Edgar Filing: BUCKEYE TECHNOLOGIES INC

sept300810q.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 September 30, 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 October 30, 2008, there were outstanding 38,643,740Common Shares of the Registrant.

INDEX

BUCKEYE TECHNOLOGIES INC.

ITEM		PAGE

	PART I - FINANCIAL INFORMATION

1.	Financial Statements:

	Condensed Consolidated Statements of Incomefor the Three Months Ended September 30, 2008 and 2007	3

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

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2008 and 2007	5

	Notes to Condensed Consolidated Financial Statements	6

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

3.	Quantitative and Qualitative Disclosures About Market Risk	22

4.	Controls and Procedures	22

	PART II - OTHER INFORMATION

1.	Legal Proceedings	23

2.	Changes in Securities and Use of Proceeds	23

6.	Exhibits	23

	SIGNATURES	24

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 September 30
	2008			2007
Net sales	$	221,293		$	197,399
Cost of goods sold		185,955			156,744
Gross margin		35,338			40,655

Selling, research and administrative expenses		12,210			11,474
Amortization of intangibles and other		469			561
Restructuring costs		-			96
Operating income		22,659			28,524

Net interest expense and amortization of debt costs		(7,438	)		(9,157	)
Loss on early extinguishment of debt		-			(786	)
Foreign exchange and other		(831	)		(168	)

Income before income taxes		14,390			18,413
Income tax expense		5,540			4,916

Net income	$	8,850		$	13,497

Earnings per share
Basic	$	0.23		$	0.35
Diluted	$	0.23		$	0.34

Weighted average shares for earnings per share
Basic		38,704			38,743
Effect of diluted shares		179			517
Diluted		38,883			39,260

See accompanying notes.

BUCKEYE TECHNOLOGIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

	September 30 2008			June 30 2008
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	18,451		$	10,393
Accounts receivable –net		128,549			127,521
Inventories– net		109,211			110,254
Deferred income taxes and other		11,355			11,530
Total current assets		267,566			259,698

Property, plant and equipment		1,078,231			1,093,759
Less accumulated depreciation		(540,675	)		(538,051	)
		537,556			555,708
Goodwill		156,800			163,622
Intellectual property and other, net		28,036			30,197
Total assets	$	989,958		$	1,009,225

Liabilities and stockholders’ equity
Current liabilities:
Trade accounts payable	$	41,618		$	49,157
Accrued expenses		59,248			50,451
Current portion of capital lease obligation		253			358
Short-term debt		285			207
Total current liabilities		101,404			100,173

Long-term debt		392,439			393,910
Accrued postretirement benefits		22,406			23,868
Deferred income taxes		57,754			57,963
Other liabilities		3,017			3,754
Stockholders’ equity		412,938			429,557
Total liabilities and stockholders’ equity	$	989,958		$	1,009,225

See accompanying notes.

BUCKEYE TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Three Months Ended September 30
	2008			2007
Operating activities
Net income	$	8,850		$	13,497
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		12,743			12,629
Amortization		639			502
Loss on early extinguishment of debt		-			786
Deferred income taxes and other		1,876			4,915
Excess tax benefit from stock based compensation		-			(15	)
Changes in operating assets and liabilities:
Accounts receivable		(5,125	)		(1,726	)
Inventories		(841	)		(5,571	)
Other assets		142			(219	)
Accounts payable and other current liabilities		3,772			6,955
Net cash provided by operating activities		22,056			31,753
Investing activities
Purchases of property, plant and equipment		(11,082	)		(8,990	)
Other		(23	)		(46	)
Net cash used in investing activities		(11,105	)		(9,036	)
Financing activities
Net borrowings (payments) under lines of credit		(1,232	)		88,267
Payments for debt issuance costs		-			(1,289	)
Payments on long-term debt and other		(105	)		(113,719	)
Purchase of treasury shares		(494	)		-
Net proceeds from sale of equity interests		-			2,705
Excess tax benefit from stock based compensation		-			15
Net cash used in financing activities		(1,831	)		(24,021	)
Effect of foreign currency rate fluctuations on cash		(1,062	)		517
Increase (decrease) in cash and cash equivalents		8,058			(787	)
Cash and cash equivalents at beginning of period		10,393			14,790
Cash and cash equivalents at end of period	$	18,451		$	14,003

