================================================================================
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, 1998
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Commission file number: 33-60032
BUCKEYE TECHNOLOGIES INC.
(formerly 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 XX No
As of May 12, 1998, there were outstanding 36,824,596 Common Shares of the
Registrant.
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<PAGE>
INDEX
BUCKEYE TECHNOLOGIES INC.
- --------------------------------------------------------------------------------
ITEM PAGE
==== ====
PART I - FINANCIAL INFORMATION
1. Financial Statements (Unaudited):
Condensed Consolidated Statements of Income for the Three Months Ended
March 31, 1998 and 1997; Nine Months Ended March 31, 1998 and 1997......3
Condensed Consolidated Balance Sheets as of March 31, 1998 and June 30,
1997....................................................................4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
March 31, 1998 and 1997.................................................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>
<TABLE>
<CAPTION>
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
--------------------- ----------------------
1998 1997 1998 1997
--------------------- ----------------------
<S> <C> <C> <C> <C>
Net sales.................................... $162,474 $139,499 $469,397 $409,005
Cost of goods sold........................... 119,877 103,085 344,303 304,359
--------------------- ----------------------
Gross margin................................. 42,597 36,414 125,094 104,646
Selling, research and administrative expenses 12,334 9,331 33,842 26,192
--------------------- ----------------------
Operating income............................. 30,263 27,083 91,252 78,454
Net interest expense and amortization of debt
costs...................................... 8,911 6,606 27,513 19,566
Other........................................ 438 278 1,460 700
--------------------- ----------------------
Income before income taxes................... 20,914 20,199 62,279 58,188
Income taxes................................. 6,710 6,236 21,576 19,526
--------------------- ----------------------
Net income................................... $14,204 $13,963 $40,703 $38,662
===================== ======================
Net income per share......................... $0.38 $0.37 $1.09 $1.01
===================== ======================
Net income per share - assuming dilution..... $0.37 $0.36 $1.06 $0.99
===================== ======================
See accompanying notes.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
March 31 June 30
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ - $5,164
Short-term investments..................... 2,900 2,900
Accounts receivable - net.................. 87,259 79,703
Inventories................................ 99,576 107,390
Deferred income taxes and other............ 6,558 5,966
------------- -------------
Total current assets................ 196,293 201,123
Property, plant and equipment.................. 497,319 469,629
Less allowances for depreciation............... (113,710) (86,952)
------------- -------------
383,609 382,677
Goodwill....................................... 134,701 140,845
Deferred debt costs and other.................. 9,957 12,819
============= =============
Total assets........................ $724,560 $737,464
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable........................... $21,264 $29,761
Accrued expenses........................... 46,288 49,830
Notes payable.............................. 2,437 3,440
------------- -------------
Total current liabilities........... 69,989 83,031
Noncurrent liabilities:
Long-term debt............................. 462,753 474,631
Accrued postretirement benefit obligation.. 14,912 14,208
Deferred income taxes...................... 30,459 29,846
Other liabilities.......................... 2,177 7,558
Stockholders' equity........................... 144,270 128,190
============= =============
Total liabilities and stockholders' equity. $724,560 $737,464
============= =============
See accompanying notes.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
March 31
-----------------------------------
1998 1997
------------- -------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income............................................ $40,703 $38,662
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation.................................... 27,953 22,358
Amortization and other.......................... 7,448 7,035
Deferred income taxes........................... 1,224 6,649
Changes in operating assets and liabilities:
Accounts receivable.......................... (6,341) 2,282
Inventories.................................. 6,974 9,180
Other assets................................. (1,038) 1,632
Accounts payable and other current liabilities (14,041) (14,115)
------------- -------------
Net cash provided by operating activities....... 62,882 73,683
INVESTING ACTIVITIES
Acquisition of businesses............................. (3,869) (60,196)
Net purchases of property, plant and equipment........ (39,008) (29,381)
Other................................................. 346 (385)
------------- -------------
Net cash used in investing activities................. (42,531) (89,962)
Financing activities
Purchase of treasury shares........................... (16,392) (62,398)
Proceeds from sale of equity interests................ 1,690 33
Net borrowings (repayments) under revolving line of
credit.............................................. 22,961 (13,769)
Proceeds from long term debt.......................... - 99,449
Principal payments on long term debt and other........ (33,613) -
Payments for debt issuance costs...................... - (3,777)
------------- -------------
Net cash provided by (used in) financing activities... (25,354) 19,538
Effect of foreign currency rate fluctuations on cash.. (161) (71)
------------- -------------
Increase (decrease) in cash and cash equivalents...... (5,164) 3,188
Cash and cash equivalents at beginning of period...... 5,164 -
------------- -------------
Cash and cash equivalents at end of period............ $ - $3,188
============= =============
See accompanying notes.
