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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 December 31, 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 February 10, 1997, there were outstanding 18,987,798 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 December 31, 1996 and 1995; Six Months Ended December 31,
1996 and 1995....................................................... 3
Condensed Consolidated Balance Sheets as of December 31, 1996 and
June 30, 1996....................................................... 4
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended December 31, 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
4. Submission of Matters to a Vote of Security Holders................... 11
6. Exhibits and Reports on Form 8-K...................................... 11
SIGNATURES 12
2
<PAGE>
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except share data)
Three Months Ended Six Months Ended
December 31, December 31,
1996 1995 1996 1995
----------- ----------- ----------- -----------
Net sales................... $ 142,992 $ 117,013 $ 269,506 $ 225,579
Cost of goods sold.......... 107,078 83,212 201,274 158,283
----------- ----------- ----------- -----------
Gross margin................ 35,914 33,801 68,232 67,296
Selling, research and
administrative expenses... 9,086 5,929 16,861 12,121
----------- ----------- ----------- -----------
Operating income............ 26,828 27,872 51,371 55,175
Net interest expense and
amortization of debt costs 6,642 4,174 12,960 8,466
Other....................... 282 168 422 321
Minority interest........... 6,393 16,628
Secondary offering costs.... 1,174 1,174
----------- ----------- ----------- -----------
Income before income taxes
and extraordinary loss.... 19,904 15,963 37,989 28,586
Income taxes................ 7,147 6,061 13,290 10,947
----------- ----------- ----------- -----------
Income before extraordinary
loss...................... 12,757 9,902 24,699 17,639
Extraordinary loss, net of
tax benefit............... 3,228 3,228
----------- ----------- ----------- -----------
Net income.................. $ 12,757 $ 6,674 $ 24,699 $ 14,411
=========== =========== =========== ===========
Earnings per share:
Income before
extraordinary loss...... $ 0.66 $ 0.47 $ 1.28 $ 0.84
Extraordinary loss, net
of tax benefit.......... (0.15) (0.15)
----------- ----------- ----------- -----------
Net income per share..... $ 0.66 $ 0.32 $ 1.28 $ 0.69
=========== =========== =========== ===========
Weighted average shares
outstanding................. 19,252,813 20,979,424 19,251,404 20,819,573
=========== =========== =========== ===========
See accompanying notes.
3
<PAGE>
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
December 31 June 30
1996 1996
------------ ------------
ASSETS
Current assets:
Short-term investments.......................... $ 2,900 $ 2,900
Accounts receivable--net........................ 68,030 66,805
Inventories..................................... 103,376 101,028
Deferred income taxes and other................. 6,385 8,639
------------ ------------
Total current assets.......................... 180,691 179,372
Property, plant and equipment..................... 364,287 314,881
Less allowances for depreciation.................. (71,672) (57,283)
------------ ------------
292,615 257,598
Goodwill.......................................... 31,137 6,624
Deferred debt costs and other..................... 15,122 9,205
------------ ------------
Total assets.................................. $519,565 $452,799
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 17,088 $ 23,226
Accrued expenses................................ 34,274 36,561
Notes payable................................... 3,180 1,620
------------ ------------
Total current liabilities..................... 54,542 61,407
Noncurrent liabilities:
Long-term debt.................................. 307,629 217,873
Accrued postretirement benefit obligation....... 13,870 13,487
Deferred income taxes........................... 23,855 14,976
Other liabilities............................... 3,535 4,168
Stockholders' equity.............................. 116,134 140,888
------------ ------------
Total liabilities and stockholders' equity.... $519,565 $452,799
============ ============
See accompanying notes.
