Edgar Filing: BUCKEYE TECHNOLOGIES INC

march3108tenq.htm

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 March31, 2008

¨ 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 ¨

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 ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨

No x

As of April 30, 2008, there were outstanding 39,194,628Common Shares of the Registrant.

INDEX

BUCKEYE TECHNOLOGIES INC.

ITEM		PAGE

	PART I - FINANCIAL INFORMATION

1.	Financial Statements:

	Condensed Consolidated Statements of Incomefor the Three and Nine Months Ended March31, 2008and 2007	3

	Condensed Consolidated Balance Sheets as of March31, 2008 and June 30, 2007	4

	Condensed Consolidated Statements of Cash Flows for the NineMonths Ended March31, 2008and 2007	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


1.	Legal Proceedings	25

6.	Exhibits	25

	SIGNATURES	26

Item 1.

Financial Statements

PART I - FINANCIAL INFORMATION

BUCKEYE TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share data)

	Three Months Ended March 31						NineMonths Ended March 31
	2008			2007			2008			2007
Net sales	$	201,865		$	193,009		$	610,186		$	569,145
Cost of goods sold		167,664			160,070			493,351			477,853
Gross margin		34,201			32,939			116,835			91,292

Selling, research and administrative expenses		11,470			11,680			34,740			34,047
Amortization of intangibles and other		468			500			1,390			1,638
Restructuring costs		-			1,201			96			1,224
Operating income		22,263			19,558			80,609			54,383

Net interest expense and amortization of debt costs		(7,814	)		(10,020	)		(25,495	)		(31,211	)
Gain on sale of assets held for sale		-			-			-			355
Extinguishment of debt		-			(85	)		(535	)		(737	)
Foreign exchange and other		313			422			51			674

Income before income taxes		14,762			9,875			54,630			23,464
Income tax expense		4,340			3,302			16,845			9,264

Net income	$	10,422		$	6,573		$	37,785		$	14,200

Earnings per share
Basic	$	0.27		$	0.17		$	0.97		$	0.38
Diluted	$	0.26		$	0.17		$	0.96		$	0.37

Weighted average shares for earnings per share
Basic		39,011			37,887			38,902			37,750
Effect of diluted shares		361			555			458			298
Diluted		39,372			38,442			39,360			38,048

See accompanying notes.

BUCKEYE TECHNOLOGIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

	March 31 2008			June 30 2007
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	20,835		$	14,790
Accounts receivable –net		121,985			116,865
Inventories– net		103,531			86,777
Deferred income taxes and other		9,716			9,452
Total current assets		256,067			227,884

Property, plant and equipment		1,069,362			1,016,299
Less accumulated depreciation		(524,405	)		(478,644	)
		544,957			537,655
Goodwill		160,285			155,937
Intellectual property and other, net		29,947			30,346
Total assets	$	991,256		$	951,822

Liabilities and stockholders’ equity
Current liabilities:
Trade accounts payable	$	44,659		$	41,030
Accrued expenses		55,302			49,532
Current portion of capital lease obligation		459			399
Short-term debt		647			-
Total current liabilities		101,067			90,961

Long-term debt		394,532			445,138
Accrued postretirement benefits		25,194			24,509
Deferred income taxes		56,379			41,761
Capital lease obligation		-			356
Other liabilities		2,508			1,943
Stockholders’ equity		411,576			347,154
Total liabilities and stockholders’ equity	$	991,256		$	951,822

See accompanying notes.

