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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, 2001
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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 May 2, 2001, there were outstanding 34,184,440 Common Shares of the
Registrant.
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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 Quarter Ended March 31, 2001 and
2000; Nine Months Ended March 31, 2001 and 2000........................................ 3
Condensed Consolidated Balance Sheets as of March 31, 2001 and June 30, 2000................ 4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2001
and 2000............................................................................... 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
6. Exhibits and Reports on Form 8-K............................................................ 11
SIGNATURES 12
2
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share data)
Quarter Ended Nine Months Ended
March 31 March 31
-------------------------- ---------------------------
2001 2000 2001 2000
-------------------------- ---------------------------
Net sales............................................. $181,933 $200,376 $556,538 $557,422
Cost of goods sold.................................... 144,259 150,740 427,194 417,930
-------------------------- ---------------------------
Gross margin.......................................... 37,674 49,636 129,344 139,492
Selling, research and administrative expenses......... 10,332 14,321 36,167 40,121
-------------------------- ---------------------------
Operating income...................................... 27,342 35,315 93,177 99,371
Net interest expense and amortization of debt costs... 11,677 11,207 34,236 31,777
Other................................................. 1,748 1,876 2,308 4,177
-------------------------- ---------------------------
Income before income taxes............................ 13,917 22,232 56,633 63,417
Income taxes.......................................... 4,627 7,338 18,489 20,930
-------------------------- ---------------------------
Net income............................................ $9,290 $14,894 $38,144 $42,487
========================== ===========================
Basic earnings per share.............................. $0.27 $0.43 $1.10 $1.21
========================== ===========================
Diluted earnings per share............................ $0.27 $0.42 $1.07 $1.18
========================== ===========================
Weighted average shares for basic earnings per share 34,398 34,967 34,650 35,171
Effect of dilutive stock options 505 806 892 752
-------------------------- ---------------------------
Adjusted weighted average shares for diluted
earnings per share 34,903 35,773 35,542 35,923
========================== ===========================
See accompanying notes.
3
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
March 31 June 30
2001 2000
---------------- -----------------
Assets
Current assets:
Cash and cash equivalents................................... $ 7,747 $ 12,257
Accounts receivable - net.................................... 108,827 111,899
Inventories.................................................. 143,194 107,238
Deferred income taxes and other.............................. 11,572 13,556
---------------- -----------------
Total current assets................................ 271,340 244,950
Property, plant and equipment..................................... 819,084 717,646
Less accumulated depreciation..................................... (226,833) (197,244)
---------------- -----------------
592,251 520,402
Goodwill, net..................................................... 131,581 122,399
Intellectual property and other, net.............................. 42,447 42,970
---------------- -----------------
Total assets........................................ $1,037,619 $930,721
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Liabilities and stockholders' equity
Current liabilities:
Accounts payable............................................. $ 32,314 $36,397
Accrued expenses............................................. 51,457 71,549
Current portion of long-term debt............................ - 26,892
---------------- -----------------
Total current liabilities........................... 83,771 134,838
Long-term debt............................................... 652,336 505,983
Accrued postretirement benefit obligation.................... 18,577 17,531
Deferred income taxes........................................ 59,960 56,691
Other liabilities............................................ 838 1,699
Stockholders' equity.............................................. 222,137 213,979
---------------- -----------------
Total liabilities and stockholders' equity................... $1,037,619 $930,721
================ =================
See accompanying notes.
4
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
March 31
-------------------------------------------
2001 2000
---------------- -----------------
Operating activities
Net income........................................................ $38,144 $42,487
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation............................................... 33,177 32,473
Amortization............................................... 5,973 5,727
Deferred income taxes and other............................ 5,561 5,715
Changes in operating assets and liabilities:
Accounts receivable.................................... 2,648 (14,519)
Inventories............................................ (38,373) 1,764
Other assets........................................... 1,825 2,438
Accounts payable and other current liabilities......... (20,600) 18,709
---------------- -----------------
Net cash provided by operating activities......................... 28,355 94,794
Investing activities
Acquisition of businesses......................................... (36,388) (28,484)
Purchases of property, plant and equipment........................ (107,790) (37,432)
Other............................................................. (421) (12,215)
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Net cash used in investing activities............................. (144,599) (78,131)
Financing activities
Purchase of treasury shares....................................... (9,826) (8,296)
Proceeds from exercise of stock options........................... 2,558 513
Net borrowings under revolving line of credit..................... 155,902 7,450
Net payments on long term debt and other.......................... (35,531) 10
---------------- -----------------
Net cash provided by (used in) financing activities............... 113,103 (323)
Effect of foreign currency rate fluctuations on cash.............. (1,369) (1,366)
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Increase (decrease) in cash and cash equivalents.................. (4,510) 14,974
Cash and cash equivalents at beginning of period.................. 12,257 403
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Cash and cash equivalents at end of period........................ $ 7,747 $15,377
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See accompanying notes.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 nine months ended March 31,
2001 are not necessarily indicative of the results that may be expected for the
year ended June 30, 2001. 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, 2000.
