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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2001
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Commission file number: 33-60032
Buckeye Technologies Inc.
incorporated pursuant to the Laws of Delaware
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Internal Revenue Service -- Employer Identification No. 62-1518973
1001 Tillman Street, Memphis, TN 38112
901-320-8100
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Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No ____
As of February 8, 2002, there were outstanding 34,763,900 Common Shares of the
Registrant.
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INDEX
BUCKEYE TECHNOLOGIES INC.
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ITEM PAGE
PART I - FINANCIAL INFORMATION
1. Financial Statements (Unaudited):
Condensed Consolidated Statements of Earnings for the Quarter Ended December 31, 2001 and
2000; Six Months Ended December 31, 2001 and 2000...................................... 3
Condensed Consolidated Balance Sheets as of December 31, 2001 and June 30, 2001............. 4
Condensed Consolidated Statements of Cash Flows for the Six Months Ended December 31, 2001
and 2000............................................................................... 5
Notes to Condensed Consolidated Financial Statements........................................ 6
2. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 9
PART II - OTHER INFORMATION
3. Submission of Matters to a Vote of Security Holders......................................... 12
4. Exhibits and Reports on Form 8-K............................................................ 12
SIGNATURES 13
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In thousands, except per share data)
Quarter Ended Six Months Ended
December 31 December 31
---------------------------- ----------------------------
2001 2000 2001 2000
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Net sales.............................................. $155,708 $186,001 $310,865 $374,605
Cost of goods sold..................................... 136,772 142,629 271,884 282,935
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Gross margin........................................... 18,936 43,372 38,981 91,670
Selling, research and administrative expenses.......... 8,480 12,427 17,101 25,835
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Operating income....................................... 10,456 30,945 21,880 65,835
Net interest expense and amortization of debt costs.... 12,550 11,294 23,380 22,559
Other (income) expense................................. (55) 401 521 560
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Income (loss) before income taxes and
cumulative effect of change in accounting........ (2,039) 19,250 (2,021) 42,716
Income taxes........................................... (1,191) 5,932 (1,185) 13,862
---------------------------- ----------------------------
Income (loss) before cumulative effect of
change in accounting............................ (848) 13,318 (836) 28,854
Cumulative effect of change in accounting
(net of tax of $1,268)......................... - - - 3,249
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Net income (loss)...................................... $ (848) $ 13,318 $ (836) $32,103
============================ ============================
Earnings per share before cumulative effect of
change in accounting
Basic earnings per share.................. $(0.02) $ 0.38 $(0.02) $ 0.83
Diluted earnings per share................ $(0.02) $ 0.38 $(0.02) $ 0.81
Cumulative effect of change in accounting
Basic earnings per share.................. $ - $ - $ - $ 0.09
Diluted earnings per share................ $ - $ - $ - $ 0.09
Earnings per share
Basic earnings per share................... $(0.02) $ 0.38 $ (0.02) $ 0.92
Diluted earnings per share................. $(0.02) $ 0.38 $ (0.02) $ 0.90
Weighted average shares for basic earnings per share... 34,674 34,755 34,558 34,776
Effect of dilutive stock options....................... - 702 - 1,085
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Adjusted weighted average shares for diluted earnings
per share........................................ 34,674 35,457 34,558 35,861
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See accompanying notes.
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PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
December 31 June 30
2001 2001
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Assets
Current assets:
Cash and cash equivalents.................................... $ 6,526 $ 6,912
Cash, restricted............................................. 3,375 -
Accounts receivable - net.................................... 97,104 104,589
Inventories.................................................. 158,758 136,780
Deferred income taxes and other.............................. 14,716 16,288
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Total current assets................................ 280,479 264,569
Property, plant and equipment..................................... 885,834 860,980
Less accumulated depreciation..................................... (252,110) (231,429)
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633,724 629,551
Goodwill, net..................................................... 129,231 131,688
Intellectual property and other, net.............................. 45,133 45,150
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Total assets........................................ $1,088,567 $1,070,958
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Liabilities and stockholders' equity Current liabilities:
Accounts payable............................................. $ 32,562 $ 46,625
Accrued expenses............................................. 51,651 51,457
Current portion of long-term debt............................ 22,793 21,895
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Total current liabilities........................... 107,006 119,977
Long-term debt............................................... 658,483 632,784
Accrued postretirement benefit obligation.................... 19,619 18,923
Deferred income taxes........................................ 67,605 65,781
Other liabilities............................................ 3,850 3,471
Stockholders' equity.............................................. 232,004 230,022
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Total liabilities and stockholders' equity..... $1,088,567 $1,070,958
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See accompanying notes.
