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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, 1999
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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 9, 2000, there were outstanding 35,009,864 Common Shares of the
Registrant.
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<PAGE>
INDEX
BUCKEYE TECHNOLOGIES INC.
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<TABLE>
<CAPTION>
ITEM PAGE
PART I - FINANCIAL INFORMATION
<S> <C>
1. Financial Statements (Unaudited):
Condensed Consolidated Statements of Income for the Three Months Ended December 31, 1999
and 1998; Six Months Ended December 31, 1999 and 1998.................................. 3
Condensed Consolidated Balance Sheets as of December 31, 1999 and June 30, 1999............. 4
Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 1999
and 1998............................................................................... 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
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31 December 31
------------------------- ---------------------
1999 1998 1999 1998
------------------------- ---------------------
<S> <C> <C> <C> <C>
Net sales.............................................. $183,702 $147,274 $337,102 $303,451
Cost of goods sold..................................... 136,066 109,269 247,246 223,092
------------------------- ---------------------
Gross margin........................................... 47,636 38,005 89,856 80,359
Selling, research and administrative expenses.......... 13,570 10,405 25,800 22,233
------------------------- ---------------------
Operating income....................................... 34,066 27,600 64,056 58,126
Net interest expense and amortization of debt costs.... 11,349 9,929 20,570 19,583
Other.................................................. 1,172 978 2,301 1,367
------------------------- ---------------------
Income before income taxes............................. 21,545 16,693 41,185 37,176
Income taxes........................................... 7,307 5,819 13,592 12,919
------------------------- ---------------------
Net income............................................. $14,238 $10,874 $27,593 $24,257
========================= =====================
Basic earnings per share............................... $0.40 $0.30 $0.78 $0.67
========================= =====================
Diluted earnings per share............................. $0.40 $0.30 $0.77 $0.66
========================= =====================
Weighted average shares for basic earnings per share 35,171 35,746 35,273 36,101
Effect of dilutive stock options 711 800 725 915
------------------------- ---------------------
Adjusted weighted average shares for diluted earnings 35,882 36,546 35,998 37,016
per share
</TABLE>
See accompanying notes.
3
<PAGE>
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
December 31 June 30
1999 1999
------------- -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents............................... $ 9,327 $ 403
Accounts receivable - net............................... 101,825 81,648
Inventories............................................. 109,909 104,584
Deferred income taxes and other......................... 8,040 10,458
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Total current assets........................... 229,101 197,093
Property, plant and equipment................................ 677,471 569,755
Less allowances for depreciation............................. (177,720) (157,524)
------------- -------------
499,751 412,231
Goodwill..................................................... 126,180 127,409
Deferred debt costs and other................................ 22,118 11,149
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Total assets................................... $877,150 $747,882
============= =============
Liabilities and stockholders' equity Current liabilities:
Accounts payable........................................ $20,739 $22,848
Accrued expenses........................................ 52,107 45,127
Current portion of long-term debt 21,892 -
------------- -------------
Total current liabilities...................... 94,738 67,975
Noncurrent liabilities:
Long-term debt.......................................... 519,133 441,214
Accrued postretirement benefit obligation............... 16,902 16,270
Deferred income taxes................................... 47,126 43,480
Other liabilities....................................... 1,864 1,524
Stockholders' equity......................................... 197,387 177,419
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Total liabilities and stockholders' equity.............. $877,150 $747,882
============= =============
</TABLE>
See accompanying notes.
4
<PAGE>
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
December 31
---------------------------
1999 1998
---------------------------
<S> <C> <C>
Operating activities
Net income........................................................ $27,593 $24,257
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation............................................... 20,824 18,061
Amortization and other..................................... 4,705 4,655
Deferred income taxes...................................... 3,531 4,305
Changes in operating assets and liabilities:
Accounts receivable.................................... (9,136) 9,360
Inventories............................................ (87) (7,953)
Other assets........................................... 3,015 (1,789)
Accounts payable and other current liabilities......... (3,172) (18,656)
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Net cash provided by operating activities.................. 47,273 32,240
Investing activities
Acquisition of businesses......................................... (28,090) -
Net purchases of property, plant and equipment.................... (20,154) (31,166)
Other............................................................. - 2,780
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Net cash used in investing activities............................. (48,244) (28,386)
Financing activities
Purchase of treasury shares....................................... (5,526) (20,732)
Proceeds from sale of equity interests............................ 300 420
Net borrowings under revolving line of credit..................... 15,582 26,520
Other............................................................. 177 (11,603)
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Net cash provided by (used in) financing activities............... 10,533 (5,395)
Effect of foreign currency rate fluctuations on cash.............. (638) 69
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Increase (decrease) in cash and cash equivalents.................. 8,924 (1,472)
Cash and cash equivalents at beginning of period.................. 403 1,472
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Cash and cash equivalents at end of period........................ $9,327 $ -
============= =============
</TABLE>
See accompanying notes.
