tenq093007.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, 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 ¨

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 24, 2007, there were outstanding 39,083,682 Common Shares of the Registrant.






INDEX
 
BUCKEYE TECHNOLOGIES INC.



ITEM
 
PAGE
 
 
 
 
PART I - FINANCIAL INFORMATION
 
 
 
 
1.
Financial Statements:
 
 
 
 
 
Condensed Consolidated Statements of Income for the Three Months Ended September 30, 2007 and 2006
3
 
 
 
 
Condensed Consolidated Balance Sheets as of September 30, 2007 and June 30, 2007
4
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2007 and 2006
5
 
 
 
 
Notes to Condensed Consolidated Financial Statements
6
 
 
 
2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
15
 
 
 
3.
Quantitative and Qualitative Disclosures About Market Risk
22
 
 
 
4.
Controls and Procedures
22
 
 
 
 
PART II - OTHER INFORMATION
 
 
 
 
 
 
 
6.
Exhibits
23
 
 
 
 
SIGNATURES
24
 
 
 



2



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
 
 
 
2007
 
2006
 
Net sales
 
$
197,399
 
$
191,406
 
Cost of goods sold
 
 
156,744
 
 
162,071
 
Gross margin
 
 
40,655
 
 
29,335
 
 
 
 
 
 
 
 
 
Selling, research and administrative expenses
 
 
11,474
 
 
11,204
 
Amortization of intangibles and other
 
 
561
 
 
631
 
Restructuring costs
 
 
96
 
 
13
 
Operating income
 
 
28,524
 
 
17,487
 
 
 
 
 
 
 
 
 
Net interest expense and amortization of debt costs
 
 
(9,157
)
 
(10,751
)
Gain on sale of assets held for sale
 
 
-
 
 
355
 
Loss on early extinguishment of debt
 
 
(786
)
 
(556
)
Foreign exchange and other
 
 
(168
 
6
 
 
 
 
 
 
 
 
 
Income before income taxes
 
 
18,413
 
 
6,541
 
Income tax expense
 
 
4,916
 
 
2,734
 
 
 
 
 
 
 
 
 
Net income
 
$
13,497
 
$
3,807
 
 
 
 
 
 
 
 
 
Earnings per share
 
 
 
 
 
 
 
Basic
 
$
0.35
 
$
0.10
 
Diluted
 
$
0.34
 
$
0.10
 
               
Weighted average shares for earnings per share
             
Basic
 
 
38,743
 
 
37,661
 
Effect of diluted shares
 
 
517
 
 
31
 
Diluted
 
 
39,260
 
 
37,692
 

See accompanying notes.


3



BUCKEYE TECHNOLOGIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 
 
September 30
2007
 
June 30
2007
 
 
 
(Unaudited)
 
 
 
Assets
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
14,003
 
$
14,790
 
Accounts receivable – net
 
 
120,199
 
 
116,865
 
Inventories – net
 
 
94,050
 
 
86,777
 
Deferred income taxes and other
 
 
9,514
 
 
9,452
 
Total current assets
 
 
237,766
 
 
227,884
 
 
 
 
 
 
 
 
 
Property, plant and equipment
 
 
1,038,757
 
 
1,016,299
 
Less accumulated depreciation
 
 
(497,175
)
 
(478,644
)
 
 
 
541,582
 
 
537,655
 
Goodwill
 
 
162,116
 
 
155,937
 
Intellectual property and other, net
 
 
30,439
 
 
30,346
 
Total assets
 
$
971,903
 
$
951,822
 
 
 
 
 
 
 
 
 
Liabilities and stockholders’ equity
 
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
 
Trade accounts payable
 
$
42,032
 
$
41,030
 
Accrued expenses
 
 
58,861
 
 
49,532
 
Current portion of capital lease obligation
 
 
407
 
 
399
 
Short-term debt
 
 
505
 
 
-
 
Total current liabilities
 
 
101,805
 
 
90,961
 
 
 
 
 
 
 
 
 
Long-term debt
 
 
418,917
 
 
445,138
 
Accrued postretirement benefits
 
 
24,622
 
 
24,509
 
Deferred income taxes
 
 
47,019
 
 
41,761
 
Capital lease obligation
 
 
251
 
 
356
 
Other liabilities
 
 
1,493
 
 
1,943
 
Stockholders’ equity
 
 
377,796
 
 
347,154
 
Total liabilities and stockholders’ equity
 
$
971,903
 
$
951,822
 

See accompanying notes.