</TABLE>
5
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Buckeye Technologies Inc. (formerly 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, 1998 are not necessarily indicative of the
results that may be expected for the year ended June 30, 1998. 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,
1997.
NOTE B -- BUSINESS COMBINATION
On September 1, 1996, the Company acquired all of the issued and
outstanding stock of Alpha Cellulose Holdings, Inc. (Alpha). On May 28, 1997,
the Company's wholly owned subsidiary, Buckeye Acquisition Inc. (BAI), acquired
97.5% of the common shares of Merfin International Inc. (Merfin). On July 30,
1997, BAI acquired the remaining outstanding common shares of Merfin. These
transactions were as discussed and disclosed in the annual report. The
consolidated operating results of Alpha and Merfin have been included in the
consolidated statements of income from the respective date of acquisition.
The following unaudited pro forma results of operations assume that the
acquisitions of Alpha and Merfin occurred as of the beginning of the periods
presented.
<TABLE>
<CAPTION>
Nine Months Ended
March 31
Actual Proforma
1998 1997
---------------------------
(In thousands, except
per share data)
<S> <C> <C>
Net sales................................... $469,397 $460,617
Net income.................................. 40,703 32,596
Net income per share........................ 1.09 0.85
Net income per share - assuming dilution.... 1.06 0.84
</TABLE>
Pro forma results of operations for the nine months ended March 31, 1997
include certain non-recurring charges incurred by Alpha 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 $0.05 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.
6
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
C -- INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
March 31 June 30
1998 1997
--------------- --------------
<S> <C> <C>
(In thousands)
Raw materials.......................... $ 23,838 $ 25,409
Finished goods......................... 56,985 63,932
Storeroom and other supplies........... 18,753 18,049
=============== ==============
$99,576 $107,390
=============== ==============
</TABLE>
NOTE D -- EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share". SFAS No. 128 specifies the computation, presentation and disclosure
requirements for earnings per share (EPS) and became effective for both interim
and annual periods ending after December 15, 1997. On January 21, 1998, the
Board of Directors of the Company declared a two-for-one stock split for
stockholders of record as of February 10, 1998. The stock split was paid on
February 17, 1998 in the form of a stock dividend of one share of common stock
for each issued share of common stock. All prior period EPS data has been
restated to conform with the provisions of SFAS No. 128 and to reflect the stock
split. The following is a reconciliation of the numerators and denominators used
to calculate net income per share in the Condensed Consolidated Statements of
Income:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31 March 31
------------------------- -------------------------
1998 1997 1998 1997
------------ ----------- ----------- -------------
<S> <C> <C> <C> <C>
Numerator:
Net income for basic and dilutive
earnings per share.................... $14,204,000 $13,963,000 $40,703,000 $38,662,000
Denominator:
Weighted average shares outstanding--used
for basic earnings per share......... 36,959,446 37,994,416 37,212,345 38,333,344
Effect of dilutive options............... 1,124,287 654,314 1,094,943 532,607
----------- ----------- ----------- -----------
Denominator for diluted earnings per share 38,083,733 38,648,730 38,307,288 38,865,951
Net income per share..................... $0.38 $0.37 $1.09 $1.01
=========== =========== =========== ===========
Net income per share - assuming dilution $0.37 $0.36 $1.06 $0.99
=========== =========== =========== ===========
</TABLE>
7
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE E -- FOREIGN CURRENCY TRANSLATION
The Company's net investment in foreign operations is subject to foreign
currency translation gains and losses, which are included as a separate
component of stockholders' equity. The decline since June 30, 1997 in the value
of the Canadian dollar, the Irish punt and the Deutsche mark as compared to the
U.S. dollar has resulted in an equity translation loss of $2.7 and $10.8 million
for the three and nine months ended March 31, 1998, respectively.
NOTE F -- RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement
No. 130, "Reporting Comprehensive Income". This statement establishes
requirements for disclosure of comprehensive income and will become effective
for the Company's 1999 fiscal year, with reclassification of earlier financial
statements for comparative purposes. Comprehensive income generally includes
changes in stockholders' equity such as foreign currency translation gains and
losses. The Company is evaluating alternative formats for presenting this
information.
In June 1997, the Financial Accounting Standards Board issued Statement No.
131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS
131). This statement establishes standards for disclosure about operating
segments in annual financial statements and selected information in interim
financial reports. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. This statement
supercedes Statement of Financial Accounting Standards No. 14, "Financial
Reporting for Segments of a Business Enterprise". SFAS 131 will become effective
for the Company's 1999 fiscal year and requires that comparative information
from earlier years be restated to conform to the requirements of this standard.