BUCKEYE TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	NineMonths Ended March 31
	2008			2007
Operating activities
Net income	$	37,785		$	14,200
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		38,079			36,454
Amortization		1,666			2,354
Loss on early extinguishment of debt		535			737
Deferred income taxes and other		13,591			4,350
Gain on sale of assets held for sale		-			(355	)
Loss on disposal of equipment		794			701
Provision for bad debts		(62	)		170
Excess tax benefit from stock based compensation		(44	)		(6	)
Other		956			1,258
Changes in operating assets and liabilities:
Accounts receivable		(1,316	)		(1,523	)
Inventories		(13,955	)		15,881
Other assets		(1,020	)		(754	)
Accounts payable and other current liabilities		3,714			6,631
Net cash provided by operating activities		80,723			80,098
Investing activities
Purchases of property, plant and equipment		(31,205	)		(26,235	)
Proceeds from sale of assets		-			521
Other		(253	)		(380	)
Net cash used in investing activities		(31,458	)		(26,094	)
Financing activities
Net borrowings under lines of credit		64,204			368
Payments on long-term debt and other		(113,918	)		(50,127	)
Payments for debt issuance costs		(1,401	)		-
Net proceeds from sale of equity interests		5,742			2,308
Excess tax benefit from stock based compensation		44			6
Net cash used in financing activities		(45,329	)		(47,445	)
Effect of foreign currency rate fluctuations on cash		2,109			204
Increase in cash and cash equivalents		6,045			6,763
Cash and cash equivalents at beginning of period		14,790			8,734
Cash and cash equivalents at end of period	$	20,835		$	15,497

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, 2008are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2008. 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, 2007, which was filed with the Securities and Exchange Commission on September 7, 2007 (“Annual Report”). Except as otherwise specified, references to years indicate our fiscal year ending June 30, 2008or 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 Statesrequires 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.

NOTE 2:

SEGMENT INFORMATION

We report results for two segments, specialty fibers and nonwoven materials. The specialty fiber segment is an aggregation of cellulosic fibers based on both wood and cotton. 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	2008	$	150,928	$	58,157	$	(7,219	)	$	201,865
	2007		135,398		65,386		(7,775	)		193,009
Operating income (loss)	2008		21,965		1,177		(879	)		22,263
	2007		15,948		5,873		(2,263	)		19,558
Depreciation and amortization of intangibles	2008		8,492		3,791		854			13,137
	2007		7,901		3,898		844			12,643
Capital expenditures	2008		10,981		1,298		234			12,513
	2007		8,727		1,845		1,338			11,910

Nine Months Ended March 31		Specialty Fibers		Nonwoven Materials		Corporate			Total
Net sales	2008	$	434,837	$	201,753	$	(26,403	)	$	610,186
	2007		400,399		192,841		(24,095	)		569,145
Operating income (loss)	2008		69,920		14,404		(3,715	)		80,609
	2007		41,430		16,698		(3,745	)		54,383
Depreciation and amortization of intangibles	2008		24,664		12,264		2,542			39,470
	2007		23,458		12,034		2,649			38,141
Capital expenditures	2008		27,369		2,742		1,094			31,205
	2007		20,383		2,842		3,010			26,235

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, non-allocated administrative costs, 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. Intersegment sales areat current market prices.

NOTE 3: RESTRUCTURING COSTS AND ASSETS HELD FOR SALE

During fiscal 2007, we entered into a restructuring program that complementedour operations’ consolidations and involvedconsolidation in our European sales offices, product and market development and corporate overhead. The total cost of this program was$1,358and wascompleted during the three months ended September 30, 2007. The remaining accrual of $116 will be paid over the next six months. As a result of this restructuring, 22positions wereeliminated which will provide annual savings over $2,000.

			Period Ended March 31, 2008
	Accrual Balance as of December 31, 2007		Additional Charges		Impact of Foreign Currency		Payments		Accrual Balance as of March 31, 2008		Program Charges to Date
2007 Restructuring Program
Severance and employee benefits
Specialty fibers	$	-	$	-	$	-	$	-	$	-	$	791
Corporate		-		-		-		-		-		432
Other miscellaneous expenses
Specialty fibers		108		-		8		-		116		135
Total 2007 Program	$	108	$	-	$	8	$	-	$	116	$	1,358

In December 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 during the nine months ended March 31, 2007.