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PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended
December 31
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2001 2000
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Operating activities
Net income........................................................ $ (836) $32,103
Adjustments to reconcile net income to net cash provided by operating
activities:
Cumulative effect of change in accounting.................. - (3,249)
Depreciation............................................... 22,015 21,649
Amortization .............................................. 2,053 3,759
Deferred income taxes and other............................ 2,595 1,883
Changes in operating assets and liabilities:
Accounts receivable.................................... 6,199 4,801
Inventories............................................ (21,301) (16,288)
Other assets........................................... (884) 350
Accounts payable and other current liabilities......... (9,420) (22,222)
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Net cash provided by operating activities......................... 421 22,786
Investing activities
Purchases of property, plant and equipment........................ (24,752) (68,094)
Acquisition of business........................................... - (36,388)
Other............................................................. (635) -
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Net cash used in investing activities............................. (25,387) (104,482)
Financing activities
Purchase of treasury shares....................................... - (6,052)
Proceeds from exercise of stock options........................... 3,605 2,558
Net borrowings under revolving lines of credit.................... 41,033 102,728
Principal payments on long term debt.............................. (22,208) (20,000)
Other............................................................. 2,433 -
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Net cash provided by financing activities......................... 24,863 79,234
Effect of foreign currency rate fluctuations on cash.............. (283) (1,142)
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Decrease in cash and cash equivalents............................. (386) (3,604)
Cash and cash equivalents at beginning of period.................. 6,912 12,257
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Cash and cash equivalents at end of period........................ $6,526 $ 8,653
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See accompanying notes.
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NOTE A-- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
of Buckeye Technologies Inc. and its subsidiaries (the Company) have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six months ended December 31,
2001 are not necessarily indicative of the results that may be expected for the
year ended June 30, 2002. All significant intercompany accounts and transactions
have been eliminated in consolidation. For further information and a listing of
the Company's significant accounting policies, refer to the financial statements
and notes thereto included in the Company's annual report on Form 10-K for the
year ended June 30, 2001.
Certain amounts in the 2000 financial statements have been reclassified
to conform with the 2001 financial statement presentation.
NOTE B - BUSINESS COMBINATION
On August 1, 2000, the Company acquired the cotton cellulose business
of Fibra, S.A. (Americana), located in Americana, Brazil for $36,588, including
acquisition costs. The acquisition was funded using borrowings from the
Company's revolving credit facility. The acquisition was accounted for using the
purchase method of accounting. In May 2001, production at Americana was
suspended and capital improvements are planned to allow sales to market
customers.
The operating results of Americana have been included in the
consolidated statements of income from the date of acquisition. The following
unaudited pro forma results of operations assume that the acquisition occurred
at the beginning of the periods presented.
Pro forma results of operations Six Months Ended December 31
2001 2000
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Net sales $310,865 $375,235
Net income (loss) (836) 32,061
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Basic earnings per share $ (0.02) $ 0.92
Diluted earnings per share $ (0.02) $ 0.89
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The pro forma financial information is presented for information purposes only
and is not necessarily indicative of the operating results that would have
occurred had the business combination been consummated as of the above dates,
nor is it necessarily indicative of future operating results.
NOTE C-- RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141, Business Combinations
(SFAS No. 141) and No. 142, Goodwill and Other Intangible Assets (SFAS No. 142).
The Company adopted SFAS 142 on July 1, 2001 and discontinued the amortization
of goodwill. Under the guidelines of SFAS 142, the Company completed step one of
the goodwill impairment test. The results of the test indicate an impairment of
approximately $11,000 in the goodwill of the Company's converting business,
which was purchased as part of the Merfin acquisition in 1997. The Company
anticipates completing step two of the analysis in the third quarter and
recording a cumulative effect of a change in accounting policy adjustment. There
will not be any tax benefit recorded as a result of this reduction in carrying
value of goodwill.
NOTE D-- INVENTORIES
The components of inventory consist of the following:
December 31 June 30
2001 2001
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(In thousands)
Raw materials....................... $38,716 $ 39,008
Finished goods...................... 97,618 77,111
Storeroom and other supplies........ 22,424 20,661
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$158,758 $136,780
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NOTE E -- DEBT
On December 5, 2001, the Company entered into a receivables based
credit facility with a commercial bank providing for borrowings up to $30,000,
of which $25,636 was outstanding at December 31, 2001. In accordance with the
terms of the agreement, $3,375 of the loan proceeds are held as restricted cash.