Certain amounts in the financial statements for the period ended March 31,
2000 have been reclassified to be consistent with the presentation of the
financial statements for the period ended March 31, 2001. Included in these
reclassifications is the effect of the Company's adoption of EITF 00-10:
Accounting for Shipping and Handling Fees and Costs, which addresses the income
statement classification for such costs. Amounts related to shipping and
handling and billed to a customer in a sale transaction have been classified as
revenue. Costs incurred for shipping and handling have been classified as costs
of goods sold. The adoption of EITF 00-10 had no impact on gross margin as
shipping and handling costs had previously been included in net sales.
The following tables set forth the reclassed amounts for the periods
presented:
Quarter Ended
--------------------------------------------------- Nine Months Ended
Sep. 30, 2000 Dec. 31, 2000 Mar. 31, 2001 Ended Mar. 31, 2001
---------------- ---------------- ----------------- -----------------------
Net sales $188,604 $186,001 $181,933 $556,538
Cost of goods sold 140,306 142,629 144,259 427,194
---------------- ---------------- ----------------- -----------------------
Gross margin $ 48,298 $ 43,372 $ 37,674 $129,344
================ ================ ================= =======================
Quarter Ended
-------------------------------------------------------------------- Year Ended
Sep. 30, 1999 Dec. 31, 1999 Mar. 31, 2000 June 30, 2000 June 30, 2000
---------------- ---------------- ----------------- ---------------- -------------------
Net sales $162,103 $194,943 $200,376 $198,122 $755,544
Cost of goods sold 119,883 147,307 150,740 145,981 563,911
---------------- ---------------- ----------------- ---------------- -------------------
Gross margin $ 42,220 $ 47,636 $ 49,636 $ 52,141 $191,633
================ ================ ================= ================ ===================
6
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Year Ended
---------------------------------------------------
June 30, 1997 June 30, 1998 June 30, 1999
---------------- ---------------- -----------------
Net sales $591,389 $668,490 $650,295
Cost of goods sold 444,207 500,037 491,703
---------------- ---------------- -----------------
Gross margin $147,182 $168,453 $158,592
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NOTE B - BUSINESS COMBINATION
On October 1, 1999, the Company acquired essentially all of the assets
of Walkisoft, UPM-Kymmene's nonwovens business for $29,501 in cash and $83,963
($88,000 in notes payable, net of $4,037 discount) in debt payable to
UPM-Kymmene. The acquisition of Walkisoft added manufacturing facilities in
Steinfurt, Germany and Gaston County, North Carolina, as well as engineering
operations in Finland. On August 1, 2000, the Company acquired the cotton
cellulose business of Fibra, S.A. (Fibra), located in Americana, Brazil for
approximately $36.5 million, including related acquisition costs. The
acquisition has been funded using borrowings from the Company's bank credit
facility. Both acquisitions were accounted for using the purchase method of
accounting. The allocation of the purchase price for Fibra is preliminary as the
Company is awaiting a final appraisal.
The consolidated operating results of Walkisoft and Fibra have been included in
the consolidated statements of income from the dates of the acquisition. The
following unaudited pro forma results of operations assume that the acquisitions
occurred at the beginning of the period presented.
Nine Months Ended March 31
2001 2000
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(In thousands, except per share data)
Net sales $557,168 $581,611
Net income 38,102 41,198
Basic earnings per share 1.10 1.17
Diluted earnings per share 1.07 1.15
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.
7
NOTE C-- INVENTORIES
The components of inventory consist of the following:
March 31 June 30
2001 2000
-------------------------------
(In thousands)
Raw materials............................ $51,522 $ 26,527
Finished goods........................... 70,829 59,255
Storeroom and other supplies............. 20,843 21,456
-------------------------------
$143,194 $107,238
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NOTE D-- COMPREHENSIVE INCOME
The components of comprehensive income (loss) consist of the following:
Quarter Ended Nine Months Ended
March 31 March 31
2001 2000 2001 2000
----------------------------- ----------------------------
(In thousands) (In thousands)
Net income........................................ $9,290 $14,894 $38,144 $42,487
Foreign currency translation adjustments-net...... (15,096) (7,333) (23,266) (10,316)
----------------------------- ----------------------------
Comprehensive income (loss)....................... $(5,806) $ 7,561 $14,878 $32,171
============================= ============================
The Company has increased its foreign assets through various acquisitions. The
change in the foreign currency translation adjustment is primarily due to
fluctuations in the exchange rate of the US Dollar and the Euro, the Brazilian
Real and the Canadian Dollar.
NOTE E - SUBSEQUENT EVENT
On April 16, 2001, the Company entered into a new credit facility (the
Credit Facility) providing for borrowings up to $215 million. The new credit
facility matures on March 31, 2005. The interest rate applicable to borrowings
under the Credit Facility is the agent's prime rate or a LIBOR based rate
ranging from LIBOR plus 0.75% to LIBOR plus 1.5%. The Credit Facility is secured
by substantially all of the Company's assets located in the United States. The
Company has classified certain short-term obligations totaling approximately $35
million as long-term debt based on its intent to refinance the obligations with
proceeds from the new credit facility.