NOTE 4: 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 2008		June 30 2007

Raw materials	$	31,378	$	25,816
Finished goods		49,199		39,335
Storeroom and other supplies		22,954		21,626
	$	103,531	$	86,777

NOTE 5: DEBT

The components of long-term debt consist of the following:

	March 31 2008		June 30 2007
Senior Notes due:
2013	$	200,000	$	200,000
Senior Subordinated Notes due:
2008		-		59,948
2010		131,044		151,568
Credit facility		63,488		33,622
	$	394,532	$	445,138

Senior Notes- During September2003, 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 ofour senior secured indebtedness. The senior notes are redeemable at our option, in whole or part, at any time on or after October 1, 2008, at redemption prices varying from 104.25% of principal amount to 100% of principal amount on or after October 1, 2011, together with accrued and unpaid interest to the date of redemption.

Senior Subordinated Notes- During July 1996, we completed a public offering of $100,000 in aggregate principal amount of 9.25% unsecured Senior Subordinated Notes due September 15, 2008 (the “2008 Notes”). On September 17, 2007, we redeemed the remaining $60,000 of the 2008 Notes. As a result of this redemption, we wrote off the remaining balance of deferred financing costs and unamortized discount related to the 2008 Notes.

During June 1998, we completed a private placement of $150,000in aggregateprincipal amount of 8% unsecured Senior Subordinated Notes(the “2010 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.

On September 24, 2007, we redeemed $20,000 of the 2010 Notes. As a result of this redemption, we wrote off a portion of the deferred financing costs and unamortized discount related to the 2010 Notes.

Revolving Credit Facility- On July 25, 2007, we established a $200,000 senior secured revolving credit facility with a maturity date of July 25, 2012. This facility amendedand restated ourexisting credit facility. Initially, we used proceeds from this new credit facility and cash from operations to pay the outstanding balance on the former credit facility plus fees and expenses. The interest rate applicable to borrowings under the revolver is the agent’s prime rate plus 0.25% to 1.00% for daily borrowings or a LIBOR-based rate ranging from LIBOR plus 1.25% to LIBOR plus 2.00% for longer-term borrowings. Our current interest rates are at the lowest end of these ranges available under the revolver. We usedproceeds from this facility to redeem the remaining $60,000 of our 2008 notesandto redeem $20,000 of the 2010 notes in September2007. The credit facility is secured by substantially all of our assets located in the United States.

The credit facility contains covenants customary for financing of this type. The financial covenants include: maximum total leverage ratio of consolidated total debt to consolidated earnings before interest, taxes, depreciation and amortization, orEBITDA, and minimum ratio of consolidated EBITDA to consolidated interest expense. As of March 31, 2008, we were in compliance with the financial covenants under the credit facility.

As of March 31, 2008, we had $131,045 available on the revolving credit facility. The commitment fee, on the unused portion of the revolving credit facility, ranges from 0.25% to 0.40% per annum based on a grid related to our leverage ratio. During the nine months ended March 31, 2008, we expensed $176 as early extinguishment of debt related to the write-off of deferred financing costs for the former term loan.

On September 17, 2007, we entered into an interest rate swap agreement for $30,000 of debt under our revolving credit facility maturing on September 17, 2009. The swap involves the exchange of interest payments from a floating-rate three month LIBOR plus the applicable margin on the revolving credit facility to a fixed rate of 4.79% plus the same applicable margin. This arrangement qualifies as a cash flow hedge under SFAS 133. Therefore, the net effect from the interest rate swap is being recorded as part of interest expense. During the three and nine months ended March 31, 2008, the swap reduced our interest expense by $6 and $77, respectively.

NOTE 6:

COMPREHENSIVE INCOME

The components of comprehensive income consist of the following:

	ThreeMonths Ended March 31					NineMonths Ended March 31
	2008			2007		2008			2007

Net income	$	10,422		$	6,573	$	37,785		$	14,200
Foreign currency translation adjustments –net		(675	)		4,044		21,747			437
Unrealized losses on hedging activities		(591	)		-		(1,076	)		-
Comprehensive income	$	9,156		$	10,617	$	58,456		$	14,637

For the threeand nine monthsended March 31, 2008, the change in the foreign currency translation adjustment wasdue to fluctuations in the exchange rate of the U.S. dollar against the euro of $6,624 and $13,450, the Brazilian real of $(533) and $4,108and the Canadian dollar of $(6,766) and $4,189, respectively.