4



BUCKEYE TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)

 
 
Three Months Ended
September 30
 
 
 
2007
 
2006
 
Operating activities
 
 
 
 
 
 
 
Net income
 
$
13,497
 
$
3,807
 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
 
 
Depreciation
 
 
12,629
 
 
12,146
 
Amortization
 
 
502
 
 
937
 
Loss on early extinguishment of debt
 
 
786
 
 
556
 
Deferred income taxes and other
 
 
4,915
 
 
1,276
 
Gain on sale of assets held for sale
 
 
-
 
 
(355
)
Excess tax benefit from stock based compensation
   
(15
)
 
-
 
Changes in operating assets and liabilities:
 
 
 
 
 
 
 
Accounts receivable
 
 
(1,726
 
2,745
 
Inventories
 
 
(5,571
 
6,681
 
Other assets
 
 
(219
)
 
(1,294
)
Accounts payable and other current liabilities
 
 
6,955
 
 
13,465
 
Net cash provided by operating activities
 
 
31,753
 
 
39,964
 
Investing activities
 
 
 
 
 
 
 
Purchases of property, plant and equipment
 
 
(8,990
)
 
(6,605
)
Proceeds from sale of assets
 
 
-
 
 
521
 
Other
 
 
(46
)
 
(124
)
Net cash used in investing activities
 
 
(9,036
)
 
(6,208
)
 Financing activities
 
 
 
 
 
 
 
Net borrowings (payments) under lines of credit
 
 
88,267
 
 
(3,000
)
Payments for debt issuance costs
   
(1,289
)
 
-
 
Payments on long-term debt and other
 
 
(113,719
)
 
(21,429
)
Net proceeds from sale of equity interests
   
2,705
   
-
 
Excess tax benefit from stock based compensation
   
15
   
-
 
Net cash used in financing activities
 
 
(24,021
)
 
(24,429
)
Effect of foreign currency rate fluctuations on cash
 
 
517
 
 
(3
)
Increase (decrease) in cash and cash equivalents
 
 
(787
 
9,324
 
Cash and cash equivalents at beginning of period
 
 
14,790
 
 
8,734
 
Cash and cash equivalents at end of period
 
$
14,003
 
$
18,058
 

See accompanying notes.


5



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, 2007 are 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, 2008 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 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
September 30
 
 
 
Specialty
Fibers
 
Nonwoven
Materials
 
 
Corporate
 
 
Total
 
Net sales
 
 
2007
 
$
135,701
 
$
71,630
 
$
(9,932
)
$
197,399
 
 
 
 
2006
 
 
134,875
 
 
64,967
 
 
(8,436
)
 
191,406
 
Operating income (loss)
 
 
2007
 
 
22,066
 
 
7,954
 
 
(1,496
)
 
28,524
 
 
 
 
2006
 
 
12,288
 
 
5,979
 
 
(780
)
 
17,487
 
Depreciation and amortization of intangibles
 
 
2007
 
 
8,015
 
 
4,232
 
 
944
 
 
13,191
 
 
 
 
2006
 
 
7,698
 
 
4,171
 
 
954
 
 
12,823
 
Capital expenditures
 
 
2007
 
 
7,920
 
 
707
 
 
363
 
 
8,990
 
 
 
 
2006
 
 
5,573
 
 
417
 
 
615
 
 
6,605
 
 
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 are at current market prices.

6

NOTE 3: RESTRUCTURING COSTS AND ASSETS HELD FOR SALE
 
During fiscal 2007, we entered into a restructuring program that complements our operations’ consolidations and involves 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 three months ended September 30, 2007.  The remaining accrual of $204 will be paid over the next six months.  As a result of this restructuring, 22 positions have been eliminated which will provide annual savings over $2,000.
  
