Edgar Filing: BUCKEYE TECHNOLOGIES INC

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2007

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period From ____ to ____

Commission file number: 33-60032

Buckeye Technologies Inc.

Delaware

(state or other jurisdiction of incorporation)

Internal Revenue Service — Employer Identification No. 62-1518973

1001 Tillman Street, Memphis, TN 38112

901-320-8100

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 o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer” or “large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one).

Large accelerated filer ྑ

Accelerated filer x

Non-accelerated filer ྑ

As of April 30, 2007, there were outstanding 37,997,356 Common Shares of the Registrant.

INDEX

BUCKEYE TECHNOLOGIES INC.

ITEM		PAGE

	PART I - FINANCIAL INFORMATION

1.	Financial Statements:

	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended March 31, 2007 and 2006	3

	Condensed Consolidated Balance Sheets as of March 31, 2007 and June 30, 2006	4

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2007 and 2006	5

	Notes to Condensed Consolidated Financial Statements	6

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

3.	Quantitative and Qualitative Disclosures About Market Risk	24

4.	Controls and Procedures	24

	PART II - OTHER INFORMATION

6.	Exhibits	25

	SIGNATURES	26

Item 1. Financial Statements

PART I - FINANCIAL INFORMATION

BUCKEYE TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)

	Three Months Ended						Nine Months Ended
	March 31						March 31
	2007			2006			2007			2006
Net sales	$	193,009		$	181,407		$	569,145		$	535,117
Cost of goods sold		160,070			157,063			477,853			460,872
Gross margin		32,939			24,344			91,292			74,245

Selling, research and administrative expenses		11,680			12,293			34,047			35,053
Amortization of intangibles and other		500			486			1,638			1,494
Impairment of long-lived assets		-			1,469			-			1,469
Restructuring costs		1,201			333			1,224			3,425
Operating income		19,558			9,763			54,383			32,804

Net interest expense and amortization of debt costs		(10,020	)		(11,061	)		(31,211	)		(31,819	)
Loss on early extinguishment of debt		(85	)		-			(737	)		(151	)
Gain on sale of assets held for sale		-			-			355			-
Foreign exchange and other		422			148			674			(242	)

Income (loss) before income taxes		9,875			(1,150	)		23,464			592
Income tax expense (benefit)		3,302			(355	)		9,264			(178	)

Net income (loss)	$	6,573		$	(795	)	$	14,200		$	770

Earnings (loss) per share
Basic	$	0.17		$	(0.02	)	$	0.38		$	0.02
Diluted	$	0.17		$	(0.02	)	$	0.37		$	0.02

Weighted average shares for basic earnings per share		37,887			37,638			37,750			37,606
Adjusted weighted average shares for diluted earnings per share		38,442			37,638			38,048			37,646

See accompanying notes.

BUCKEYE TECHNOLOGIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

	March 31 2007			June 30 2006
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	15,497		$	8,734
Accounts receivable - net		114,900			112,758
Inventories		82,851			98,567
Deferred income taxes and other		8,687			8,473
Total current assets		221,935			228,532

Property, plant and equipment		985,197			957,677
Less accumulated depreciation		(461,131	)		(425,779	)
		524,066			531,898
Goodwill		147,091			149,106
Intellectual property and other, net		35,881			38,677
Total assets	$	928,973		$	948,213

Liabilities and stockholders’ equity
Current liabilities:
Trade accounts payable	$	34,124		$	32,973
Accrued expenses		53,311			47,076
Current portion of capital lease obligation		399			627
Current portion of long-term debt		54,615			1,294
Total current liabilities		142,449			81,970

Long-term debt		416,629			519,414
Accrued postretirement benefits		19,798			19,367
Deferred income taxes		40,496			35,686
Capital lease obligation		356			755
Other liabilities		1,963			1,304
Stockholders’ equity		307,282			289,717
Total liabilities and stockholders’ equity	$	928,973		$	948,213

See accompanying notes.

