cellulose Company's (P&GCC) 50%
limited partnership interest in Buckeye Florida, Limited Partnership (BFLP), of
which Buckeye Florida Corporation is the general partner, for $62.1 million in
cash, plus assumed liabilities. This acquisition has been recorded using the
purchase method of accounting. The allocation of the purchase price is based on
the respective fair value of assets and liabilities at the date of acquisition
based on an independent appraisal. The purchase included at fair value current
assets of $45.6 million, property, plant and equipment of $93.8 million, the
assumption of current liabilities of $17.3 million, non-current liabilities of
$6.5 million and long-term debt of $46.9 million. The operations of BFLP are
consolidated in the accompanying financial statements and the 50% limited
partnership interest is recorded as minority interest prior to November 28,
1995, the date of acquisition. The charge to minority interest was discontinued
at November 28, 1995, the date of acquisition of the P&GCC 50% limited
partnership interest.
<PAGE>
The following unaudited pro forma results of operations assume the acquisition
of the P&GCC limited partnership interest in BFLP (and the combination of equity
interests of Buckeye Florida Corporation with the Company) occurred as of the
beginning of the periods presented, excluding the impact on interest expense and
certain other costs, which are immaterial to the operation of the Company:
Nine Months Ended
March 31,
1996 1995
-------------------------------------------
(In thousands, except per share data)
Net sales $338,825 $301,318
Operating income 83,179 54,625
Income before extraordinary loss 43,741 23,917
Net income 39,792 23,917
Earnings per common share:
Income before extraordinary loss 2.08
Net income 1.89
The pro forma financial information is presented for informational purposes only
and is not necessarily indicative of the operating results that would have
occurred had the acquisition been consummated as of the above dates, nor is it
necessarily indicative of future operating results.
NOTE C--INVENTORIES
The components of inventory consist of the following:
March 31, June 30,
1996 1995
--------------------------------------------------
(In thousands)
Raw materials $ 13,867 $ 9,317
Finished goods 62,244 36,887
Storeroom and other supplies 14,470 15,743
==================================================
$ 90,581 $ 61,947
==================================================
NOTE D--LONG TERM DEBT
The Company completed a public offering of $150 million principal amount of 8
1/2% Senior Subordinated Notes due December 15, 2005 (the "Notes") during
November 1995, which were sold for 99.626% of their principal amount. The
Company also entered into a new credit facility providing for borrowings up to
$135 million of which $56 million was borrowed at closing of the transactions
described in Note B. During the quarter ended March 31, 1996, borrowings under
the credit facility were reduced by $15 million through application of cash
<PAGE>
provided by operating activities. The new credit facility matures November 28,
2000, and beginning in 1998 availability reduces by $3.75 million per quarter.
Borrowings under the new credit facility bear interest at the lender's prime,
LIBOR plus a spread, or money market based rate, at the option of the Company.
Under the terms of both the Notes and new credit facility, the Company is
required to comply with certain covenants including minimum net worth, interest
coverage ratio and limitations on levels of indebtedness.
The proceeds were used to repay $90 million of outstanding loans from Procter &
Gamble, purchase P&GCC's interest in BFLP, finance a tender offer for the
Company's outstanding 10 1/4% Senior Notes due 2001, repay $482,000 of Madison
Dearborn Capital Partners debt and to pay fees and expenses incurred with these
transactions. In the quarter ended March 31, 1996, an additional $12.2 million
of 10 1/4% Senior Notes were retired using the proceeds from the primary
offering:
The components of long term debt consist of the following:
<TABLE>
<CAPTION>
March 31, June 30,
1996 1995
-------------------- -------------------
(In thousands)
<C> <C> <C>
8 1/2% Senior Subordinated Notes due December 15, 2005 $ 149,451 $ -
10 1/4% Senior Notes due May 15, 2001 6,913 64,720
10% Class A Senior Secured Notes due March 16, 2000 - 26,000
12% Subordinated Secured Notes due March 16, 2003 - 75,000
5.29% Promissory Note due March 22, 1999 - 482
Credit Facility 41,000 -
========= =========
$ 197,364 $ 166,202
========= =========
</TABLE>
NOTE E--INCOME TAXES
The increase in current and noncurrent deferred income taxes is the result of
assuming the net deferred tax liabilities associated with the minority interest
purchase of BFLP from P&GCC.