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net sales for the quarter ended March 31, 2001 were $181.9 million
compared to $200.4 million for the same period in the prior fiscal year, a
decrease of $18.5 million or 9.2%. Net sales for the nine month period ended
March 31, 2001 were $556.5 million compared to $557.4 million for the same
period in the prior fiscal year, a decrease of $0.9 million or 0.2%. The
decrease for the quarter is mainly due to lower shipment volumes and declining
sales prices on fluff pulp. The decrease in both shipment volume and sales
prices reflects the impact of the contractual changes in the Fluff Pulp Supply
Agreement with The Procter & Gamble Company, as well as cotton shipment volume
constraints from continuing raw material shortages.
Operating income for the quarter ended March 31, 2001 was $27.3 million
compared to $35.3 million for the same period in the prior fiscal year, a
decrease of $8.0 million or 22.7%. Operating income for the nine months ended
March 31, 2001 was $93.2 million compared to $99.4 million for the same period
in the prior fiscal year, a decrease of $6.2 million or 6.2%. The decrease for
both periods is due primarily to lower sales, higher energy and caustic chemical
costs and increased cost of cotton fibers. The lower sales and higher
manufacturing costs were somewhat mitigated by a reduction of about $4.0 million
in sales, research and administrative expenses for the quarter and the nine
month period. More than half of the reduction was due to decreases in expenses
under the Company's incentive plans.
Net interest expense and amortization of debt costs were $11.7 million
for the quarter and $34.2 million for the nine months ended March 31, 2001. This
is a $0.5 million and $2.5 million increase, respectively, compared to the same
period of the prior fiscal year. This increase was due to higher debt levels.
Other expenses for the quarter ended March 31, 2001 were $1.7 million
compared to $1.9 million for the quarter ended March 31, 2000. Other expenses
for the nine months ended March 31, 2001 were $2.3 million compared to $4.2
million for the nine months ended March 31, 2000. The decrease in both periods
was due to more favorable results from foreign currency transactions offsetting
increases in the amortization of goodwill and intellectual properties.
Financial Condition
Cash Flow
Cash provided by operating activities for the nine months ended March
31, 2001 was $28.4 million. Cash flows during the quarter were impacted by
increases in inventory levels of $38.4 million, primarily due to the purchase of
cotton linter raw materials from overseas locations. The cash provided by
operating activities was used, along with additional borrowings from the credit
facility, to construct, purchase, modernize and upgrade production equipment and
facilities. The funds were also used to repurchase stock, to make the first $22
million payment to UPM-Kymmene for the purchase of Walkisoft and to make
additional debt payments of approximately $16 million. During the nine months
ended March 31, 2001, the Company repurchased 769,300 shares of common stock,
pursuant to a 6,000,000 share repurchase plan. The total number of shares
repurchased through this plan through March 31, 2001 is 5,009,300.
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (continued)
Liquidity and Capital Resources
The Company entered into a new credit facility (the Credit Facility) on
April 16, 2001, providing for borrowings up to $215 million. The new credit
facility matures on March 31, 2005. The interest rate applicable to borrowings
under the Credit Facility is the agent's prime rate or a LIBOR based rate
ranging from LIBOR plus 0.75% to LIBOR plus 1.5%. The Credit Facility is secured
by substantially all of the Company's assets located in the United States. The
Company has classified certain short-term obligations totaling approximately $35
million as long-term debt based on its intent to refinance the obligations with
proceeds from the new credit facility. Based on the Company's outstanding
borrowings at March 31, 2001, the Company would have had unused borrowing
availability of approximately $40 million on its new bank credit facility. The
Company estimates capital expenditures will total approximately $150 million for
the fiscal year ending June 30, 2001 and approximately $60 million for the
fiscal year ending June 30, 2002. The Company believes that its cash flow from
operations, together with the borrowings available under its new credit
facility, will be sufficient to fund capital expenditures (including the
completion of the construction of the airlaid nonwovens machine at the Gaston
County, North Carolina plant and environmental expenditures), meet operating
expenses, fund authorized common stock repurchases, and service all debt
requirements for the foreseeable future.
10
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
1. Exhibit 10.1
- Credit Agreement dated as of April 16, 2001 among the
Registrant, Fleet National Bank; Fleet Securities, Inc.; Toronto
Dominion (Texas) Inc.; Bank of America, N.A.; First Union
National Bank; and the other lenders party thereto.
2. Reports on Form 8-K
During the quarter ended March 31, 2001, the following reports were
filed on Form 8-K:
- Report dated January 5, 2001, announcing the conference call
regarding operating results for the second quarter ended
December 31, 2000.
- Report dated March 26, 2001, announcing the conference call
regarding operating results for the third quarter ended March
31, 2001.
11
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
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David B. Ferraro, Director, President, and Chief Operating Officer
Date: May 2, 2001
By: /S/ GAYLE L. POWELSON
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Gayle L. Powelson, Senior Vice President and Chief Financial Officer
Date: May 2, 2001
12