 
 
 
 
 
Period Ended September 30, 2007
 
 
 
 
 
 
 
 
 
Accrual
Balance as of
June 30, 2007
 
 
Additional
Charges
 
 
Impact of
Foreign
Currency
 
 
 
Payments
 
 
Accrual
Balance as of
September 30, 2007
 
 
Program Charges
 to Date
 
2007 Restructuring Program
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Severance and employee benefits
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Specialty fibers
 
$
-
 
 
$
26
 
 
$
-
 
 
$
(26
)
 
$
-
 
 
$
791
 
     Corporate
 
 
199
 
 
 
68
 
 
 
-
 
 
 
(169
)
 
 
98
 
 
 
432
 
Other miscellaneous expenses
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Specialty fibers
 
 
128
 
 
 
2
 
 
 
5
 
 
 
(29
)
 
 
106
 
 
 
135
 
Total 2007 Program
 
$
327
 
 
$
96
 
 
$
5
 
 
$
(224
)
 
$
204
 
 
$
1,358
 
 
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 during the three months ended September 30, 2006. For the three months ending September 30, 2006, $13 in restructuring costs were recorded. 

 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:
 
 
 
September 30
2007
 
June 30
2007
 
 
 
 
 
 
 
Raw materials
 
$
25,551
 
$
25,816
 
Finished goods
 
 
46,461
 
 
39,335
 
Storeroom and other supplies
 
 
22,038
 
 
21,626
 
 
 
$
94,050
 
$
86,777
 

NOTE 5:                      DEBT

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

 
 
September 30
2007
 
June 30
2007
 
Senior Notes due:
 
 
 
 
 
2013
 
$
200,000
 
$
200,000
 
Senior Subordinated Notes due:
 
 
 
 
 
 
 
2008
 
 
-
 
 
59,948
 
2010
 
 
131,254
 
 
151,568
 
Credit facility
 
 
87,663
 
 
33,622
 
 
 
$
418,917
 
$
445,138
 


7

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. 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”). 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.
 
Through fiscal year 2007, we redeemed $40,000 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.
 
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 the three months ended September 30, 2007, we recorded non-cash expenses of $206 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. 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.  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 amends and restates the Company's existing 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% or a LIBOR-based rate ranging from LIBOR plus 1.25% to LIBOR plus 2.00%.  We used proceeds from this facility to redeem the remaining $60,000 of our 2008 notes and to redeem $20,000 of the 2010 notes in mid-September 2007.  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.  As of September 30, 2007, we are in compliance with the financial covenants under the new credit facility.
 
As of September 30, 2007, we had $107,271 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.  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, $427 was expensed as early extinguishment of debt related to the write-off of deferred financing costs for the former credit facility.

On September 17, 2007, we entered into an interest rate swap agreement for $30,000 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 and, therefore, the net effect from the interest rate swap is being recorded as part of interest expense.  During the three months ended September 30, 2007, the swap reduced our interest expense by $10.
 

8


NOTE 6:
COMPREHENSIVE INCOME
 
The components of comprehensive income consist of the following:
 
 
 
Three Months Ended
September 30
 
 
 
2007
 
2006
 
 
 
 
 
 
 
Net income
 
$
13,497
 
$
3,807
 
Foreign currency translation adjustments – net
 
 
14,909
 
 
(975
)
Comprehensive income
 
$
28,406
 
$
2,832
 
 
For the three months ended September 30, 2007, 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 $3,718, the Brazilian real of $2,493 and the Canadian dollar of $8,698.
 
For the three months ended September 30, 2006, 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 $(233), the Brazilian real of $(291) and the Canadian dollar of $(630).

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 net income before income tax expense.  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, 2007, we remain subject to examinations of our U.S. federal income tax returns for the years 2003 through 2006,  state income tax returns for the years 2002 through 2006 and German tax filings for the years 2003 through 2006. 