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 months ended September 30, 2008 are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 2009. 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, 2008, which was filed with the Securities and Exchange Commission on August 27, 2008 (“Annual Report”). Except as otherwise specified, references to years indicate our fiscal year ending June 30, 2009 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.

NOTE 2:

SEGMENT INFORMATION

We report results for two segments, specialty fibers and nonwoven materials. The specialty fibers segment consists of our chemical cellulose, customized fibers and fluff pulp product lines which are 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 September 30		Specialty Fibers		Nonwoven Materials		Corporate			Total
Net sales	2008	$	164,979	$	65,862	$	(9,548	)	$	221,293
	2007		135,701		71,630		(9,932	)		197,399
Operating income (loss)	2008		20,118		3,593		(1,052	)		22,659
	2007		21,971		7,908		(1,355	)		28,524
Depreciation and amortization of	2008		8,348		4,045		819			13,212
Intangibles	2007		8,015		4,232		944			13,191
Capital expenditures	2008		10,097		778		207			11,082
	2007		7,920		707		363			8,990

Management evaluates operating performance of the specialty fibers and nonwoven materials segments excluding amortization of intangibles, the impact of impairment of long-lived assets, charges related to restructuring, unallocated at-risk compensation and unallocated stock-based compensation for executive officers and certain other employees. Therefore, the corporate segment includes operating elements such as segment eliminations, amortization of intangibles, impairment of long-lived assets, charges related to restructuring, unallocated at-risk compensation and unallocated stock-based compensation for executive officers and certain other employees. We have reclassified the at-risk compensation and stock-based compensation from the specialty fibers and nonwovens segments for the three months ended September 30, 2007 for comparability. Corporate net sales represent the elimination of intersegment sales included in the specialty fibers reporting segment. Intersegment sales are at current market prices.

NOTE 3: RECENT ACCOUNTING PRONOUNCEMENTS

Effective July 1, 2008, the Company adopted SFAS No. 157, Fair Value Measurements, which defines fair values, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure about fair value measurements. The impact of adoption was not material.

NOTE 4: RESTRUCTURING COSTS AND ASSETS HELD FOR SALE

During fiscal 2007, we entered into a restructuring program that complemented our operations’ consolidations and involved consolidation in our European sales offices, product and market development and corporate overhead. The total cost of this program was$1,358 and was completed during the first quarter of the 2008 fiscal year. The remaining accrual of $105 will be paid in fiscal year 2009. As a result of this restructuring, 22 positions were eliminated.

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:

	September 30 2008		June 30 2008

Raw materials	$	35,838	$	40,758
Finished goods		49,413		45,184
Storeroom and other supplies		23,960		24,312
	$	109,211	$	110,254

NOTE 6: DEBT

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

	September 30 2008		June 30 2008
Senior Notes due:
2013	$	200,000	$	200,000
Senior Subordinated Notes due:
2010		115,739		115,830
Credit facility		76,700		78,080
	$	392,439	$	393,910

Senior Notes

During September 2003, we placed privately $200,000 in aggregate principal amount of 8.5% senior notes due October 1, 2013 (the “2013 Notes”). 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. 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 principal amount of 9.25% unsecured Senior Subordinated Notes due September 15, 2008 (the “2008 Notes”). These notes were redeemable at our option, in whole or in part, at any time after September 15, 2004, at a redemption price of 100% of principal amount together with accrued and unpaid interest to the date of redemption.

Through fiscal year 2007, we redeemed $40,000 of the 2008 Notes. During the three months ended September 30, 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 the three months ended September 30, 2007, we recorded non-cash expenses of $205 related to the early extinguishment of this debt.