4
<PAGE>
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
December 31
-----------------------
1996 1995
---------- ----------
OPERATING ACTIVITIES
Net income............................................ $ 24,699 $ 14,411
Adjustments to reconcile net income to net cash
provided by operating activities:
Extraordinary loss, net of tax benefit............ - 3,228
Minority interest................................. - 16,628
Depreciation...................................... 14,559 11,877
Amortization of debt costs and other.............. 3,548 1,791
Deferred income taxes............................. 4,162 3,440
Changes in operating assets and liabilities:
Accounts receivable............................. 5,584 (12,410)
Inventories..................................... 6,824 (17,980)
Other assets.................................... 3,978 660
Accounts payable and other current liabilities.. (14,737) (1,571)
---------- ----------
Net cash provided by operating activities......... 48,617 20,074
INVESTING ACTIVITIES
Acquisition of Alpha Cellulose Holdings, Inc.......... (60,189) -
Purchase of minority interest in Buckeye Florida, L.P. - (62,078)
Net purchases of property, plant and equipment........ (22,614) (11,452)
Other................................................. (85) 3,525
---------- ----------
Net cash used in investing activities................. (82,888) (70,005)
FINANCING ACTIVITIES
Purchase of treasury stock............................ (53,344) -
Proceeds from sales of equity interests............... 19 13,165
Proceeds from revolving line of credit and long-term
debt................................................ 138,355 205,439
Principal payments on revolving line of credit,
long-term debt and other............................ (47,000) (159,165)
Payments for debt issuance costs...................... (3,777) (5,431)
Distribution to minority interest..................... - (1,590)
---------- ----------
Net cash provided by financing activities............. 34,253 52,418
Effect of foreign currency rate fluctuations on cash.. 18 -
---------- ----------
Increase in cash and cash equivalents................. - 2,487
Cash and cash equivalents at beginning of period...... - 11,789
---------- ----------
Cash and cash equivalents at end of period............ $ - $ 14,276
========== ==========
See accompanying notes.
5
<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 six months ended December 31,
1996 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.
6
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 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
$60 million in cash and Company common stock valued at approximately $4 million,
plus assumed liabilities of approximately $11 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.
Six Months Ended
December 31
1996 1995
--------- ---------
(In thousands, except per share data)
Net sales.............................. $280,275 $278,842
Income before extraordinary loss....... 22,124 24,820
Net income............................. 22,124 20,871
Earnings per common share:
Income before extraordinary loss.. 1.15 1.19
Net income........................ 1.15 1.00
Pro forma results of operations for the six months ended December 31,
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.
7
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE D -- INVENTORIES
- - ---------------------
The components of inventory consist of the following:
December 31 June 30
1996 1996
------------- -------------
(In thousands)
Raw materials........................ $ 22,674 $ 20,340
Finished goods....................... 64,664 65,276
Storeroom and other supplies......... 16,038 15,412
------------- -------------
$103,376 $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:
December 31 June 30
1996 1996
------------ -----------
(In thousands)
8 1/2% Senior Subordinated Notes due
December 15, 2005......................... $149,480 $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........................ 99,461 -
Credit Facility.............................. 51,775 61,500
------------ -----------
$307,629 $217,873
============ ===========
NOTE F -- INCOME TAXES
- - ----------------------
The effective income tax rate of 36% for the quarter was down from 38%
in the same period last year, primarily as the result of establishing a foreign
sales corporation in November 1995.
8
<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 December 31, 1996 were $143.0
million compared to $117.0 million for the same period in the prior fiscal year,
an increase of $26.0 million or 22.2%. Net sales for the six month period ended
December 31, 1996 were $269.5 million compared to $225.6 million for the same
period in the prior fiscal year, an increase of $43.9 million or 19.5%. The
increase for both the three and six 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 7.4%
for the quarter, and 5.3% for the fiscal year to date, as compared to the same
period in the prior fiscal year. Average unit sales prices, excluding the effect
of product mix changes due to the acquisitions, were down approximately 6% for
the quarter and 4% for the fiscal year to date, as compared to the same periods
in 1995.