Our effective tax rate for the three month period ended September 30, 2007 was 26.7%. Our effective tax rate for the same period of 2006 was 41.8%. The rate decrease for the three month period ended September 30, 2007 resulted from a recently enacted German tax rate reduction. 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
 
 
 
2007
 
2006
 
 
 
 
 
 
 
Expected tax expense at 35%
 
$
6,444
 
$
2,289
 
German tax rate change
   
(2,245)
   
-
 
Effect of foreign operations
 
 
762
 
 
849
 
Other
 
 
(45)
 
 
(404
)
Income tax expense
 
$
4,916
 
$
2,734
 

9

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
September 30
 
 
 
2007
 
2006
 
Service cost for benefits earned
 
$
151
 
$
149
 
Interest cost on benefit obligation
 
 
350
 
 
352
 
Amortization of unrecognized prior service cost
 
 
(251
)
 
(250
)
Actuarial loss
 
 
146
 
 
142
 
Total cost
 
$
396
 
$
393
 

NOTE 9: 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 are presented in the following tables.


10


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 STATEMENTS OF OPERATIONS
Three Months Ended September 30, 2006
 
 
 
 
 
 
 
 
 
 
 
 
Buckeye Technologies Inc.
 
Guarantors
US
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
 
Consolidating
Adjustments
 
 
 
Consolidated
 
Net sales
 
$
31,143
 
$
123,183
 
$
46,273
 
$
(9,193
)
$
191,406
 
Cost of goods sold
 
 
25,484
 
 
103,404
 
 
42,394
 
 
(9,211
)
 
162,071
 
Gross margin
 
 
5,659
 
 
19,779
 
 
3,879
 
 
18
 
 
29,335
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Selling, research and administrative expenses, and other
 
 
2,021
 
 
8,077
 
 
1,737
 
 
-
 
 
11,835
 
Restructuring and impairment costs
 
 
-
 
 
-
 
 
13
 
 
-
 
 
13
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating income
 
 
3,638
 
 
11,702
 
 
2,129
 
 
18
 
 
17,487
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
     Net interest income (expense) and amortization of  debt
 
 
(10,709
)
 
(62
)
 
20
 
 
-
 
 
(10,751
)
     Other income (expense), including equity income (loss) in affiliates
 
 
1,789
 
 
5
 
 
307
 
 
(2,296
)
 
(195
)
     Intercompany interest income (expense)
 
 
7,220
 
 
(4,993
)
 
(2,227
)
 
-
 
 
-
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income (loss) before income taxes
 
 
1,938
 
 
6,652
 
 
229
 
 
(2,278
)
 
6,541
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income tax expense (benefit)
 
 
(1,869
)
 
2,206
 
 
780
 
 
(1,617
)
 
2,734
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
3,807
 
$
4,446
 
$
(551
)
$
(3,895
)
$
3,807
 



11


 
CONDENSED CONSOLIDATING BALANCE SHEETS
As of September 30, 2007

 
 
Buckeye Technologies Inc.
 
Guarantors
US
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
 
Consolidating
Adjustments
 
 
 
Consolidated
 
Assets
 
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
183
 
$
406
 
$
13,414
 
$
-
 
$
14,003
 
Accounts receivable, net of allowance
 
 
15,867
 
 
68,901
 
 
35,431
 
 
-
 
 
120,199
 
Inventories
 
 
16,981
 
 
54,068
 
 
23,977
 
 
(976
)
 
94,050
 
Other current assets
 
 
3,461
 
 
5,427
 
 
626
 
 
-
 
 
9,514
 
Intercompany accounts receivable
 
 
-
 
 
84,268
 
 
-
 
 
(84,268
)
 
-
 
Total current assets
 
 
36,492
 
 
213,070
 
 
73,448
 
 
(85,244
)
 
237,766
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property, plant and equipment, net
 
 
58,758
 
 
327,844
 
 
154,980
 
 
-
 
 
541,582
 
Goodwill and intangibles, net
 
 
37,731
 
 
27,347
 
 
114,540
 
 
-
 
 
179,618
 
Intercompany notes receivable
 
 
372,717
 
 
-
 
 
-
 
 
(372,717
)
 
-
 
Other assets, including investment in subsidiaries
 
 
367,847
 
 
259,144
 
 
104,390
 
 
(718,444
)
 
12,937
 
Total assets
 
$
873,545
 
$
827,405
 
$
447,358
 
$
(1,176,405
)
$
971,903
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and stockholders’ equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trade accounts payable
 
