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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 March 31, 1997
-----------------------------
Commission file number: 33-60032
Buckeye Cellulose Corporation
Incorporated pursuant to the Laws of Delaware
-----------------------------
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 May 13, 1997, there were outstanding 18,723,798 Common Shares of the
Registrant.
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<PAGE>
INDEX
BUCKEYE CELLULOSE CORPORATION
--------------------------------------
ITEM PAGE
PART I - FINANCIAL INFORMATION
1. Financial Statements (Unaudited):
Condensed Consolidated Statements of Income for the Three Months
Ended March 31, 1997 and 1996; Nine Months Ended March 31,
1997 and 1996.......................................................3
Condensed Consolidated Balance Sheets as of March 31, 1997 and
June 30, 1996.......................................................4
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended March 31, 1997 and 1996................................5
Notes to Condensed Consolidated Financial Statements...................6
2. Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................10
PART II - OTHER INFORMATION
6. Exhibits and Reports on Form 8-K........................................12
SIGNATURES................................ 13
- 2 -
<PAGE>
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except share data)
Three Months Ended Nine Months Ended
March 31, March 31,
1997 1996 1997 1996
------------------------ -------------------------
Net sales................... $ 139,499 $ 113,246 $ 409,005 $ 338,825
Cost of goods sold.......... 103,085 78,866 304,359 237,149
------------------------ -------------------------
Gross margin................ 36,414 34,380 104,646 101,676
Selling, research and
administrative expenses... 9,331 6,376 26,192 18,497
------------------------ -------------------------
Operating income............ 27,083 28,004 78,454 83,179
Net interest expense and
amortization of debt costs 6,606 4,318 19,566 12,784
Other....................... 278 51 700 372
Minority interest........... 16,628
Secondary offering costs.... 161 1,335
------------------------ -------------------------
Income before income
taxes and extraordinary
loss...................... 20,199 23,474 58,188 52,060
Income taxes................ 6,236 7,961 19,526 18,908
------------------------ -------------------------
Income before extraordinary
loss...................... 13,963 15,513 38,662 33,152
Extraordinary loss, net
of tax benefit.............. 721 3,949
------------------------ -------------------------
Net income.................. $ 13,963 $ 14,792 $ 38,662 $ 29,203
======================== =========================
Earnings per share:
Income before
extraordinary loss...... $ 0.74 $ 0.72 $ 2.02 $ 1.58
Extraordinary loss, net
of tax benefit........... (0.03) (0.19)
------------------------ ------------------------
Net income per share...... $ 0.74 $ 0.69 $ 2.02 $ 1.39
======================== ========================
Weighted average shares
outstanding...............18,997,208 21,407,223 19,166,672 21,014,032
======================== ========================
See accompanying notes.
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<PAGE>
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
March 31 June 30
1997 1996
-----------------------------
ASSETS
Current assets:
Cash and cash equivalents................... $ 3,188 $ -
Short-term investments...................... 2,900 2,900
Accounts receivable--net.................... 70,116 66,805
Inventories................................. 100,884 101,028
Deferred income taxes and other............. 8,537 8,639
-----------------------------
Total current assets........................ 185,625 179,372
Property, plant and equipment.................. 368,149 314,881
Less allowances for depreciation............... (79,316) (57,283)
-----------------------------
288,833 257,598
Goodwill....................................... 30,966 6,624
Deferred debt costs and other.................. 13,706 9,205
=============================
Total assets................................ $519,130 $452,799
=============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable............................ $ 15,521 $ 23,226
Accrued expenses............................ 35,772 36,561
Notes payable............................... 4,972 1,620
-----------------------------
Total current liabilities................... 56,265 61,407
Noncurrent liabilities:
Long-term debt.............................. 299,870 217,873
Accrued postretirement benefit obligation... 14,027 13,487
Deferred income taxes....................... 25,850 14,976
Other liabilities........................... 3,613 4,168
Stockholders' equity........................... 119,505 140,888
=============================
Total liabilities and stockholders' equity.. $519,130 $452,799
=============================
See accompanying notes.