BUCKEYE TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Nine Months Ended March 31
	2007			2006
Operating activities
Net income	$	14,200		$	770
Adjustments to reconcile net income to net cash provided by operating activities:
Impairment of long-lived assets		-			1,469
Depreciation		36,454			34,947
Amortization		2,354			2,408
Loss on early extinguishment of debt		737			151
Deferred income taxes and other		6,479			(2,887	)
Gain on sale of assets held for sale		(355	)		-
Changes in operating assets and liabilities:
Accounts receivable		(1,523	)		6,375
Inventories		15,881			(8,758	)
Other assets		(754	)		(4,267	)
Accounts payable and other current liabilities		6,631			(5,168	)
Net cash provided by operating activities		80,104			25,040
Investing activities
Purchases of property, plant and equipment		(26,235	)		(41,179	)
Proceeds from sale of assets		521			42
Other		(380	)		(376	)
Net cash used in investing activities		(26,094	)		(41,513	)
Financing activities
Net borrowings under lines of credit		368			33,486
Payments on long-term debt and other		(50,127	)		(16,636	)
Proceeds from exercise of stock options		2,308			549
Net cash provided by (used in) financing activities		(47,451	)		17,399
Effect of foreign currency rate fluctuations on cash		204			294
Increase in cash and cash equivalents		6,763			1,220
Cash and cash equivalents at beginning of period		8,734			9,926
Cash and cash equivalents at end of period	$	15,497		$	11,146

See accompanying notes.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(In thousands)

NOTE 1:

BASIS OF PRESENTATION

Our accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 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 (including normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended March 31, 2007 are not necessarily indicative of the results that may be expected for the year ending June 30, 2007. All significant intercompany accounts and transactions have been eliminated in consolidation. For further information and a listing of our significant accounting policies, refer to the financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended June 30, 2006. Except as otherwise specified, references to years indicate our fiscal year ending June 30, 2007 or ended June 30 of the year referenced and comparisons are to the corresponding period of the prior year.

Translation adjustment

Management has determined that the local currency of our German, Canadian, and Brazilian subsidiaries is the functional currency, and accordingly European euro, Canadian dollar, and Brazilian real denominated balance sheet accounts are translated into U.S. dollars at the rate of exchange in effect at the balance sheet date. Income and expense activity for the period is translated at the weighted average exchange rate during the period. Translation adjustments are included as a separate component of stockholders' equity.

Use of estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from the estimates and assumptions used.

Changes in estimates are recognized in accordance with the accounting rules for the estimate, which is typically in the period when new information becomes available to management. Areas where the nature of the estimate makes it reasonably possible that actual results could materially differ from amounts estimated include: impairment assessments on long-lived assets (including goodwill), allowance for doubtful accounts, inventory reserves, income tax liabilities, and contingent liabilities.

Reclassifications

Certain prior year amounts have been reclassified to conform to current year classifications.

NOTE 2:

SEGMENT INFORMATION

We report results for two segments, specialty fibers and nonwoven materials. The specialty fibers segment is an aggregation of operating segments producing cellulosic fibers based on both wood and cotton. The nonwoven materials segment produces airlaid materials based on wood pulps, synthetic fibers and other materials. Management makes financial decisions and allocates resources based on the sales and operating income of each segment. We allocate selling, research, and administrative expenses to each segment, and management uses the resulting operating income to measure the performance of the segments. The financial information attributed to these segments is included in the following table:

Three Months Ended March 31		Specialty Fibers		Nonwoven Materials		Corporate			Total
Net sales	2007	$	135,398	$	65,386	$	(7,775	)	$	193,009
	2006		127,223		61,171		(6,987	)		181,407
Operating income (loss)	2007		15,948		5,873		(2,263	)		19,558
	2006		7,010		5,105		(2,352	)		9,763
Depreciation and amortization of	2007		7,901		3,898		844			12,643
intangibles	2006		7,439		3,842		802			12,083
Capital expenditures	2007		8,727		1,845		1,338			11,910
	2006		5,999		484		338			6,821

Nine Months Ended March 31		Specialty Fibers		Nonwoven Materials		Corporate			Total
Net sales	2007	$	400,399	$	192,841	$	(24,095	)	$	569,145
	2006		379,682		176,957		(21,522	)		535,117
Operating income (loss)	2007		41,430		16,698		(3,745	)		54,383
	2006		28,732		10,404		(6,332	)		32,804
Depreciation and amortization of	2007		23,458		12,034		2,649			38,141
intangibles	2006		22,119		11,942		2,489			36,550
Capital expenditures	2007		20,383		2,842		3,010			26,235
	2006		38,591		1,489		1,099			41,179