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

NOTE 7:

INCOME TAXES

On July 1, 2007, we adopted the provisions of FASB Interpretation No. (“FIN”) 48, “Accounting for Uncertainty in Income Taxes.” FIN 48 clarifies the accounting for income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements. As a result of the adoption, we recorded an adjustment of approximately $878 to reduce the opening balance of retained earnings. At adoption, our unrecognized tax benefits totaled $1,806. Cumulative potential interest and penalties accrued related to unrecognized tax benefits at the date of adoption totaled $164. We include interest and penalties related to income tax matters as a component of income before income taxes. All unrecognized tax benefits at adoption would affect the effective tax rate, if recognized.

We file income tax returns with federal, state, local and foreign jurisdictions. As of March 31, 2008, we remainedsubject to examinations of our U.S. federal and state income tax returns for the years ended June 30, 2002 through June 30, 2007, Canadian income tax returns for the years ended June 30, 2002 through June 30, 2007 and German tax filings for the years ended June 30, 2003 through June 30, 2007.

Our effective tax rate for the three and nine months ended March 31, 2008was 29.4%and 30.8% versus 33.4%and 39.5%, respectively, for the same periodsin 2007. During the three months ended March 31, 2008, the main reasons for the decrease were the identification of additional research and development tax credits for the fiscal years ended from June 30, 2003 through June 30, 2007. The rate decreasefor the ninemonth period ended March 31, 2008resultedfrom a German tax rate reduction enacted in July 2007, lower losses in Brazil, for which we recorded a 100% valuation allowance and the previously discussed item that impacted the three month period. 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 March 31						NineMonths Ended March 31
	2008			2007			2008			2007

Expected tax expense at 35%	$	5,167		$	3,456		$	19,121		$	8,212
German tax rate change		-			-			(2,245	)		-
Domestic manufacturing deduction		(182	)		-			(182	)		-
R&D tax credits		(810	)		-			(810	)		-
Effect of foreign operations		193			821			115			431
Extraterritorial income benefit		-			(393	)		-			(606	)
Brazilian valuation allowance		472			355			1,319			2,494
Other		(500	)		(937	)		(473	)		1,267
Income tax expense	$	4,340		$	3,302		$	16,845		$	9,264

NOTE 8: 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						NineMonths Ended March 31
	2008			2007			2008			2007
Service cost for benefits earned	$	151		$	150		$	453		$	449
Interest cost on benefit obligation		350			352			1,051			1,056
Amortization of unrecognized prior service cost		(251	)		(251	)		(752	)		(752	)
Actuarial loss		146			142			437			426
Total cost	$	396		$	393		$	1,189		$	1,179

NOTE 9: CONTINGENCIES

On January 3, 2008, K.T. Equipment (International)(K.T.), Inc. filed a claim in the United States District Court, Western District of Tennessee, against us, in which K.T. alleged that webreached ourobligation under the Stac-Pac® acquisition agreement to pay K.T.a contingent promissory note in the principal amount of $5,000plus accrued interest of approximately $2,508 as of March 31, 2008. Payment of the contingent note was dependent on the satisfaction of certain specified conditions relating to the rights obtained by uswith regard to the intellectual property assets. When these conditions were not met pursuant to the terms of the Stac-Pac® acquisition agreement, wecanceled the contingent note in the year ended June 30, 2007, as reported in our 10-K filed September 7, 2007. Webelieve wehavemeritorious defenses to K.T.’s claim and intend to vigorously defend against the claim.