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<PAGE>
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
March 31
----------------------------
1997 1996
----------------------------
OPERATING ACTIVITIES
Net income........................................ $ 38,662 $ 29,203
Adjustments to reconcile net income to net
cash provided by operating activities:
Extraordinary loss, net of tax benefit........ - 3,949
Minority interest............................. - 16,628
Depreciation.................................. 22,358 18,127
Amortization of debt costs and other.......... 7,035 2,268
Deferred income taxes......................... 6,649 3,329
Changes in operating assets and liabilities:
Accounts receivable......................... 2,282 (4,833)
Inventories................................. 9,180 (28,634)
Other assets................................ 1,632 (3,479)
Accounts payable and other current
liabilities............................... (14,115) 5,634
----------------------------
Net cash provided by operating activities..... 73,683 42,192
INVESTING ACTIVITIES
Acquisition of Alpha Cellulose Holdings, Inc...... (60,196) -
Purchase of minority interest in Buckeye
Florida, L.P.................................... - (62,078)
Net purchases of property, plant and equipment.... (29,381) (22,334)
Other............................................. (385) 6,120
----------------------------
Net cash used in investing activities............. (89,962) (78,292)
FINANCING ACTIVITIES
Purchase of treasury stock........................ (62,398) -
Proceeds from sales of equity interests........... 33 13,149
Proceeds from revolving line of credit and
long-term debt.................................. 146,680 207,439
Principal payments on revolving line of
credit, long-term debt and other............... (61,000) (189,181)
Payments for debt issuance costs.................. (3,777) (5,506)
Distribution to minority interest................. - (1,590)
----------------------------
Net cash provided by financing activities......... 19,538 24,311
Effect of foreign currency rate fluctuations
on cash......................................... (71) -
----------------------------
Increase (decrease) in cash and cash
equivalents..................................... 3,188 (11,789)
Cash and cash equivalents at beginning of period.. - 11,789
----------------------------
Cash and cash equivalents at end of period........ $ 3,188 $ -
============================
See accompanying notes.
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<PAGE>
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,
1997 are not necessarily indicative of the results that may be expected for the
year ended June 30, 1997. 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>
NOTE C -- BUSINESS COMBINATIONS
- -------------------------------
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 disclosed in the annual report for the year
ending June 30, 1996.
On September 1, 1996, the Company acquired all of the issued and
outstanding stock of Alpha Cellulose Holdings, Inc. (Holdings) for $60.2 million
in cash and Company common stock valued at $4.2 million, plus assumed
liabilities of $11.3 million. 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.
Nine Months Ended
March 31
1997 1996
-------------------------------------
(In thousands, except per share data)
Net sales ........................... $416,441 $422,234
Income before extraordinary loss .... 34,827 36,602
Net income .......................... 34,827 32,653
Earnings per common share:
Income before extraordinary loss... 1.82 1.74
Net income ........................ 1.82 1.55
Pro forma results of operations for the nine months ended March 31,
1997 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 $2.9 million or $0.15 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>
NOTE D -- INVENTORIES
- ---------------------
The components of inventory consist of the following:
March 31 June 30
1997 1996
------------------------------------
(In thousands)
Raw materials...................... $ 22,853 $ 20,340
Finished goods..................... 62,286 65,276
Storeroom and other supplies....... 15,745 15,412
------------------------------------
$100,884 $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 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:
March 31 June 30
1997 1996
----------------------------
(In thousands)
8 1/2% Senior Subordinated Notes due
December 15, 2005...................... $149,489 $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..................... 99,468 -
Credit Facility........................... 44,000 61,500
==============================
$299,870 $217,873
==============================
NOTE F -- INCOME TAXES
- ----------------------
The effective income tax rate of 33.6% for the nine month period ending
March 31, 1997 was down from 36.3% in the same period last year, primarily as
the result of establishing a foreign sales corporation in November 1995.
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<PAGE>
NOTE G -- RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
- ---------------------------------------------------
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share, which is required to be adopted in the
quarter ending December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to restate
all prior periods. There is no impact of Statement 128 on the calculation of
basic earnings per share for periods previously reported. Upon adoption of
Statement 128, the Company will report diluted earnings per share including the
dilutive effect of stock options which for all periods through March 31, 1997
was less than 3% of basic earnings per share.
NOTE H--PROPOSED BUSINESS COMBINATION
- -------------------------------------
On May 14, 1997, the Company made a tender offer of CDN $7.50 for all of
the issued and outstanding common shares of Merfin International, Inc. (Merfin)
headquartered near Vancouver, British Columbia. The offer is conditioned on at
least 75% of the shares being tendered by May 27, 1997. The purchase price in US
dollars would be approximately $200 million for the stock and assumed debt of
Merfin. Merfin is a leader in the development and manufacture of technically
demanding air-laid nonwoven materials. It is the Company's intent to fund the
purchase through a new $275 million credit facility, which is currently being
negotiated. Terms of the new credit facility are expected to be substantially
the same as the existing facility.
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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 March 31, 1997 were $139.5 million
compared to $113.2 million for the same period in the prior fiscal year, an
increase of $26.3 million or 23.2%. Net sales for the nine month period ended
March 31, 1997 were $409.0 million compared to $338.8 million for the same
period in the prior fiscal year, an increase of $70.2 million or 20.7%. The
increase for both the three and nine month periods was primarily due to the
acquisition of two new businesses: the Temming Business in May 1996 and Holdings
on September 1, 1996. Unit volume, excluding the new businesses, was up by 8.3%
for the quarter, and 6.3% for the fiscal year to date, as compared to the same
periods in the prior fiscal year. Average unit sales prices, excluding the
effect of product mix changes due to the acquisitions, were down approximately
7% for the quarter and 5% for the fiscal year to date, as compared to the same
periods in 1996.