During June 1998, we completed a private placement of $150,000 principal amount of 8% unsecured Senior Subordinated Notes due October 15, 2010 (the “2010 Notes”). In fiscal 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.

Through fiscal year 2008, we redeemed $35,000 of the 2010 Notes. $20,000 of these redemptions were completed during the three months ended September 30, 2007. As a result of these redemptions, we wrote off a portion of the deferred financing costs and unamortized discount related to the 2010 notes. During the three months ended September 30, 2007, we recorded non-cash expenses of $153 related to the early extinguishment of this debt.

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 amended and restated the Company's old credit facility. Initially, we used the proceeds from this new credit facility 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% or a LIBOR-based rate ranging from LIBOR plus 1.25% to LIBOR plus 2.00%. We used the proceeds from this facility to redeem the remaining $60,000 of our 2008 notes, to redeem $20,000 of the 2010 notes in mid-September 2007, and for general corporate purposes. 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 (“EBITDA”), and minimum ratio of consolidated EBITDA to consolidated interest expense. At September 30, 2008, we were in compliance with the financial covenants under our credit facility.

On September 30, 2008, we had $18,451 of cash and cash equivalents and we had $117,948 borrowing capacity on our credit facility. The credit facility also contains a $50,000 increase option. 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. Our credit facility allows for a sublimit on letters of credit of $50,000. As of September 30, 2008, $44,648 of the sublimit was unused.

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. Total costs for the issuance of the facility were approximately $1,300 and are being amortized to interest expense using the effective interest method over the life of the facility. During the three months ended September 30, 2007, $178 was expensed as early extinguishment of debt related to the write-off of deferred financing costs for the term loan portion of the former credit facility.

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 months ended September 30, 2008, the swap increased our interest expense by $151. During the three months ended September 30, 2007, the swap reduced our interest expense by $10. At September 30, 2008, our liability on the interest rate swap agreement was $514.

NOTE 7:

STOCKHOLDERS' EQUITY

The change in stockholders' equity was due mainly to the change in comprehensive income as shown in the chart below. The components of comprehensive income consist of the following:

	Three Months Ended September 30
	2008			2007

Net income	$	8,850		$	13,497
Foreign currency translation adjustments –net		(26,091	)		14,909
Unrealized losses on hedging activities		(77	)		-
Comprehensive income	$	(17,318	)	$	28,406

For the three months ended September 30, 2008, the change in the foreign currency translation adjustment is due to fluctuations in the exchange rate of the U.S. dollar against the euro of ($9,002), the Brazilian real of ($12,084) and the Canadian dollar of ($5,005).

For the three months ended September 30, 2007, the change in the foreign currency translation adjustment was primarily due to fluctuations in the exchange rate of the U.S. dollar against the euro of $3,718, the Brazilian real of $2,493 and the Canadian dollar of $8,698.

NOTE 8:

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 retained earnings at July 1, 2007. 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 September 30, 2008, we remain subject to examinations of our U.S. federal and state income tax returns for the years 2003 through 2007, Canadian income tax returns for the years 2001 through 2007 and German tax filings for the years 2002 through 2007.

Our effective tax rate for the three months ended September 30, 2008 was 38.5% versus 26.7% for the same period in 2007. The main reason for the lower tax rate for the three months ended September 30, 2007 was a German tax rate law change which reduced our taxes by approximately $2,200 during that period. Our effective rate may vary in future quarters due to the amount and source of income, results of tax audits and changes in tax legislation. We currently expect the effective tax rate for the 2009 fiscal year to be about 35%. 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 September 30
	2008			2007

Expected tax expense at 35%	$	5,037		$	6,444
German tax rate change		-			(2,245	)
Effect of foreign operations		776			762
Other		(273	)		(45	)
Income tax expense	$	5,540		$	4,916