Operating income for the three months ended December 31, 1996 was $26.8
million compared to $27.9 million for the same period in the prior fiscal year,
a decrease of $1.1 million or 3.7%. Operating income for the six months ended
December 31, 1996 was $51.4 million compared to $55.2 million for the same
period in the prior fiscal year, a decrease of $3.8 million or 6.9%. 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 six 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 $3.2 million for the three
month period and $4.7 million for the six month period ended December 31, 1996
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 $13.0 million for the six months ended December 31,
1996. This is a $2.5 million and $4.5 million increase, respectively, compared
to the same period 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 three or six month
periods ended December 31, 1996, compared to a $6.4 million charge and a $16.6
million charge, respectively, for the same periods 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 35.9% for the three months
ended December 31, 1996 as compared to 38.0% for the same period in the prior
fiscal year. For the six month period ended December 31, 1996, the effective
income tax rate decreased to 35.0% as compared to 38.3% for the same period in
the prior fiscal year. This decrease was the result of establishing a foreign
sales corporation in November 1995. It also reflects the timing of
non-deductible stock compensation charges and secondary offering costs incurred
in the prior year.
9
<PAGE>
The Company's net income for the quarter and six month period ended
December 31, 1996 was $12.8 million or $0.66 per share and $24.7 million or
$1.28 per share, respectively, compared to $6.7 million or $0.32 per share and
$14.4 million or $0.69 per share for the same periods of the prior year. Last
year's earnings were reduced by $3.2 million or $0.15 per share for both the
three and six month periods due to an extraordinary charge for debt retirement.
FINANCIAL CONDITION
- - -------------------
Liquidity and Capital Resources
-------------------------------
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 $100.0 million
was available for borrowing at December 31, 1996.
Cash provided by operating activities for the six months ended December
31, 1996 was $48.6 million.
During the three month period ended December 31, 1996, the Company
repurchased 126,500 shares of common stock, pursuant to a previously announced
one million share repurchase plan.
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 common stock repurchases, and service all debt
requirements for the foreseeable future.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- - -------------------------------------------------------------
At the Company's Annual Meeting of Stockholders held on November 1,
1996, the following members were elected to the Board of Directors:
Votes Votes
For Withheld
------------ --------------
R. Howard Cannon.............................. 16,992,580 379,770
Harry J. Phillips, Sr......................... 17,326,473 45,877
The following proposal was approved at the Company's Annual Meeting:
Votes Votes Votes
For Against Abstained
---------- --------- ----------
Ratification of appointment of Ernst &
Young LLP as independent auditors........ 17,356,862 11,795 3,693
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- - -----------------------------------------
1. Exhibit 27 Financial Data Schedule
2. Reports on 8-K
During the quarter ended December 31, 1996, the following report was filed
on Form 8-K/A:
-- Report dated November 12, 1996, pursuant to Item 7 of that form. No
financial statements were filed as part of that report.
11
<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 Date: February 10, 1997
----------------------------------------------
David B. Ferraro, Director, President, and
Chief Operating Officer
By: /s/ DAVID H. WHITCOMB Date: February 10, 1997
----------------------------------------------
David H. Whitcomb, Vice President, Comptroller
12
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<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> DEC-31-1996
<CASH> 0
<SECURITIES> 2,900
<RECEIVABLES> 69,010
<ALLOWANCES> 980
<INVENTORY> 103,376
<CURRENT-ASSETS> 180,691
<PP&E> 364,287
<DEPRECIATION> 71,672
<TOTAL-ASSETS> 519,565
<CURRENT-LIABILITIES> 54,542
<BONDS> 307,629
0
0
<COMMON> 216
<OTHER-SE> 115,918
<TOTAL-LIABILITY-AND-EQUITY> 519,565
<SALES> 269,506
<TOTAL-REVENUES> 269,506
<CGS> 201,274
<TOTAL-COSTS> 218,135
<OTHER-EXPENSES> 422
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,960
<INCOME-PRETAX> 37,989
<INCOME-TAX> 13,290
<INCOME-CONTINUING> 24,699
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 24,699
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.28
</TABLE>