Operating income for the three months ended March 31, 1997 was $27.1
million compared to $28.0 million for the same period in the prior fiscal year,
a decrease of $.9 million or 3.3%. Operating income for the nine months ended
March 31, 1997 was $78.5 million compared to $83.2 million for the same period
in the prior fiscal year, a decrease of $4.7 million or 5.7%. The impact of
higher sales volume discussed previously was offset by lower gross margins as a
percentage of sales and by higher selling, research and administrative costs in
both the three and nine month periods. The lower gross margin as a percentage of
sales was due to lower unit selling prices. The increase in selling, research
and administrative expenses was $3.0 million for the three month period and $7.7
million for the nine month period ended March 31, 1997 compared to the same
periods in the prior fiscal year. These increases were the result of increased
employment, primarily in product development, the new business acquisitions, and
the amortization of non-compete agreements associated with the new businesses.
Net interest expense and amortization of debt costs were $6.6 million
for the three months and $19.6 million for the nine months ended March 31, 1997.
This is a $2.3 million and $6.8 million increase, respectively, compared to the
same periods of the prior fiscal year. This increase was due to higher average
debt balances, partially offset by lower average interest rates.
There was no minority interest charge for the nine month period ended
March 31, 1997, compared to a $16.6 million charge for the same period in the
prior fiscal year. 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 33.6% for the nine month
period ended March 31, 1997 as compared to 36.3% for the same period in the
prior fiscal year. This decrease was the result of establishing a foreign sales
corporation in November 1995 and the inclusion of non-deductible stock
compensation charges and secondary offering costs in the prior year period.
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<PAGE>
The Company's net income for the quarter and nine month period ended
March 31, 1997 was $14.0 million or $0.74 per share and $38.7 million or $2.02
per share, respectively, compared to $14.8 million or $0.69 per share and $29.2
million or $1.39 per share for the same periods of the prior year. Last year's
earnings were reduced by $.7 million or $0.03 per share and $3.9 million or
$0.19 per share for both the three and nine month periods, respectively, due to
extraordinary charges for debt retirement.
FINANCIAL CONDITION
- -------------------
Cash Flow
---------
In July of the current fiscal year the Company completed a stock
repurchase of 2,259,887 shares of common stock for $50.0 million, reducing the
total number of shares outstanding to 19,147,336. On the same date, the Company
completed a public offering for $100.0 million in 9 1/4% Senior Subordinated
Notes. The Company used $50.0 million of the proceeds from the debt offering to
fund the stock repurchase. In September 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.
On August 30, 1996, the Company increased its borrowing capacity under
its credit facility by $20.0 million to $155.0 million of which $107.8 million
was available for borrowing at March 31, 1997.
Cash provided by operating activities for the nine months ended March
31, 1997 was $73.5 million.
During the three month period ended March 31, 1997, the Company
repurchased 314,000 shares of common stock bringing the total shares repurchased
during fiscal 1997 to 440,500, pursuant to a previously announced one million
share repurchase plan.
Subsequent Events
-----------------
On May 14, 1997, the Company made a tender offer of CDN $7.50 for all
of the issued and outstanding common shares of Merfin. The offer is conditioned
on at least 75% of the shares being tendered. The purchase price in US dollars
would be approximately $200 million for the stock and assumed debt of Merfin.
Merfin is headquartered near Vancouver, British Columbia and traded on the
Toronto and Munich stock exchanges. If accepted by the shareholders, this
purchase would be funded through a new bank credit facility with borrowing
capacity of $275 million. This new credit facility would replace the current
facility.
Liquidity
---------
The Company believes that its cash flow from operations, together with
the borrowings available under its new bank credit facility, will be sufficient
to fund capital expenditures (including environmental expenditures), meet
operating expenses, fund common stock repurchases, complete the Merfin tender
offer, and service all debt requirements for the foreseeable future.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
1. Exhibit 27 Financial Data Schedule
2. The Company did not file any reports on Form 8-K during the three
months ended March 31, 1997.
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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: May 15, 1997
By: /s/ DAVID H. WHITCOMB
--------------------------------------
David H. Whitcomb, Vice President and
Comptroller
Date: May 15, 1997
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,188
<SECURITIES> 2,900
<RECEIVABLES> 71,096
<ALLOWANCES> 980
<INVENTORY> 100,884
<CURRENT-ASSETS> 185,625
<PP&E> 368,149
<DEPRECIATION> 79,316
<TOTAL-ASSETS> 519,130
<CURRENT-LIABILITIES> 56,265
<BONDS> 299,870
0
0
<COMMON> 216
<OTHER-SE> 119,289
<TOTAL-LIABILITY-AND-EQUITY> 519,130
<SALES> 409,005
<TOTAL-REVENUES> 409,005
<CGS> 304,359
<TOTAL-COSTS> 330,551
<OTHER-EXPENSES> 700
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,566
<INCOME-PRETAX> 58,188
<INCOME-TAX> 19,526
<INCOME-CONTINUING> 38,662
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,662
<EPS-PRIMARY> 2.02
<EPS-DILUTED> 2.02
</TABLE>