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,
1999 are not necessarily indicative of the results that may be expected for the
year ended June 30, 2000. 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, 1999.
NOTE B - BUSINESS COMBINATION
On October 1, 1999, the Company completed its acquisition of
essentially all of the assets of the Walkisoft division of UPM-Kymmene for
approximately $114 million. The acquisition will be funded by paying UPM-Kymmene
approximately $26 million at closing and $22 million on each of the first four
anniversaries of closing. The allocation of the purchase price is preliminary as
the Company is evaluating the final appraisal. Walkisoft is a manufacturer of
airlaid nonwoven materials, with manufacturing locations in Steinfurt, Germany
and Mt. Holly, North Carolina. The consolidated operating results of Walkisoft
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 Walkisoft occurred as of the beginning of the periods presented.
Six Months Ended December 31
1999 1998
--------------------------------------
(In thousands, except per share data)
Net sales $354,593 $330,204
Net income 26,589 18,844
Basic earnings per share 0.75 0.52
Diluted earnings per share 0.74 0.51
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 combination been consummated as of the
above dates, nor is it necessarily indicative of future operating results.
6
<PAGE>
NOTE C-- INVENTORIES
The components of inventory consist of the following:
December 31 June 30
1999 1999
------------------------------------
(In thousands)
Raw materials....................... $30,363 $28,619
Finished goods...................... 59,713 56,927
Storeroom and other supplies........ 19,833 19,038
------------------------------------
$109,909 $104,584
====================================
NOTE D-- COMPREHENSIVE INCOME
The components of comprehensive income consist of the following:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31 December 31
---------------------------- ----------------------------
1999 1998 1999 1998
---------------------------- ----------------------------
(In thousands) (In thousands)
<S> <C> <C> <C> <C>
Net income............................................. $14,238 $10,874 $27,593 $24,257
Foreign currency translation adjustments - net.. (7,075) (2,416) (2,983) (706)
Comprehensive income............................. $ 7,163 $ 8,458 $24,610 $23,551
</TABLE>
The increase in the foreign currency translation adjustment for the three months
ended December 31, 1999 is the result of the increase in the Company's foreign
assets and the decline in the Euro against the US Dollar.
NOTE E - SUBSEQUENT EVENTS
On January 18, 2000, the Board of Directors of the Company authorized
the repurchase of an additional one 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. They will be available for general
corporate purposes, including the funding of employee benefit and stock related
plans.
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, 1999 were $183.7
million compared to $147.3 million for the same period in the prior fiscal year,
an increase of $36.4 million or 24.7%. Net sales for the six-month period ended
December 31, 1999 were $337.1 million compared to $303.5 million for the same
period in the prior fiscal year, an increase of $33.6 million or 11.1%.
Approximately one half of the increase for both the three and six month periods
was due to the acquisition of Walkisoft and half was due to higher volume on
existing business. Unit sales prices in both periods were slightly below the
previous year due to the January 1, 1999 fluff pulp contract price reduction to
Procter & Gamble offset by favorable product mix.
Operating income for the three months ended December 31, 1999 was $34.1
million compared to $27.6 million for the same period in the prior fiscal year,
an increase of $6.5 million or 23.6%. Operating income for the six months ended
December 31, 1999 was $64.1 million compared to $58.1 million for the same
period in the prior fiscal year, an increase of $6.0 million or 10.3%. The
increase for both the three and six month periods is primarily due to the higher
sales volume.