$
6,261
 
$
26,207
 
$
9,564
 
$
-
 
$
42,032
 
Other current liabilities
 
 
22,185
 
 
21,434
 
 
16,154
 
 
-
 
 
59,773
 
Intercompany accounts payable
 
 
70,067
 
 
-
 
 
14,201
 
 
(84,268
)
 
-
 
Total current liabilities
 
 
98,513
 
 
47,641
 
 
39,919
 
 
(84,268
)
 
101,805
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt
 
 
418,917
 
 
-
 
 
-
 
 
-
 
 
418,917
 
Deferred income taxes
 
 
(29,463
)
 
59,299
 
 
17,183
 
 
-
 
 
47,019
 
Other long-term liabilities
 
 
7,782
 
 
16,796
 
 
1,788
 
 
-
 
 
26,366
 
Intercompany notes payable
 
 
-
 
 
257,432
 
 
115,285
 
 
(372,717
)
 
-
 
Stockholders’/invested equity
 
 
377,796
 
 
446,237
 
 
273,183
 
 
(719,420
)
 
377,796
 
Total liabilities and stockholders’ equity
 
$
873,545
 
$
827,405
 
$
447,358
 
$
(1,176,405
)
$
971,903
 


12

 
CONDENSED CONSOLIDATING BALANCE SHEETS
As of June 30, 2007

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Buckeye Technologies Inc.
 
Guarantors
US
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
 
Consolidating
Adjustments
 
 
 
Consolidated
 
Assets
 
 
 
 
 
 
 
 
 
 
 
Current assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
 
$
6,329
 
$
447
 
$
8,014
 
$
-
 
$
14,790
 
Accounts receivable, net
 
 
 15,147
 
 
 71,753
 
 
29,965
 
 
 -
 
 
116,865
 
Inventories
 
 
 18,468
 
 
 48,739
 
 
 20,501
 
 
(931
)
 
86,777
 
Other current assets
 
 
 2,724
 
 
 5,690
 
 
 1,038
 
 
 -
 
 
 9,452
 
Intercompany accounts receivable
 
 
 -
 
 
 96,305
 
 
 -
 
 
 (96,305
)
 
-
 
Total current assets
 
 
 42,668
 
 
 222,934
 
 
 59,518
 
 
 (97,236
)
 
 227,884
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property, plant and equipment, net
 
 
 58,941
 
 
 328,480
 
 
 150,234
 
 
 -
 
 
 537,655
 
Goodwill and intangibles, net
 
 
15,805
 
 
 49,786
 
 
 108,361
 
 
 -
 
 
 173,952
 
Intercompany notes receivable
 
 
 304,310
 
 
-
 
 
 -
 
 
 (304,310
)
 
 -
 
Other assets, including investment in subsidiaries
 
 
 451,638
 
 
 327,254
 
 
 99,443
 
 
(866,004
)
 
 12,331
 
Total assets
 
$
 873,362
 
$
928,454
 
$
 417,556
 
$
 (1,267,550
)
$
951,822
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and stockholders’ equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current liabilities
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Trade accounts payable
 
$
 7,799
 
$
 25,473
 
$
 7,758
 
$
 -
 
$
41,030
 
Other current liabilities
 
 
 18,843
 
 
 17,684
 
 
 13,409
 
 
(5
)
 
 49,931
 
Intercompany accounts payable
 
 
 84,733
 
 
 -
 
 
 11,571
 
 
 (96,304
)
 
 -
 
Total current liabilities
 
 
 111,375
 
 
 43,157
 
 
 32,738
 
 
 (96,309
)
 
 90,961
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt
 
 
 445,138
 
 
 -
 
 
 -
 
 
 -
 
 
445,138
 
Deferred income taxes
 
 
(38,450
)
 
 61,034
 
 
 19,177
 
 
-
 
 
41,761
 
Other long-term liabilities
 
 
 8,145
 
 
 16,976
 
 
 1,687
 
 
 -
 
 
 26,808
 
Intercompany notes payable
 
 
 -
 
 
 193,789
 
 
 110,520