The Company is evaluating the requirements of SFAS 131 and the effects, if any,
on the Company's current reporting and disclosures.
In February 1998, the Financial Accounting Standards Board issued
Statement No. 132, "Employers' Disclosures About Pensions and Other
Postretirement Benefits". This statement revises employers' disclosures about
pension and other postretirement benefit plans and will become effective for the
Company's 1999 fiscal year, with reclassification of earlier periods for
comparative purposes. It standardizes disclosure requirements and requires
additional information on changes in the benefit obligations and fair value of
plan assets. The Company is evaluating the requirements and the effects on the
Company's current disclosures.
NOTE G -- ENVIRONMENTAL MATTERS
The Company previously reached an agreement (the Fenholloway Agreement)
with the Florida Department of Environmental Protection, to make approximately
$40 million in capital expenditures to modify its facilities to meet the
proposed reclassification of the Fenholloway River from an industrial stream to
a fishable/swimmable stream. In 1998, the U.S. Environmental Protection Agency
(EPA), in its review of the Company's proposed National Pollutant Discharge
Elimination System (NPDES) permit, has requested additional environmental
studies and further discussions with the various regulatory agencies to identify
8
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
possible alternatives to the Fenholloway Agreement which would comply with Class
III water quality requirements. The ultimate cost and timing of expenditures for
compliance with these water quality requirements may vary from previous
estimates.
NOTE H -- SUBSEQUENT EVENTS
On April 7, 1998, the stockholders of the Company approved an increase
in the Company's authorized shares of common and preferred stock to 100 million
shares and 10 million shares, respectively.
On April 30, 1998, the Company delivered to Bankers Trust Company (the
Trustee) notice of its intent to redeem on June 30, 1998 the remaining $6.9
million principal amount of its outstanding 10 1/4% Senior Notes at a price of
103.875%.
9
<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, 1998 were $162.5 million
compared to $139.5 million for the same period in the prior fiscal year, an
increase of $23.0 million or 16.5%. Net sales for the nine month period ended
March 31, 1998 were $469.4 million compared to $409.0 million for the same
period in the prior fiscal year, an increase of $60.4 million or 14.8%. The
increase for the three month period was primarily due to the acquisition of
Merfin on May 28, 1997. The increase for the nine month period was primarily due
to the acquisition of Merfin and of Alpha on September 1, 1996.
Operating income for the three months ended March 31, 1998 was $30.3
million compared to $27.1 million for the same period in the prior fiscal year.
Operating income as a percentage of sales declined to 18.6% for the quarter, a
decrease of 0.8 percentage points, due to weather related higher pulpwood costs,
the startup of a new facility, and an increased investment in product
development, partially offset by a decline in other raw material costs.
Operating income for the nine months ended March 31, 1998 was $91.3 million
compared to $78.5 million for the same period in the prior fiscal year.
Operating income as a percentage of sales increased to 19.4% year to date, an
increase of 0.2 percentage points as a result of lower overall raw material
costs partially offset by the increased investment in product development and
the startup of the new facility.
Net interest expense and amortization of debt costs were $8.9 million
for the three months and $27.5 million for the nine months ended March 31, 1998.
This is a $2.3 million and $7.9 million increase, respectively, compared to the
same period of the prior fiscal year. This increase was due to higher average
debt balances, resulting from the acquisitions.
The Company's net income for the three month and nine month period ended
March 31, 1998 was $14.2 million or $0.37 per share on a diluted basis, and
$40.7 million or $1.06 per share on a diluted basis, respectively, compared to
$14.0 million or $0.36 per share on a diluted basis and $38.7 million or $0.99
per share on a diluted basis for the same periods of the prior year.
- -------------------
FINANCIAL CONDITION
- -------------------
Stock Split
On January 21, 1998, the Board of Directors of the Company declared a
two-for-one stock split for stockholders of record as of February 10, 1998. The
stock split was paid in the form of a stock dividend of one share of common
stock for each issued share of common stock on February 17, 1998. All share
information in this discussion has been restated to reflect the stock split.
Cash Flow
Cash provided by operating activities for the nine months ended March
31, 1998 was $62.9 million. These funds were used, along with additional
borrowings from the credit facility, to purchase and upgrade production
equipment, repay certain Canadian bank, European bank, and other loans, acquire
the remaining outstanding stock of Merfin, and repurchase stock. On February 4,
1998, the Board of Directors authorized the repurchase of an additional two
million shares of common stock. Repurchased shares, which may be bought from
time-to-time in open market or private transactions, will be held as treasury
stock and will be available for general corporate purposes, including the
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (cont'd)
funding of employee benefit and stock related plans. During the nine month
period ended March 31, 1998, the Company repurchased 820,200 shares of common
stock bringing the total shares repurchased to 1,999,200, pursuant to the
Company's original two million share repurchase plan in effect since August
1996.