The credit facility matures on December 5, 2002. The interest rate applicable to
borrowings under the credit facility is one-week LIBOR plus 0.95%. The credit
facility is secured by certain insured receivables of the Company. At December
31, 2001, the Company had total unused borrowing availability of approximately
$33,300 on its revolving credit facility and its receivables based credit
facility.
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NOTE F -- COMPREHENSIVE INCOME
The components of comprehensive income consist of the following:
Three Months Ended Six Months Ended
December 31 December 31
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2001 2000 2001 2000
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(In thousands) (In thousands)
Net income (loss).................................... $ (848) $13,318 $ (836) $32,103
Foreign currency translation adjustments - net.. (4,373) 6,304 (922) (8,170)
----------------------------- ----------------------------
Comprehensive income (loss).......................... $(5,221) $19,622 $(1,758) $23,933
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The change in the foreign currency translation adjustment is primarily due to
fluctuations in the exchange rate of the US dollar and the euro, the Brazilian
real and the Canadian dollar.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net sales for the quarter ended December 31, 2001 were $155.7 million
compared to $186.0 million for the same period in the prior fiscal year, a
decrease of $30.3 million or 16.3%. The decrease in net sales was primarily due
to lower shipment volumes in cotton cellulose and lower sales prices on fluff
pulp. Net sales for the six-month period ended December 31, 2001 were $310.9
million compared to $374.6 million for the same period in the prior fiscal year,
a decrease of $63.7 million or 17.0%. The decrease in net sales was primarily
due to lower sales prices on fluff pulp and lower shipment volumes of fluff pulp
and cotton cellulose. The decrease in shipment volumes of fluff pulp reflects
the impact of the contractual change in the Fluff Pulp Supply Agreement with The
Procter & Gamble Company.
Operating income for the quarter ended December 31, 2001 was $10.5
million compared to $30.9 million for the same period in the prior fiscal year,
a decrease of $20.4 million or 66.0%. Operating income for the six months ended
December 31, 2001 was $21.9 million compared to $65.8 million for the same
period in the prior fiscal year, a decrease of $43.9 million or 66.7%. Operating
income decreased mainly due to the lower sales prices and sales volume of fluff
pulp combined with lower cotton cellulose volume and increased cost of cotton
raw materials. The decrease was partially offset by decreases in sales, research
and administrative expenses of $3.9 million and $8.7 million, respectively, for
the quarter ended December 31, 2001 and the six months ended December 31, 2001.
Net interest expense and amortization of debt costs were $12.6 million
for the quarter ended December 31, 2001 compared to $11.3 million for the
quarter ended December 31, 2000. The increase was primarily due to higher debt
levels and lower capitalized interest, offset by lower interest rates and the
interest rate swap agreement that the Company entered into on May 7, 2001. Net
interest expense and amortization of debt costs were $23.4 million for the six
months ended December 31, 2001 compared to $22.6 million for the same period of
the prior fiscal year. The increase was primarily due to higher debt levels
offset by lower interest rates and the interest rate swap agreement.
The Company's effective tax benefit rate of 58.4% for the quarter ended
December 31, 2001 is higher than the effective tax rate of 30.8% for the quarter
ended December 31, 2000 primarily due to a one-time reduction in deferred income
taxes of approximately $0.6 million due to legislation reducing the British
Columbia, Canadian provincial corporate income tax rate.
Financial Condition
Cash Flow
On December 5, the Company obtained additional financing of $30.0
million through a receivables based credit facility. Borrowings under this new
credit facility were $25.6 million at December 31, 2001. The funds provided from
operations, along with the additional borrowings under the Company's credit
facilities, were used to fund the increased working capital requirements, fund
the capital expenditures to modernize and upgrade production equipment and
facilities and to make the $22.0 million note payment to UPM-Kymmene for the
purchase of Walkisoft.
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations (cont'd)
Liquidity and Capital Resources
The Company has the following major sources of financing: revolving
credit facility, receivables based credit facility and senior subordinated
notes. At December 31, 2001, the Company had total unused borrowing availability
of $33.3 million from its revolving credit facility and its receivables based
credit facility. The Company's revolving credit facility and senior subordinated
notes contain various covenants. At December 31, 2001, the Company was in
compliance with such covenants.
Revolving Credit Facility. Due to difficult economic conditions, the
Company believes it will not be in compliance with some of the existing
financial covenants under its revolving credit facility as of March 31, 2002.
The Company is presently engaged in negotiations with its lenders to amend the
financial covenants and other terms of the facility in order to provide greater
financial flexibility and to avoid an event of default. The Company believes
that it will be successful in these negotiations and will remain in compliance
with the financial covenants under this facility.
