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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, 1998
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Commission file number: 33-60032
Buckeye Technologies Inc.
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 1, 1999, there were outstanding 35,462,336 Common Shares of the
Registrant.
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<PAGE>
INDEX
BUCKEYE TECHNOLOGIES INC.
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ITEM PAGE
PART I - FINANCIAL INFORMATION
1. Financial Statements (Unaudited):
Condensed Consolidated Statements of Income for the Three Months
Ended December 31, 1998 and 1997; Six Months Ended December 31,
1998 and 1997................................................ 3
Condensed Consolidated Balance Sheets as of December 31, 1998 and
June 30, 1998................................................ 4
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended December 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........................................ 8
PART II - OTHER INFORMATION
4. Submission of Matters to a Vote of Security Holders............. 10
6. Exhibits and Reports on Form 8-K................................ 10
SIGNATURES 11
2
<PAGE>
<TABLE>
<CAPTION>
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
---------------------------- ----------------------------
1998 1997 1998 1997
<S> <C> <C> <C> <C>
---------------------------- ----------------------------
Net sales.............................................. $147,274 $153,610 $303,451 $306,923
Cost of goods sold..................................... 109,269 113,254 223,092 224,426
---------------------------- ----------------------------
Gross margin........................................... 38,005 40,356 80,359 82,497
Selling, research and administrative expenses.......... 10,405 10,136 22,233 21,508
---------------------------- ----------------------------
Operating income....................................... 27,600 30,220 58,126 60,989
Net interest expense and amortization of debt costs.... 9,929 9,258 19,583 18,602
Other.................................................. 978 354 1,367 1,022
---------------------------- ----------------------------
Income before income taxes............................. 16,693 20,608 37,176 41,365
Income taxes........................................... 5,819 7,270 12,919 14,866
---------------------------- ----------------------------
Net income............................................. $10,874 $13,338 $24,257 $26,499
============================ ============================
Net income per share................................... $0.30 $0.36 $0.67 $0.71
============================ ============================
Net income per share - assuming dilution............... $0.30 $0.35 $0.66 $0.69
============================ ============================
See accompanying notes.
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
December 31 June 30
1998 1998
---------------- -----------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents.................................... $ - $1,472
Short-term investments....................................... - 2,900
Accounts receivable - net.................................... 80,209 88,721
Inventories.................................................. 109,227 100,372
Deferred income taxes and other.............................. 11,326 10,041
---------------- -----------------
Total current assets................................ 200,762 203,506
Property, plant and equipment..................................... 554,973 523,508
Less allowances for depreciation.................................. (139,502) (121,561)
---------------- -----------------
415,471 401,947
Goodwill.......................................................... 127,902 132,488
Deferred debt costs and other..................................... 11,999 13,595
================ =================
Total assets........................................ $756,134 $751,536
================ =================
Liabilities and stockholders' equity Current liabilities:
Accounts payable............................................. $19,585 $25,142
Accrued expenses............................................. 36,832 49,547
Notes payable................................................ 1,196 829
Current portion of long-term debt 362 511
---------------- -----------------
Total current liabilities........................... 57,975 76,029
Noncurrent liabilities:
Long-term debt............................................... 482,346 456,332
Accrued postretirement benefit obligation.................... 15,751 15,159
Deferred income taxes........................................ 38,832 34,609
Other liabilities............................................ 1,680 13,728
Stockholders' equity.............................................. 159,550 155,679
================ =================
Total liabilities and stockholders' equity................... $756,134 $751,536
================ =================
See accompanying notes.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
December 31
-------------------------------------------
1998 1997
---------------- -----------------
<S> <C> <C>
Operating activities
Net income........................................................ $24,257 $26,499
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation............................................... 18,061 18,532
Amortization and other..................................... 4,655 4,548
Deferred income taxes...................................... 4,305 974
Changes in operating assets and liabilities:
Accounts receivable.................................... 9,360 (794)
Inventories............................................ (7,953) 2,936
Other assets........................................... (1,789) 574
Accounts payable and other current liabilities......... (18,656) (16,210)
---------------- -----------------
Net cash provided by operating activities.................. 32,240 37,059
Investing activities
Acquisition of businesses......................................... - (3,869)
Net purchases of property, plant and equipment.................... (31,166) (23,084)
Other............................................................. 2,780 (44)
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Net cash used in investing activities............................. (28,386) (26,997)
Financing activities
Purchase of treasury shares....................................... (20,732) (7,362)
Proceeds from sale of equity interests............................ 420 1,219
Net borrowings under revolving line of credit..................... 26,520 25,006
Principal payments on long term debt and other.................... (11,603) (33,978)
---------------- -----------------
Net cash used in financing activities............................. (5,395) (15,115)
Effect of foreign currency rate fluctuations on cash.............. 69 (111)
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Decrease in cash and cash equivalents............................. (1,472) (5,164)
Cash and cash equivalents at beginning of period.................. 1,472 5,164
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Cash and cash equivalents at end of period........................ $ - $ -
================ =================
See accompanying notes.