NOTE 9: EMPLOYEE BENEFIT PLANS

In September 2006, the FASB issued SFAS 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R) (SFAS 158). On July 1, 2008, we adopted the measurement date provisions of SFAS No. 158. SFAS No. 158 requires the measurement date of the plan’s funded status to be the same as our fiscal year end. The adoption of the measurement date provisions of SFAS No. 158 resulted in a decrease in accrued postretirement benefits of $1,175, an increase in deferred tax liabilities of $435, an increase in accumulated other comprehensive income of $882 and a decrease in the opening balance of retained earnings of $142. The adoption of the measurement date provisions of SFAS No. 158 had no material effect on our consolidated statement of income for the three months ended September 30, 2008 or for any prior period presented, and it will not materially affect our operating results in future periods.

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 September 30
	2008			2007
Service cost for benefits earned	$	121		$	151
Interest cost on benefit obligation		374			350
Amortization of unrecognized prior service cost		(251	)		(251	)
Actuarial loss		69			146
Total cost	$	313		$	396

NOTE 10: 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 we breached our obligation under the Stac-Pac® acquisition agreement to pay K.T. a contingent promissory note in the principal amount of $5,000 plus accrued interest of approximately $2,655 as of September 30, 2008. Payment of the contingent note was dependent on the satisfaction of certain specified conditions relating to the rights obtained by us with regard to the intellectual property assets. When these conditions were not met pursuant to the terms of the Stac-Pac® acquisition agreement, we canceled the contingent note in the year ended June 30, 2007, as reported in our 10-K filed September 7, 2007. We believe we have meritorious 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 in the proposed permit, we expect to incur capital expenditures of approximately $12,500 dollars over the four year period that began in fiscal year 2008 on in-plant process changes, and additional capital expenditures of at least $50,000 dollars over at least five years, possibly beginning as early as fiscal year 2012. See Note 17 “Contingencies” to the financial statements included in our Annual Report for the year ended June 30, 2008.

NOTE 11: 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 that 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 arepresented in the following tables.

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

Three Months Ended September 30, 2008

	Buckeye Technologies Inc.			Guarantors US Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Net sales	$	36,271		$	144,525		$	51,193		$	(10,696	)	$	221,293
Cost of goods sold		33,804			115,965			47,382			(11,196	)		185,955
Gross margin		2,467			28,560			3,811			500			35,338

Selling, research and administrative expenses, and other		(4,137	)		13,757			3,059			-			12,679

Operating income		6,604			14,803			752			500			22,659

Other income (expense):
Net interest income (expense) and amortization of debt		(7,757	)		281			38			-			(7,438	)
Other income (expense), including equity income (loss) in affiliates		6,733			(76	)		(787	)		(6,701	)		(831	)
Intercompany interest income (expense)		7,718			(6,541	)		(1,177	)		-			-

Income (loss) before income taxes		13,298			8,467			(1,174	)		(6,201	)		14,390

Income tax expense (benefit)		4,448			2,796			372			(2,076	)		5,540

Net income (loss)	$	8,850		$	5,671		$	(1,546	)	$	(4,125	)	$	8,850

CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS

Three Months Ended September 30, 2007


	Buckeye Technologies Inc.			Guarantors US Subsidiaries			Non- Guarantor Subsidiaries			Consolidating Adjustments			Consolidated
Net sales	$	27,603		$	127,727		$	53,228		$	(11,159	)	$	197,399
Cost of goods sold		23,033			98,686			46,139			(11,114	)		156,744
Gross margin		4,570			29,041			7,089			(45	)		40,655

Selling, research and administrative expenses, and other		(4,246	)		13,182			3,099			-			12,035
Restructuring and impairment costs		69			-			27			-			96

Operating income (loss)		8,747			15,859			3,963			(45	)		28,524

Other income (expense):
Net interest income (expense) and amortization of debt		(9,139	)		(68	)		50			-			(9,157	)
Other income (expense), including equity income (loss)in affiliates		16,577			170			(495	)		(17,206	)		(954	)
Intercompany interest income (expense)		8,331			(6,546	)		(1,785	)		-			-