Management evaluates operating performance of the specialty fibers and nonwoven materials segments excluding amortization of intangibles, the impact of impairment of long-lived assets and charges related to restructuring. Therefore, the corporate segment includes operating elements such as segment eliminations, amortization of intangibles, impairment of long-lived assets and charges related to restructuring. Corporate net sales represent the elimination of intersegment sales included in the specialty fibers reporting segment. We account for intersegment sales as if the sales were made to third parties, that is, at current market prices. Corporate operating loss in 2007 includes $1,201 and $1,224 of restructuring costs for the three and nine month periods, respectively. Corporate operating loss in 2006 included $1,802 and $4,894 of restructuring costs and impairment charges for the three and nine month periods, respectively.

NOTE 3: IMPAIRMENT OF LONG-LIVED ASSETS AND ASSETS HELD FOR SALE

In December 2005, we ceased production of specialty fibers at our Glueckstadt, Germany facility. During the three months ended March 31, 2006, we began to actively market the land and buildings, and the equipment which had carrying values of $1,600 and $496, respectively. During the three months ended March 31, 2006, management determined that the plan of sale criteria in SFAS No. 144, Accounting for Impairment or Disposal of Long-lived Assets, had been met. Accordingly, management reevaluated its estimate of fair value less the cost to sell the assets and determined an additional impairment should be recognized for the land and buildings. Current markets and third party interest for the land and buildings indicated we would not be able to recover the carrying value through the sales process. Therefore, we wrote down the carrying value of the land and buildings to their fair value less costs to sell of $121 and recorded an impairment charge of $1,469 during the three months ended March 31, 2006.

In September 2006, the remaining assets located at our Glueckstadt facility were sold for $520. Since we previously had written the value of these assets down to $165, we recorded a gain on sale of assets held for sale of $355.

NOTE 4:

RESTRUCTURING COSTS

During fiscal 2005, we entered into a restructuring program to discontinue production of cotton-based specialty fibers at our Glueckstadt, Germany facility. The closure of the Glueckstadt facility resulted in the termination of 101 employees as of March 31, 2006 and resulted in an additional two terminations during the remainder of fiscal 2006.

During the three months ended March 31, 2007, we entered into another restructuring program that complements our operations’ consolidations and involves consolidation in our European sales offices, product and market development and corporate overhead. We anticipate the total cost of this program will be approximately $1,500 and will be completed during the first quarter of the 2008 fiscal year. As a result of this restructuring, 22 positions will be eliminated which will provide annual savings over $2,000.

Restructuring expenses are included in “Restructuring costs” in our condensed consolidated statements of operations. The additional charges below reflect severance and employee benefits accrued over the retention period, and other miscellaneous expenses. Accrual balances are included in “Accrued expenses” in the balance sheet. The following table summarizes the expenses and accrual balances by reporting segment for the nine months ended March 31, 2007.

			Period Ended March 31, 2007
	Balance as of June 30, 2006		Additional Charges		Payments			Balance as of March 31, 2007		Program Charges to Date

2005 Restructuring Program
Specialty fibers
Severance and employee benefits	$	9	$	-	$	(9	)	$	-	$	5,096
Other miscellaneous expenses		11		23		(34	)		-		1,521
Total 2005 Program		20		23		(43	)		-		6,617

2007 Restructuring Program
Severance and employee benefits
Specialty fibers		-		896		(699	)		197		896
Corporate		-		303		(13	)		290		303
Other miscellaneous expenses
Specialty fibers		-		2		(2	)		-		2
Total 2007 Program		-		1,201		(714	)		487		1,201

Total All Programs	$	20	$	1,224	$	(757	)	$	487	$	7,818

NOTE 5: INVENTORIES

Inventories are valued at the lower of cost or market. The costs of manufactured cotton-based specialty fibers and costs for nonwoven raw materials are generally determined on the first-in, first-out basis. Other manufactured products and raw materials are generally valued on an average cost basis. Manufactured inventory costs include material, labor and manufacturing overhead. Slash pine timber, cotton fibers and chemicals are the principal raw materials used in the manufacture of our specialty fiber products. Fluff pulp is the principal raw material used in our nonwoven materials products. We take physical counts of inventories at least annually, and we review periodically the provision for potential losses from obsolete, excess or slow-moving inventories.