NOTE F--EXTRAORDINARY LOSS
The extraordinary loss of $0.7 million recorded in the quarter ended March 31,
1996 reflects the costs, net of tax benefit, associated with retiring $12.2
million of the Company's 10 1/4% Senior Notes due 2001. The extraordinary loss
of $3.9 million recorded in the nine months ended March 31, 1996 reflects the
above plus the costs, net of tax benefit, associated with the repurchase of
$45.6 million (principal amount) of the Company's 10 1/4% Senior Notes for 107%
of their principal amount pursuant to a tender offer and the redemption of an
additional $12.2 million (principal amount) in January 1996 at 106% of their
principal amount.
<PAGE>
NOTE G--SHAREHOLDERS' EQUITY
On November 28, 1995, 7,150,000 shares of Common Stock were sold through an
underwritten public offering. On November 30, 1995 an additional 1,072,500
shares were sold. Of the 8,222,500 shares, 7,475,000 were shares sold by a
selling stockholder. The remaining 747,500 shares were issued and sold by the
Company. Proceeds to the Company were approximately $12.8 million, net of
underwriting discounts and expenses associated with the offering. The proceeds
were used to retire $12.2 million (principal amount) of 10 1/4% Senior Notes,
due 2001, in January 1996.
Immediately prior to the public offering, the previously outstanding Class A
Common and Class B Common of the Company were converted into shares of Common
Stock. The aggregate number of shares of Common Stock issued to the holders of
Class A Common and Class B Common, respectively, was determined based on the
accreted liquidation preference of the Class A Common at the time of conversion
and the total equity valuation of the Company. The Company also effected an
approximate 9.2:1.0 stock split.
NOTE H--SUBSEQUENT EVENT
Effective May 1, 1996, the Company purchased the property, plant, equipment and
inventories of the specialty pulp business of Peter Temming AG for approximately
$29 million. The acquisition will be accounted for as a purchase.
On April 30, 1996, the Company entered into a definitive agreement to purchase
all of the stock of the Alpha Cellulose Holdings, Inc. (Alpha) of Lumberton,
North Carolina. Subject to the fulfillment of certain conditions and regulatory
approval, the companies intend to combine operations about June 30, 1996.
<PAGE>
PART I - ITEM 2: Management's Discussion and Analysis of Financial Condition and
Results of Operation.
Results of Operations
Net sales for the three months ended March 31, 1996 were $113.2 million compared
to $104.2 million for the same period in 1995, an increase of $9.0 million or
9%. The increase was primarily due to higher unit sales prices, averaging 21%
above the prior period, partially offset by a 10% decrease in unit sales volume.
The lower unit sales volume versus the prior year was primarily due to softer
market demand. Net sales for the nine month period ending March 31, 1996 were
$338.8 million compared to $301.3 million for the same period in 1995, an
increase of $37.5 million or 12%, due primarily to higher unit sales prices,
averaging 24% above the prior period, partially offset by a 9% decrease in unit
sales volume. Although unit sales volume is below the prior year, it has been
stable throughout the current fiscal year.
Gross margin for the three months ended March 31, 1996 was $34.4 million
compared to $25.8 million for the same period in 1995, an increase of $8.6
million or 33%. Gross margin for the nine month period ending March 31, 1996 was
$101.7 million compared to $71.1 million for the same period in 1995, an
increase of $30.6 million or 43%. The increase was entirely due to higher unit
sales prices in all product lines, partially offset by lower sales volume, and
higher raw material costs for wood, cotton linters, and process chemicals.
Selling, research and administrative expenses for the three months ended March
31, 1996 were $6.4 million compared to $5.3 million for the same period in 1995,
an increase of $1.1 million or 21%, due to increased employment, computer costs
and transition expenses related to the Temming acquisition. Selling, research
and administrative expenses for the nine month period ending March 31, 1996 were
$18.5 million compared to $16.4 million for the same period in 1995, an increase
of $2.1 million or 12%, primarily due to the factors described above and a
non-cash compensation charge of $0.6 million as the result of vesting employee
stock options.
Net interest and amortization expenses for the three months ended March 31, 1996
were $4.3 million compared to $5.1 million for the same period in 1995, a
decrease of $0.8 million, or 16%, due to lower interest rates. Net interest and
amortization expenses for the nine month period ending March 31, 1996 were $12.8
million compared to $16.5 million for the same period of the prior year, down
$3.7 million or 23%, as a result of lower average debt balances prior to the
public offering of the Senior Subordinated Notes and entering into the new
credit facility in November 1995, and the lower interest rates that went into
effect as a result of the public offering of the Senior Subordinated Notes and
the new credit facility.