Income (loss) before income taxes		24,516			9,415			1,733			(17,251	)		18,413

Income tax expense (benefit)		11,019			2,997			(1,337	)		(7,763	)		4,916

Net income (loss)	$	13,497		$	6,418		$	3,070		$	(9,488	)	$	13,497

CONDENSED CONSOLIDATING BALANCE SHEETS

As of September 30, 2008

	Buckeye Technologies Inc.			Guarantors US Subsidiaries		Non- Guarantor Subsidiaries		Consolidating Adjustments			Consolidated
Assets
Current assets
Cash and cash equivalents	$	1,762		$	3	$	16,686	$	-		$	18,451
Accounts receivable, net of allowance		18,547			75,747		34,255		-			128,549
Inventories		29,041			59,264		21,510		(604	)		109,211
Other current assets		3,741			6,789		825		-			11,355
Intercompany accounts receivable		-			80,030		-		(80,030	)		-
Total current assets		53,091			221,833		73,276		(80,634	)		267,566

Property, plant and equipment, net		59,354			336,153		142,049		-			537,556
Goodwill and intangibles, net		36,355			27,347		109,224		-			172,926
Intercompany notes receivable		368,217			-		-		(368,217	)		-
Other assets, including investment in subsidiaries		394,528			263,827		105,039		(751,484	)		11,910
Total assets	$	911,545		$	849,160	$	429,588	$	(1,200,335	)	$	989,958

Liabilities and stockholders’ equity
Current liabilities
Trade accounts payable	$	6,322		$	25,575	$	9,721	$	-		$	41,618
Other current liabilities		24,383			24,287		11,116		-			59,786
Intercompany accounts payable		71,150			-		8,880		(80,030	)		-
Total current liabilities		101,855			49,862		29,717		(80,030	)		101,404

Long-term debt		392,439			-		-		-			392,439
Deferred income taxes		(5,133	)		48,868		14,019		-			57,754
Other long-term liabilities		9,446			14,137		1,840		-			25,423
Intercompany notes payable		-			261,524		106,693		(368,217	)		-
Stockholders’/invested equity		412,938			474,769		277,319		(752,088	)		412,938
Total liabilities and stockholders’ equity	$	911,545		$	849,160	$	429,588	$	(1,200,335	)	$	989,958

CONDENSED CONSOLIDATING BALANCE SHEETS

As of June 30, 2008


	Buckeye Technologies Inc.			Guarantors US Subsidiaries		Non- Guarantor Subsidiaries		Consolidating Adjustments			Consolidated
Assets
Current assets
Cash and cash equivalents	$	491		$	137	$	9,765	$	-		$	10,393
Accounts receivable, net		18,909			70,379		38,233		-			127,521
Inventories		31,034			57,499		22,826		(1,105	)		110,254
Other current assets		3,565			6,702		1,263		-			11,530
Intercompany accounts receivable		-			87,036		-		(87,036	)		-
Total current assets		53,999			221,753		72,087		(88,141	)		259,698

Property, plant and equipment, net		60,090			334,367		161,251		-			555,708
Goodwill and intangibles, net		36,843			27,347		116,045		-			180,235
Intercompany notes receivable		368,217			-		-		(368,217	)		-
Other assets, including investment in subsidiaries		411,183			262,661		116,461		(776,721	)		13,584
Total assets	$	930,332		$	846,128	$	465,844	$	(1,233,079	)	$	1,009,225

Liabilities and stockholders’ equity
Current liabilities
Trade accounts payable	$	10,353		$	29,211	$	9,593	$	-		$	49,157
Other current liabilities		18,360			22,009		10,647		-			51,016
Intercompany accounts payable		78,510			-		8,526		(87,036	)		-
Total current liabilities		107,223			51,220		28,766		(87,036	)		100,173

Long-term debt		393,910			-		-		-			393,910
Deferred income taxes		(10,211	)		51,551