The components of inventory consist of the following:

	March 31 2007		June 30 2006

Raw materials	$	22,312	$	30,028
Finished goods		39,058		45,759
Storeroom and other supplies		21,481		22,780
	$	82,851	$	98,567

NOTE 6:

DEBT

The components of debt consist of the following:

	March 31 2007		June 30 2006
Senior Notes due:
2013	$	200,000	$	200,000
Senior Subordinated Notes due:
2008		59,939		64,902
2010		151,690		152,059
Credit facility		54,615		98,747
Other		5,000		5,000
Total debt		471,244		520,708
Less current portion		54,615		1,294
Long-term debt	$	416,629	$	519,414

Senior Notes - During September 2003, we placed privately $200,000 in aggregate principal amount of 8.5% Senior Notes due October 1, 2013. In fiscal year 2004, we exchanged these outstanding notes for public notes with the same terms. The notes are unsecured obligations and are senior to any of our subordinated debt. The notes are guaranteed by our direct and indirect domestic subsidiaries that are also guarantors on our senior secured indebtedness.

Senior Subordinated Notes - During July 1996, we completed a public offering of $100,000 principal amount of 9.25% unsecured Senior Subordinated Notes due September 15, 2008 (the “2008 Notes”). These notes have been redeemable at our option, in whole or in part, at any time since September 15, 2004, at a redemption price of 100% of principal amount together with accrued and unpaid interest to the date of redemption.

During the three months ended March 31, 2007, we redeemed $5,000 of the 2008 Notes. As a result of these redemptions, we wrote off a portion of the deferred financing costs and unamortized discount related to the redeemed bonds. During the period, we recorded non-cash expenses of $26 related to the early extinguishment of debt. Through fiscal year 2006, we redeemed $35,000 of the 2008 Notes.

During June 1998, we completed a private placement of $150,000 principal amount of 8% unsecured Senior Subordinated Notes due October 15, 2010. In fiscal year 1999, we exchanged these outstanding notes for public notes with the same terms. These notes have been redeemable at our option, in whole or in part, at any time since October 15, 2006, at a redemption price of 100% of principal amount together with accrued and unpaid interest to the date of redemption.

Under the indentures governing our senior subordinated notes and our senior notes, our ability to incur additional debt is limited. Under these indentures, additional debt must be incurred as so-called “Ratio Debt” or, alternatively, must be permitted in form and amount as “Permitted Indebtedness.” In order to incur Ratio Debt, a specified consolidated fixed charge coverage ratio (as defined in the indentures) must equal or exceed 2:1 (measured on a rolling four-quarter basis). Falling below the 2:1 ratio does not breach any covenant or constitute an event of default under any of our debt agreements. As of March 31, 2007, we exceeded the required 2:1 ratio and as a result are not limited to the Ratio Debt restrictions under the indentures governing the senior notes and each series of the senior subordinated notes.

Revolving credit facility - On November 5, 2003, we established a $220,000 senior secured credit facility (the “credit facility”), comprised of a $70,000 revolving credit facility (the “revolver”) and a $150,000 term loan (the “term loan”) with serial maturities of $249 quarterly with final payment at maturity. The credit facility maturity date is March 15, 2008, unless we retire or refinance the 2008 Notes, with debt having a due date after October 15, 2010, in which case the maturity date for the revolver would be September 15, 2008 and the maturity date for the term loan would be April 15, 2010. Since we have not retired or refinanced the 2008 Notes, we have therefore reclassified the outstanding balance on the credit facility to current debt. We are currently exploring alternatives to refinance the credit facility and the 2008 Notes.