Net interest expense and amortization of debt costs were $11.3 million
for the three months and $20.6 million for the six months ended December 31,
1999. This is a $1.4 million and $1.0 million increase, respectively, compared
to the same period of the prior fiscal year. This increase was primarily due to
higher debt levels as a result of the Walkisoft acquisition.
The Company's effective tax rate of 33% for the six months ended
December 31, 1999 is 1.3% higher than the effective tax rate of 31.7% for the
fiscal year ended June 30, 1999 due to increased profits in higher tax rate
countries.
The Company's net income for the three month and six month period ended
December 31, 1999 was $14.2 million or $0.40 per share on a diluted basis, and
$27.6 million or $0.77 per share on a diluted basis, respectively. This compares
to $10.9 million or $0.30 per share on a diluted basis and $24.3 million or
$0.66 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, 1999 was $47.3 million. These funds were used, along with additional
borrowings from the credit facility, to purchase, modernize and upgrade
production equipment and facilities, to repurchase stock and to make the initial
payment to UPM-Kymmene for the purchase of Walkisoft. During the six months
ended December 31, 1999, the Company repurchased 363,900 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, 1999 is 3,886,000. On January
18, 2000, the Board of Directors authorized the repurchase of an additional one
million shares of common stock to bring the total shares authorized to be
repurchased to 5,000,000 shares.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont'd)
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, 1999, the
Company had unused borrowing capacity of approximately $177 million on its bank
credit facility. The completed Walkisoft acquisition for approximately $114
million, includes $9 million in working capital. This acquisition will be funded
by making the initial payment to UPM-Kymmene of approximately $26 million during
October 1999 with an additional $22 million payment on each of the first four
anniversaries of closing. Interest of 5% annually will be paid on the unpaid
balance. The announced construction of the world's largest airlaid nonwovens
machine will cost approximately $100 million, including $16 million in working
capital. Funding for this machine, over the next two years, will be made from
the Company's operating funds or through borrowings from the credit facility.
9
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On November 4, 1999, the Company held its Annual Meeting of
Stockholders. At the meeting, R. Howard Cannon and Harry J. Phillips were each
re-elected as Class I directors to hold office for a three-year term or until
their successors are elected and qualified. For R. Howard Cannon, 31,844,219
votes were cast in favor and 634,437 votes were withheld. For Harry J. Phillips,
31,866,718 votes were cast in favor and 611,938 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 approved an amendment to increase the total number of
shares of common stock authorized for issuance under the Amended and Restated
1995 Incentive and Non-Qualified Stock Option Plan for Management Employees from
3.3 million to 4.9 million. 31,075,295 votes were cast in favor of the
amendment, 1,345,074 were cast against and 26,944 votes abstained.
The stockholders also ratified the appointment of Ernst & Young LLP as
the Company's independent auditors. 32,405,738 votes were cast in favor of the
ratification, 60,801 were cast against and 12,117 votes abstained.
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, 1999, the following report was
filed on Form 8-K:
Report dated October 13, 1999, pursuant to Item 2 and Item 7
of that form.
No financial statements were filed as part of that report.
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 11, 2000
----------------------------
By: /S/ DAVID H. WHITCOMB
----------------------------
David H. Whitcomb, Sr. Vice President-Finance and Accounting
Date: February 11, 2000
----------------------------
11
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 9,327
<SECURITIES> 0
<RECEIVABLES> 102,876
<ALLOWANCES> 10,541
<INVENTORY> 109,909
<CURRENT-ASSETS> 229,101
<PP&E> 677,471
<DEPRECIATION> 177,720
<TOTAL-ASSETS> 877,150
<CURRENT-LIABILITIES> 94,738
<BONDS> 519,133
0
0
<COMMON> 431
<OTHER-SE> 196,956
<TOTAL-LIABILITY-AND-EQUITY> 877,150
<SALES> 337,102
<TOTAL-REVENUES> 337,102
<CGS> 247,246
<TOTAL-COSTS> 273,046
<OTHER-EXPENSES> 2,301
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,570
<INCOME-PRETAX> 41,185
<INCOME-TAX> 13,592
<INCOME-CONTINUING> 27,593
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,593
<EPS-BASIC> 0.78
<EPS-DILUTED> 0.77
</TABLE>