</TABLE>
5
<PAGE>
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Buckeye Technologies Inc. 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,
1998 are not necessarily indicative of the results that may be expected for the
year ended June 30, 1999. All significant intercompany accounts and transactions
have been eliminated in consolidation. 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, 1998.
NOTE B -- INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
December 31 June 30
1998 1998
-------------------------------------
(In thousands)
<S> <C> <C>
Raw materials........................................ $26,615 $26,421
Finished goods....................................... 64,059 55,939
Storeroom and other supplies......................... 18,553 18,012
=====================================
$109,227 $100,372
=====================================
</TABLE>
NOTE C -- COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement
No. 130, Reporting Comprehensive Income. This statement requires reporting
of changes in shareholders' equity that do not result directly from
transactions with shareholders. The following is an analysis of these changes:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31 December 31
----------------------------- ----------------------------
1998 1997 1998 1997
----------------------------- ----------------------------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Net income............................................. $10,874 $13,338 $24,257 $26,499
Foreign currency translation adjustments - net.. (2,416) (5,326) (706) (8,079)
----------------------------- ----------------------------
Comprehensive income............................. $8,458 $ 8,012 $23,551 $18,420
============================= ============================
</TABLE>
6
<PAGE>
NOTE D - EARNINGS PER SHARE
The following is a reconciliation of the numerators and denominators used to
calculate earnings per share in the consolidated statements of income:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31 December 31
----------------------------- ----------------------------
1998 1997 1998 1997
----------------------------- ----------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
Numerator:
Net income for basic and diluted earnings per share $10,874 $13,338 $24,257 $26,499
Denominator:
Weighted average shares outstanding - used for basic
earnings per share........................... 35,745.7 37,260.6 36,101.1 37,339.1
Effect of dilutive options........................ 799.9 1,177.4 914.9 1,080.3
----------------------------- ----------------------------
Denominator for diluted earnings per share........ 36,545.6 38,438.0 37,016.0 38,419.4
Net income per share.............................. $0.30 $0.36 $0.67 $0.71
============================= ===========================
Net income per share - assuming dilution $0.30 $0.35 $0.66 $0.69
============================= ===========================
</TABLE>
7
<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, 1998 were $147.3
million compared to $153.6 million for the same period in the prior fiscal year,
a decrease of $6.3 million or 4.1%. Net sales for the six month period ended
December 31, 1998 were $303.5 million compared to $306.9 million for the same
period in the prior fiscal year, a decrease of $3.4 million or 1.1%. The
decrease for both the three and six month periods was primarily due to lower
volume.
Operating income for the three months ended December 31, 1998 was $27.6
million compared to $30.2 million for the same period in the prior fiscal year,
a decrease of $2.6 million or 8.6%. Operating income for the six months ended
December 31, 1998 was $58.1 million compared to $61.0 million for the same
period in the prior fiscal year, a decrease of $2.9 million or 4.8%. The
decrease for both the three and six month periods is primarily due to the lower
sales volume.
Net interest expense and amortization of debt costs were $9.9 million
for the three months and $19.6 million for the six months ended December 31,
1998. This is a $0.6 million and $1.0 million increase, respectively, compared
to the same period of the prior fiscal year. This increase was primarily due to
higher average interest rates.
The Company's effective tax rate of 34.8% for the six months is
comparable to the effective tax rate for the fiscal year ended June 30, 1998.
The Company's net income for the three month and six month period ended
December 31, 1998 was $10.9 million or $0.30 per share on a diluted basis, and
$24.3 million or $.66 per share on a diluted basis, respectively. This compares
to $13.3 million or $0.35 per share on a diluted basis and $26.5 million or $.69
per share on a diluted basis for the same periods of the prior year.