We had $54,615 outstanding on this facility ($51,247 on the term loan and $3,368 on the revolver) at an average variable interest rate of 7.5% as of March 31, 2007. The interest rate applicable to borrowings under the revolver is the agent’s prime rate plus 1.50% to 1.75%, or a LIBOR-based rate ranging from LIBOR plus 2.50% to LIBOR plus 3.25%. The interest rate applicable to the term loan is the agent’s prime rate plus 1.00% or a LIBOR-based rate plus 2.00%. The credit facility is secured by substantially all of our assets located in the United States.

During the three months ended March 31, 2007, we made additional voluntary prepayments on the term loan of $9,000, which makes the voluntary prepayments for the nine months ended March 31, 2007 equal to $43,457. As a result of these prepayments, we wrote off a portion of the deferred financing costs related to the term loan. The non-cash charges, related to early extinguishment of debt, were $59 and $711 during the three and nine months ended March 31, 2007, respectively.

The credit facility contains covenants customary for financing of this type. The financial covenants include: maximum ratio of consolidated net senior secured debt to consolidated earnings before interest, taxes, depreciation and amortization (“EBITDA”), minimum ratio of consolidated EBITDA to consolidated interest expense and minimum ratio of consolidated EBITDA minus capital expenditures and taxes to consolidated fixed charges; as well as limitations on capital expenditures, share repurchases and dividend payments. As of March 31, 2007, we were in compliance with these financial covenants.

As of March 31, 2007, we had $61,481 of borrowing capacity on our revolving credit facility. The portion of this capacity that we could borrow on a particular date will depend on our financial results and ability to comply with certain borrowing conditions under the revolving credit facility.

Other long-term debt - On March 1, 2000, we purchased certain technology from Stac-Pac Technologies Inc. In connection with the purchase, we entered into an unsecured promissory note with Stac-Pac Technologies Inc. The principal amount of the note is $5,000 and bears interest at a rate of 7%. In accordance with the purchase agreement, we are entitled to withhold or retain the final installment of the purchase price until and unless there is final resolution of patent rights and to cancel the final installment of the purchase price if the patent rights in certain jurisdictions are not resolved according to the terms of the purchase agreement. As of March 31, 2007, these patent rights were not resolved. Therefore, the principal amount of the note remains unpaid and has been classified as long-term debt. As of March 31, 2007, we have accrued interest on the note of $2,129.

NOTE 7:

COMPREHENSIVE INCOME

The components of comprehensive income consist of the following:

	Three Months Ended					Nine Months Ended
	March 31					March 31
	2007		2006			2007		2006
Net income (loss)	$	6,573	$	(795	)	$	14,200	$	770
Foreign currency translation adjustments - net		4,044		6,003			437		10,146
Comprehensive income	$	10,617	$	5,208		$	14,637	$	10,916

For the three and nine months ended March 31, 2007, the change the foreign currency translation adjustment had to stockholders’ equity was primarily due to fluctuations in the exchange rate of the U.S. dollar against the European euro of $714 and $3,031, the Brazilian real of $2,903 and $2,649 and the Canadian dollar of $774 and $(5,201).

For the three months and nine months ended March 31, 2006, the change the foreign currency translation adjustment had to stockholders’ equity was primarily due to fluctuations in the exchange rate of the U.S. dollar against the European euro of $2,045 and $(83), the Brazilian real of $3,956 and $2,339 and the Canadian dollar of $(17) and $7,944.

NOTE 8:

INCOME TAXES

Our effective tax rates for the three and nine month period ended March 31, 2007 were 33.4% and 39.5%. Our effective tax rates for the same periods of 2006 were 30.9% and (30.1%), respectively. Our tax rate is impacted by several factors including operations in jurisdictions with varying tax rates and the extraterritorial income tax exclusion. Our low level of our earnings before taxes for the nine months ended March 31, 2006 had a more significant impact on our effective tax rate in that nine month period. The rate increase for the nine month period ended March 31, 2007 was also impacted by a change in estimate related to the valuation allowance for the Brazil net operating loss carryforwards. Our income tax expense differs from the amount computed by applying the statutory federal income tax rate of 35% to income before income taxes due to the following:

	Three Months Ended						Nine Months Ended
	March 31						March 31
	2007			2006			2007			2006
Expected tax expense at 35%	$	3,456		$	(402	)	$	8,212		$	207
Impairment of long-lived assets		-			(44	)		-			(44	)
Effect of foreign operations		821			183			431			984
Extraterritorial income benefit		(393	)		(1,085	)		(606	)		(1,341	)
Adjustment of foreign valuation allowance		355			2,000			2,494			2,153
Correction of prior year’s provision		(152	)		(1,116	)		(152	)		(1,711	)
Other		(785	)		109			(1,115	)		(426	)
Income tax expense	$	3,302		$	(355	)	$	9,264		$	(178	)

NOTE 9: EMPLOYEE BENEFIT PLANS

We provide medical, dental and life insurance postretirement plans covering certain U.S. employees who meet specified age and service requirements. Pursuant to an amendment, effective January 1, 2006, Medicare eligible retirees age 65 or older are no longer covered under the self-funded plan. Instead they are provided a subsidy towards the purchase of supplemental insurance. The components of net periodic benefit costs are as follows:

	Three Months Ended March 31						Nine Months Ended March 31
	2007			2006			2007			2006
Service cost for benefits earned	$	150		$	157		$	449		$	471
Interest cost on benefit obligation		352			314			1,056			942
Amortization of unrecognized prior service credit		(251	)		(264	)		(752	)		(792	)
Actuarial loss		142			150			426			450
Total cost	$	393		$	357		$	1,179		$	1,071

NOTE 10: COMPUTATION OF EARNINGS PER SHARE

The calculation of basic and diluted earnings per common share was as follows:

	Three Months Ended March 31					Nine Months Ended March 31
	2007		2006			2007		2006
Net income (loss) applicable to common shareholders	$	6,573	$	(795	)	$	14,200	$	770

Weighted-average shares of common stock outstanding		37,887		37,638			37,750		37,606
Effect of diluted shares		555		-			298		40
Weighted-average common and common equivalent shares outstanding		38,442		37,638			38,048		37,646

Earnings (loss) per share
Basic	$	0.17	$	(0.02	)	$	0.38	$	0.02
Diluted	$	0.17	$	(0.02	)	$	0.37	$	0.02

NOTE 11: ACCOUNTING PRONOUNCEMENT

In February 2007, the FASB issued SFAS No. 159, the Fair Value Option for Financial Assets and Financial Liabilities (“SAFS 159”). SFAS 159 permits all entities the option to measure most financial instruments and certain other items at fair value at specified election dates and to report related unrealized gains and losses in earnings. The fair value option will generally be applied on an instrument-by-instrument basis and is generally an irrevocable election. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We are still evaluating the effect the new statement will have on our consolidated financial position, results of operation and cash flows.

NOTE 12: CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

The guarantor subsidiaries presented below represent our subsidiaries that are subject to the terms and conditions outlined in the indenture governing the senior notes and that guarantee the notes, jointly and severally, on a senior unsecured basis. The non-guarantor subsidiaries presented below represent the foreign subsidiaries which do not guarantee the senior notes. Each subsidiary guarantor is 100% owned directly or indirectly by us and all guarantees are full and unconditional.

Our supplemental financial information and our guarantor subsidiaries and non-guarantor subsidiaries for the senior notes is presented in the following tables.

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

Three Months Ended March 31, 2007

	Buckeye Technologies Inc.			Guarantors US Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Net sales	$	29,329		$	123,376		$	48,870		$	(8,566	)	$	193,009
Cost of goods sold		24,987			99,807			43,751			(8,475	)		160,070
Gross margin		4,342			23,569			5,119			(91	)		32,939

Selling, research and administrative expenses, and other		2,341			8,140			1,699			-			12,180
Restructuring and impairment costs		473			51			677			-			1,201

Operating income (loss)		1,528			15,378			2,743			(91	)		19,558

Other income (expense):
Net interest income (expense) and amortization of debt		(10,150	)		12			118			-			(10,020	)
Other income (expense), including equity income (loss) in affiliates		12,642			(11	)		443			(12,737	)		337
Intercompany interest income (expense)		7,057			(4,798	)		(2,259	)		-			-