The Foley Plant, located in Perry, Florida, discharges treated wastewater into the Fenholloway River. Under the terms of an agreement with the Florida Department of Environmental Protection (“FDEP”), approved by the U. S. Environmental Protection Agency (“the EPA”) in 1995, we agreed to a comprehensive plan to attain Class III (“fishable/swimmable”) status for the Fenholloway River under applicable Florida law (the “Fenholloway Agreement”). The Fenholloway Agreement requires us, among other things, to (i) make process changes within the Foley Plant to reduce the coloration of its wastewater discharge, (ii) restore certain wetlands areas, (iii) relocate the wastewater discharge point into the Fenholloway River to a point closer to the mouth of the river, and (iv) provide oxygen enrichment to the treated wastewater prior to discharge at the new location. We have completed the process changes within the Foley Plant as required by the Fenholloway Agreement. In making these in-plant process changes, we incurred significant expenditures, and, as discussed in the following paragraph, we expect to incur significant additional capital expenditures to comply with the remaining obligations under the Fenholloway Agreement.

The EPA objected to the draft National Pollutant Discharge Elimination System (NPDES) permit prepared in connection with the Fenholloway Agreement and requested additional environmental studies to identify possible alternatives to the relocation of the wastewater discharge point, and some members of the public have also challenged the permit. Based on the requirements anticipated inthe proposed permit, we expect to incur capital expenditures of approximately$12.5 million dollars over the next four years (beginning fiscal year 2008) on in-plant process changes, and additional capital expenditures of at least $50 million dollars over at least five years, possibly beginning as early as fiscal year 2012. The amount and timing of these capital expenditures may vary depending on a number of factors including when the permit is issued and whether there are any further changes to the proposed permit. The revised permit may also include a condition requiring additionalstudies that could result in additional treatment costs beyond those expected under the previously proposedpermit. The EPA and FDEP have listed the Fenholloway Riveras an impaired water (not meeting all applicable water quality standards) under the Clean Water Act for certain pollutants. The permitting proceedings discussed above are expected to address these water-quality issues. See Note 20 “Contingencies” to the financial statements included in our Annual Report on Form 10-K for the year ended June 30, 2007.

NOTE 10: 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 thatdo 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 arepresented in the following tables.

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

Three Months Ended March 31, 2008

	Buckeye Technologies Inc.			Guarantors US Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Net sales	$	32,029		$	133,671		$	44,071		$	(7,906	)	$	201,865
Cost of goods sold		29,193			105,013			41,273			(7,815	)		167,664
Gross margin		2,836			28,658			2,798			(91	)		34,201

Selling, research and administrative expenses, and other		(4,610	)		14,099			2,449			-			11,938

Operating income(loss)		7,446			14,559			349			(91	)		22,263

Other income (expense):
Net interest income (expense) and amortization of debt		(8,117	)		142			161			-			(7,814	)
Other income (expense), including equity income (loss) in affiliates		3,979			(30	)		485			(4,121	)		313
Intercompany interest income (expense)		8,319			(6,495	)		(1,824	)		-			-

Income (loss) before income taxes		11,627			8,176			(829	)		(4,212	)		14,762

Income tax expense		1,205			2,843			249			43			4,340

Net income (loss)	$	10,422		$	5,333		$	(1,078	)	$	(4,255	)	$	10,422

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

NineMonths Ended March 31, 2008

	Buckeye Technologies Inc.			Guarantors US Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Net sales	$	87,756		$	399,710		$	152,165		$	(29,445	)	$	610,186
Cost of goods sold		77,041			309,265			136,401			(29,356	)		493,351
Gross margin		10,715			90,445			15,764			(89	)		116,835

Selling, research and administrative expenses, and other		(14,127	)		41,552			8,705			-			36,130
Restructuring and impairment costs		69			-			27			-			96

Operating income		24,773			48,893			7,032			(89	)		80,609

Other income (expense):
Net interest income (expense) and amortization of debt		(25,887	)		26			366			-			(25,495	)
Other income (expense), including equity income (loss) in affiliates		31,423			161			(155	)		(31,913	)		(484	)
Intercompany interest income (expense)		24,982			(19,509	)		(5,473	)		-			-

Income (loss) before income taxes		55,291			29,571			1,770			(32,002	)		54,630

Income tax expense (benefit)		17,506			10,137			(558	)		(10,240	)		16,845

Net income (loss)	$	37,785		$	19,434		$	2,328		$	(21,762	)	$	37,785

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 ofdebt		(10,150	)		12			118			-			(10,020	)
Other income(expense), including equityincome (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