Financial Condition
Cash Flow
Cash provided by operating activities for the six months ended December
31, 1998 was $32.2 million. These funds were used, along with additional
borrowings from the credit facility, to purchase, modernize and upgrade
production equipment and facilities and to repurchase stock. During the six
months ended December 31, 1998, the Company repurchased 1,244,700 shares of
common stock, pursuant to a 4,000,000 share repurchase plan. The total number of
shares repurchased through this plan through December 31, 1998 is 3,334,900.
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 authorized common stock repurchases, and service
all debt requirements for the foreseeable future. At December 31, 1998, the
Company had unused borrowing capacity of approximately $150.7 million on its
bank credit facility.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont'd)
Year 2000 Compliance
The Company is dependent upon computerized information systems for all
phases of its operations including production, distribution and accounting. The
Company's suppliers, distributors and customers are also dependent upon
computerized information systems and may have year 2000 problems, which could
adversely affect the Company. During the last three years, the Company has
replaced substantially all of its mission critical information technology (IT)
systems, giving the Company the benefit of new technology and functionality
while becoming year 2000 compliant.
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
has separated its compliance analysis into four categories. These categories are
mission critical IT systems, other IT systems, non-IT systems and major
customers and suppliers IT systems. The Company has also identified five major
steps, within each of these areas, that need to be completed in order to become
year 2000 compliant. These steps are: (1) identify compliance owners, (2)
inventory all systems to determine compliance or non-compliance, (3) establish a
plan to implement any required changes, (4) test the implementation plan and (5)
execute the plan, establish contingencies and verify that compliance has been
achieved.
The Company has completed the first four steps for all systems. The total
plan will be completed and compliance verification will be achieved by 7/1/99
for all systems. The Company has evaluated the cost to achieve compliance and
believes it will not have a material effect on its financial position,
liquidity, or results of operations.
9
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On November 5, 1998, the Company held its Annual Meeting of
Stockholders. At the meeting, Robert E. Cannon, Henry Frigon and Samuel M.
Mencoff were each re-elected as Class III directors to hold office for a
three-year term or until their successors are elected and qualified. For Robert
E. Cannon, 33,297,671 votes were cast in favor, 2,850 votes were cast against
and 222,052 votes were withheld. For Henry F. Frigon, 33,300,621 votes were cast
in favor and 221,952 votes were withheld. For Samuel M. Mencoff, 33,300,621
votes were cast in favor and 221,952 were withheld.
Following the election, the Company's Board of Directors consisted of
Mr. Red Cavaney, Mr. R. Howard Cannon, Mr. Robert E. Cannon, Mr. David B.
Ferraro, Mr. Henry F. Frigon, Mr. Samuel M. Mencoff, and Mr. Harry J. Phillips,
Sr.
The stockholders also ratified the appointment of Ernst & Young LLP as
the Company's independent auditors. 33,510,699 votes were cast in favor of the
ratification, 4,396 were cast against and 7,478 votes abstained.
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 December 31, 1998.
10
<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: February 2, 1999
By: /s/ DAVID H. WHITCOMB
------------------------------
David H. Whitcomb, Sr. Vice President-Finance and Accounting
Date: February 2, 1999
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Jun-30-1999
<PERIOD-END> Dec-31-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 81,313
<ALLOWANCES> 1,104
<INVENTORY> 109,227
<CURRENT-ASSETS> 200,762
<PP&E> 554,973
<DEPRECIATION> 139,502
<TOTAL-ASSETS> 756,134
<CURRENT-LIABILITIES> 57,975
<BONDS> 482,346
0
0
<COMMON> 431
<OTHER-SE> 159,119
<TOTAL-LIABILITY-AND-EQUITY> 756,134
<SALES> 303,451
<TOTAL-REVENUES> 303,451
<CGS> 223,092
<TOTAL-COSTS> 245,325
<OTHER-EXPENSES> 1,367
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,583
<INCOME-PRETAX> 37,176
<INCOME-TAX> 12,919
<INCOME-CONTINUING> 24,257
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,383
<EPS-PRIMARY> 0.67
<EPS-DILUTED> 0.66
</TABLE>