Income (loss) before income taxes		11,077			10,581			1,045			(12,828	)		9,875

Income tax expense (benefit)		4,504			2,912			1,169			(5,283	)		3,302

Net income (loss)	$	6,573		$	7,669		$	(124	)	$	(7,545	)	$	6,573

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

Three Months Ended March 31, 2006

	Buckeye Technologies Inc.			Guarantors US Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Net sales	$	28,169		$	119,294		$	43,542		$	(9,598	)	$	181,407
Cost of goods sold		24,736			102,898			38,900			(9,471	)		157,063
Gross margin		3,433			16,396			4,642			(127	)		24,344

Selling, research and administrative expenses, and other		3,694			7,308			1,777			-			12,779
Restructuring and impairment costs		-			-			1,802			-			1,802

Operating income (loss)		(261	)		9,088			1,063			(127	)		9,763

Other income (expense):
Net interest income (expense) and amortization of debt		(11,416	)		118			237			-			(11,061	)
Other income (expense), including equity income (loss) in affiliates		2,490			(8	)		95			(2,429	)		148
Intercompany interest income (expense)		7,321			(5,092	)		(2,229	)		-			-

Income (loss) before income taxes		(1,866	)		4,106			(834	)		(2,556	)		(1,150	)

Income tax expense (benefit)		(1,071	)		(158	)		1,769			(895	)		(355	)

Net income (loss)	$	(795	)	$	4,264		$	(2,603	)	$	(1,661	)	$	(795	)

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

Nine Months Ended March 31, 2007


	Buckeye Technologies Inc.			Guarantors US Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Net sales	$	90,035		$	362,818		$	142,880		$	(26,588	)	$	569,145
Cost of goods sold		75,131			300,037			129,044			(26,359	)		477,853
Gross margin		14,904			62,781			13,836			(229	)		91,292

Selling, research and administrative expenses and other		6,260			24,096			5,329			-			35,685
Restructuring and impairment costs		473			51			700			-			1,224

Operating income (loss)		8,171			38,634			7,807			(229	)		54,383

Other income (expense):
Net interest income (expense) and amortization of debt		(31,312	)		(87	)		188			-			(31,211	)
Other income (expense), including equity income (loss) in affiliates		29,148			(81	)		1,309			(30,084	)		292
Intercompany interest income (expense)		21,369			(14,527	)		(6,842	)		-			-

Income (loss) before income taxes		27,376			23,939			2,462			(30,313	)		23,464

Income tax expense (benefit)		13,176			7,344			3,294			(14,550	)		9,264

Net income (loss)	$	14,200		$	16,595		$	(832	)	$	(15,763	)	$	14,200

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

Nine Months Ended March 31, 2006

	Buckeye Technologies Inc.			Guarantors US Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Net sales	$	78,232		$	338,255		$	143,758		$	(25,128	)	$	535,117
Cost of goods sold		67,740			289,529			128,812			(25,209	)		460,872
Gross margin		10,492			48,726			14,946			81			74,245

Selling, research and administrative expenses, and other		9,714			21,534			5,299			-			36,547
Restructuring and impairment costs		-			-			4,894			-			4,894

Operating income		778			27,192			4,753			81			32,804

Other income (expense):
Net interest income (expense) and amortization of debt		(33,721	)		302			1,600			-			(31,819	)
Other income (expense), including equity income (loss) in affiliates		11,972			29			(459	)		(11,935	)		(393	)
Intercompany interest income (expense)		21,710			(15,492	)		(6,218	)		-			-

Income (loss) before income taxes		739			12,031			(324	)		(11,854	)		592

Income tax expense (benefit)		(31	)		1,889			2,113			(4,149	)		(178	)

Net income (loss)	$	770		$	10,142		$	(2,437	)	$	(7,705	)	$	770

CONDENSED CONSOLIDATING BALANCE SHEETS

As of March 31, 2007

	Buckeye Technologies Inc.		Guarantors US Subsidiaries		Non- Guarantor Subsidiaries		Consolidating Adjustments			Consolidated
Assets
Current assets
Cash and cash equivalents	$	919	$	1,031	$	13,547	$	-		$	15,497
Accounts receivable, net of allowance		15,596		70,286		29,018		-			114,900
Inventories		15,631		47,995		19,897		(672	)		82,851
Other current assets		2,452		5,784		451		-			8,687
Intercompany accounts receivable		-		82,687		-		(82,687	)		-