Liquidity and Capital Resources
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. At March 31, 1998, the Company had
unused borrowing capacity of approximately $79.5 million on its bank credit
facility.
Environmental Matters
The Company previously reached an agreement (the Fenholloway Agreement)
with the Florida Department of Environmental Protection, to make approximately
$40 million in capital expenditures to modify its facilities to meet the
proposed reclassification of the Fenholloway River from an industrial stream to
a fishable/swimmable stream. In 1998, the U.S. Environmental Protection Agency
(EPA), in its review of the Company's proposed National Pollutant Discharge
Elimination System (NPDES) permit, has requested additional environmental
studies and further discussions with the various regulatory agencies to identify
possible alternatives to the Fenholloway Agreement which would comply with Class
III water quality requirements. The ultimate cost and timing of expenditures for
compliance with these water quality requirements may vary from previous
estimates.
- --------------------
YEAR 2000 COMPLIANCE
- --------------------
The Company is dependent upon computerized information systems for all
phases of its operations including production, distribution, and accounting.
During the last three years, the Company has replaced substantially all
financial systems, giving the Company the benefit of new technology and
functionality while becoming year 2000 compliant. However, the financial systems
of recent acquisitions are still being assessed for year 2000 compliance. The
Company's suppliers, distributors, and customers may also have year 2000
problems which could affect the Company. The Company has developed a plan and
timetable to determine the impact of the year 2000 on its operations and to
achieve year 2000 compliance. The Company believes at present that the cost to
achieve compliance will not have a material effect on its financial position,
liquidity, or results of operations.
Management's estimate of the ultimate cost and the completion of
necessary systems modification or replacement is based on numerous assumptions
of future events including continued availability of certain resources, third
party modification plans and other factors. However, there can be no guarantee
that these estimates will be achieved and actual results could differ materially
from those anticipated.
- -----------------
SUBSEQUENT EVENTS
- -----------------
On April 7, 1998, the stockholders of the Company approved an increase
in the Company's authorized shares of common and preferred stock to 100 million
shares and 10 million shares, respectively.
On April 30, 1998, the Company delivered to Bankers Trust Company (the
Trustee) notice of its intent to redeem on June 30, 1998 the remaining $6.9
million principal amount of its outstanding 10 1/4% Senior Notes at a price of
103.875%. The redemption of these notes will be funded by cash flow from
operations and/or additional borrowings on the credit facility.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At a Special Meeting of Stockholders of the Company, held on April 7,
1998 the following proposals were approved.
<TABLE>
<CAPTION>
Votes
Votes For Against Abstained
------------ ----------- ---------
<S> <C> <C> <C>
Amendment to the Second Amended and Restated
Certificate of Incorporation of the Company to
increase the number of authorized shares of
common stock, par value $.01 per share, from
50,000,000 to 100,000,000........................ 31,808,813 352,387 17,902
Amendment to the Second Amended and Restated
Certificate of Incorporation of the Company to
increase the number of authorized shares of
preferred stock, par value $.01 per share, from
5,000,000 to 10,000,000.......................... 26,445,785 2,730,741 18,917
</TABLE>
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, 1998.
12
<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 TECHNOLOGIES INC.
By: /s/ DAVID B. FERRARO
--------------------------------------
David B. Ferraro, Director, President, and Chief Operating Officer
Date: May 13, 1998
By: /s/ DAVID H. WHITCOMB
--------------------------------------
David H. Whitcomb, Sr. Vice President-Finance
Date: May 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-END> MAR-31-1998
<CASH> 0
<SECURITIES> 2,900
<RECEIVABLES> 88,584
<ALLOWANCES> 1,325
<INVENTORY> 99,576
<CURRENT-ASSETS> 196,293
<PP&E> 497,319
<DEPRECIATION> 113,710
<TOTAL-ASSETS> 724,560
<CURRENT-LIABILITIES> 69,989
<BONDS> 462,753
0
0
<COMMON> 431
<OTHER-SE> 143,839
<TOTAL-LIABILITY-AND-EQUITY> 724,560
<SALES> 469,397
<TOTAL-REVENUES> 469,397
<CGS> 344,303
<TOTAL-COSTS> 378,145
<OTHER-EXPENSES> 1,460
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,513
<INCOME-PRETAX> 62,279
<INCOME-TAX> 21,576
<INCOME-CONTINUING> 40,703
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,703
<EPS-PRIMARY> 1.09
<EPS-DILUTED> 1.06
</TABLE>