Receivables Based Credit Facility. On December 5, 2001, the Company
entered into a receivables based credit facility with a commercial bank
providing for borrowings up to $30.0 million, of which $25.6 million was
outstanding at December 31, 2001. In accordance with the terms of the agreement,
$3.4 million of the loan proceeds must be held as restricted cash. The credit
facility matures on December 5, 2002 and may be extended for an additional year
at the lender's discretion. The interest rate applicable to borrowings under
this facility is one-week LIBOR plus 0.95%, and the facility is secured by
certain insured receivables of the Company.
Senior Subordinated Notes. The indentures governing the Company's
subordinated notes specify that if the Company's fixed charge coverage ratio (as
defined in those indentures) falls below 2:1, then the Company's debt is limited
to "Permitted Indebtedness" (also as defined in those indentures), until the
ratio again equals or exceeds 2:1. If operating earnings do not improve from the
level achieved during the first six months of the fiscal year, this ratio, which
is measured on a rolling four-quarter basis, will fall below 2:1 by June 30,
2002. Since the Company has utilized substantially all of the Permitted
Indebtedness allowed under the indentures maturing in 2005 and 2008, the effect
of falling below this ratio would be to prevent the Company from incurring any
additional debt until the ratio is again equal to or greater than 2:1.
Additionally, if the ratio were less than 2:1, the Company's availability under
its receivables based credit facility would be capped at $25.0 million instead
of $30.0 million, until the ratio is again equal to or greater than 2:1. The
Company would not be required to repay any of its outstanding debt, and falling
below the 2:1 ratio would not create an event of default under the revolving
credit facility, the receivables based credit facility nor the senior
subordinated notes.
While there can be no assurances, even if the Company's fixed charge
coverage ratio falls below 2:1, resulting in a $5.0 million decrease in credit
availability under its receivables based credit facility, the Company believes
that its cash flow from operations along with borrowings under its credit
facilities will be sufficient to fund capital expenditures (expected to total
$40.0 million for this fiscal year), meet operating expenses and service all
debt requirements for the foreseeable future.
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Recently Issued Accounting Standards
Effective July 1, 2001 the Company adopted SFAS No. 142, Goodwill and
Other Intangible Assets, which establishes new accounting and reporting
requirements for goodwill and other intangible assets. Under SFAS No. 142,
goodwill amortization ceases when the new standard is adopted. The new rules
also require an initial goodwill impairment assessment in the year of adoption
and annual impairment tests thereafter. The Company has completed step one of
the goodwill impairment test. The results of the test indicate an impairment of
approximately $11 million in the goodwill of the Company's converting business,
which was purchased as part of the Merfin acquisition in 1997. The Company
anticipates completing step two of the analysis in the third quarter and
recording a cumulative effect of a change in accounting policy adjustment. There
will not be any tax benefit recorded as a result of this reduction in carrying
value of goodwill.
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PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On November 1, 2001, the Company held its Annual Meeting of
Stockholders. At the meeting, Henry F. Frigon, Samuel M. Mencoff and Robert
E. Cannon were each re-elected as Class I directors to hold office for a
three-year term or until their successors are elected and qualified. For Mr.
Frigon, 32,580,168 votes were cast in favor and 741,805 votes were withheld.
For Mr. Mencoff, 32,583,256 votes were cast in favor and 738,717 were withheld.
For Mr. Cannon, 30,595,601 votes were cast in favor and 2,726,372
were withheld.
Following the election, the Company's Board of Directors consisted of
Red Cavaney, R. Howard Cannon, Robert E. Cannon, David B. Ferraro, Henry F.
Frigon, Samuel M. Mencoff, and George W. Bryan.
The stockholders also ratified the appointment of Ernst & Young LLP as
the Company's independent auditors. 33,185,640 votes were cast in favor of the
ratification, 104,106 were cast against and 32,227 votes abstained.
Item 6. Exhibits and Reports on Form 8-K
1. Exhibit 10.1
- Credit and Security Agreement dated December 5, 2001, by and among
Wachovia Bank, N.A. and Buckeye Receivables Inc.
2. Reports on Form 8-K
- Report dated December 21, 2001 announcing the conference call
regarding operating results for the second quarter ended
December 31, 2001.
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Buckeye Technologies Inc.
By: /S/ DAVID B. FERRARO
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David B. Ferraro, President and Chief Operating Officer
Date: February 12, 2002
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By: /S/ GAYLE L. POWELSON
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Gayle L. Powelson, Senior Vice President, Chief Financial Officer
Date: February 12, 2002
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