There was no minority interest charge for the three months ended March 31, 1996
compared to a $6.5 million charge for the same period in 1995. The elimination
of minority interest is the result of the purchase of P&GCC's 50% limited
partnership interest in BFLP on November 28, 1995. Minority interest for the
nine month period ending March 31, 1996 was $16.6 million compared to $14.9
million for the same period of the prior year, an increase of $1.7 million, or
<PAGE>
12%, reflecting the higher income of the limited partnership in fiscal 1996
prior to the purchase of the 50% interest cited above.
Secondary offering costs for the quarter and the nine months ending March 31,
1996 were $0.2 million and $1.3 million, respectively, and relate to expenses
paid on behalf of selling stockholders in the November 1995 public offering of
common stock.
The extraordinary loss for the quarter was $0.7 million, net of taxes, and for
the nine months ending March 31, 1996 totaled $3.9 million, net of taxes. These
losses resulted from the retirement of $12.2 million (principal amount) during
the quarter and $57.8 million (principal amount) for the nine months of the
Company's 10 1/4% Senior Notes due 2001, leaving $6.9 million in principal
amount outstanding as of March 31, 1996.
Financial Condition
Inventories increased from $61.9 million at June 30, 1995 to $90.6 million at
March 31, 1996, as the result of higher raw lint prices and lower shipments.
Accounts receivable increased from $44.1 million at June 30, 1995 to $48.9
million at March 31, 1996, due primarily to higher sales prices.
Liquidity and Capital Resources
In November 1995, the Company completed a public offering of $150 million
principal amount of 8 1/2% Senior Subordinated Notes due 2005, which were sold
for 99.626% of their principal amount. Concurrently, the Company entered into a
new credit facility providing for borrowings up to $135 million of which $56
million was borrowed at closing. The proceeds were used to repay $90 million of
outstanding loans from Procter & Gamble, purchase P&GCC's interest in BFLP,
finance a tender offer for the Company's outstanding 10 1/4% Senior Notes due
2001, repay $482,000 of Madison Dearborn Capital Partners debt, and to pay fees
and expenses incurred with these transactions. The borrowings against the credit
facility have been reduced to $41 million at March 31, 1996, using cash provided
by operating activities.
The Company also sold 747,500 new shares of common stock through an initial
public offering in November 1995. The proceeds from the stock offering were used
in January 1996 to retire an additional $12.2 million of 10 1/4% Senior Notes
due 2001.
The acquisition of the specialty pulp business of Peter Temming AG, which was
effective May 1, 1996, was financed through borrowings under the credit facility
of approximately $29 million.
The Company believes that its cash flow from operations, together with
borrowings available under the credit facility, are sufficient to fund operating
expenses, capital expenditures, the proposed acquisition of Alpha Cellulose, and
debt service requirements for the foreseeable future.
<PAGE>
PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
1. Exhibit 27 Financial Data Schedule.
The Company did not file any reports on Form 8-K during the three months ended
March 31, 1996.
<PAGE>
Pursuant to the requirements 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 Date: 5/14/96
--------------------
David B. Ferraro
President, Chief Operating Officer
By: /s/ DAVID H. WHITCOMB Date: 5/14/96
---------------------
David H. Whitcomb
Vice President, Comptroller
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> MAR-31-1996
<CASH> 0
<SECURITIES> 2,900
<RECEIVABLES> 48,900
<ALLOWANCES> 0
<INVENTORY> 90,581
<CURRENT-ASSETS> 150,847
<PP&E> 292,971
<DEPRECIATION> 50,382
<TOTAL-ASSETS> 408,365
<CURRENT-LIABILITIES> 49,820
<BONDS> 197,364
0
0
<COMMON> 214
<OTHER-SE> 127,394
<TOTAL-LIABILITY-AND-EQUITY> 408,365
<SALES> 338,825
<TOTAL-REVENUES> 338,825
<CGS> 237,149
<TOTAL-COSTS> 230,247
<OTHER-EXPENSES> 18,497
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,784
<INCOME-PRETAX> 52,060
<INCOME-TAX> 18,908
<INCOME-CONTINUING> 33,152
<DISCONTINUED> 0
<EXTRAORDINARY> 3,949
<CHANGES> 0
<NET-INCOME> 29,203
<EPS-PRIMARY> 1.39
<EPS-DILUTED> 1.39
</TABLE>
