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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2003
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ____ to ____
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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 ____
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). Yes |X| No ____
As of May 1, 2003, there were outstanding 36,973,478 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 Operations for the Quarter Ended March 31, 2003 and
2002; Nine Months Ended March 31, 2003 and 2002........................................ 3
Condensed Consolidated Balance Sheets as of March 31, 2003 and June 30, 2002................ 4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended March 31, 2003
and 2002............................................................................... 5
Notes to Condensed Consolidated Financial Statements........................................ 6
2. Management's Discussion and Analysis of Financial Condition and Results of Operations....... 10
3. Quantitative and Qualitative Disclosures About Market Risk.................................. 15
4. Controls and Procedures..................................................................... 15
PART II - OTHER INFORMATION
6. Exhibits and Reports on Form 8-K............................................................ 15
SIGNATURES 16
CERTIFICATIONS 17
2
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Quarter Ended Nine Months Ended
March 31 March 31
------------------------------ ----------------------------
2003 2002 2003 2002
------------------------------ ----------------------------
Net sales.............................................. $163,497 $164,225 $473,068 $475,090
Cost of goods sold..................................... 143,224 146,279 410,619 418,163
------------------------------ ----------------------------
Gross margin........................................... 20,273 17,946 62,449 56,927
Selling, research and administrative expenses.......... 9,573 9,551 27,353 26,652
Impairment of long-lived assets........................ 29,746 - 29,746 -
Restructuring costs.................................... - 965 - 965
------------------------------ ----------------------------
Operating income (loss)................................ (19,046) 7,430 5,350 29,310
Net interest expense and amortization of debt costs.... 11,433 12,261 35,242 35,641
Foreign exchange, amortization of intangibles and other 1,163 682 2,181 1,203
------------------------------ ----------------------------
Loss before income taxes and cumulative effect of
change in accounting............................ (31,642) (5,513) (32,073) (7,534)
Income tax benefit..................................... (11,888) (1,344) (12,340) (2,529)
------------------------------ ----------------------------
Loss before cumulative effect of change in accounting.. (19,754) (4,169) (19,733) (5,005)
Cumulative effect of change in accounting
(net of tax of $0)............................. - - - (11,500)
------------------------------ ----------------------------
Net loss............................................... $ (19,754) $ (4,169) $ (19,733) $(16,505)
============================== ============================
Loss per share before cumulative effect of
change in accounting
Basic earnings (loss) per share........... $ (0.53) $ (0.12) $ (0.53) $ (0.14)
Diluted earnings (loss) per share......... $ (0.53) $ (0.12) $ (0.53) $ (0.14)
Cumulative effect of change in accounting
Basic earnings (loss) per share........... $ - $ - $ - $ (0.33)
Diluted earnings (loss) per share......... $ - $ - $ - $ (0.33)
Earnings (loss) per share
Basic earnings (loss) per share........... $ (0.53) $ (0.12) $ (0.53) $ (0.48)
Diluted earnings (loss) per share.......... $ (0.53) $ (0.12) $ (0.53) $ (0.48)
Weighted average shares for basic earnings per share... 36,973 34,762 36,963 34,626
Effect of dilutive stock options....................... - - - -
------------------------------ ----------------------------
Adjusted weighted average shares for diluted earnings
per share........................................ 36,973 34,762 36,963 34,626
============================== ============================
See accompanying notes.
3
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
March 31 June 30
2003 2002
---------------------------------
Assets
Current assets:
Cash and cash equivalents.................................... $ 39,681 $ 56,006
Cash, restricted............................................. 3,375 3,375
Short-term investments....................................... 5,000 8,863
Accounts receivable, net..................................... 126,195 97,516
Inventories.................................................. 142,173 145,103
Deferred income taxes and other.............................. 15,066 29,653
--------------------------------
Total current assets................................ 331,490 340,516
Property, plant and equipment..................................... 892,354 905,545
Less accumulated depreciation..................................... (300,242) (277,793)
--------------------------------
592,112 627,752
Goodwill, net..................................................... 121,490 120,399
Intellectual property and other, net.............................. 47,444 46,070
--------------------------------
Total assets........................................ $1,092,536 $1,134,737
================================
Liabilities and stockholders' equity
Current liabilities:
Accounts payable............................................. $ 39,576 $ 33,789
Accrued expenses............................................. 46,330 47,196
Current portion of capital lease obligations................. 572 793
Current portion of long-term debt............................ 40,437 22,000
Total current liabilities........................... 126,915 103,778
-------------------------------
Long-term debt............................................... 621,613 675,396
Deferred income taxes........................................ 74,802 79,295
Capital lease obligations.................................... 2,850 3,029
Other liabilities............................................ 19,625 19,579
Stockholders' equity.............................................. 246,731 253,660
-------------------------------
Total liabilities and stockholders' equity.......... $1,092,536 $1,134,737
===============================
See accompanying notes.
4
PART I - FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Nine Months Ended
March 31
----------------------------
2003 2002
----------------------------
Operating activities
Net loss.......................................................... $(19,733) $(16,505)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Cumulative effect of change in accounting.................. - 11,500
Impairment of long-lived assets............................ 29,746 -
Depreciation and depletion................................. 34,920 33,127
Amortization .............................................. 4,246 3,990
Other, net................................................. (3,868) 3,877
Changes in operating assets and liabilities:
Accounts receivable.................................... (26,822) 6,244
Inventories............................................ 6,098 (7,875)
Prepaid expenses and other assets...................... 14,404 1,433
Accounts payable and other current liabilities......... 2,778 (22,034)
----------------------------
Net cash provided by operating activities......................... 41,769 13,757
Investing activities
Purchases of property, plant and equipment........................ (19,272) (28,706)
Redemption of short-term investments.............................. 3,863 -
Other............................................................. (748) (829)
----------------------------
Net cash used in investing activities............................. (16,157) (29,535)
Financing activities
Proceeds from exercise of stock options........................... - 4,870
Net borrowings (payments) under revolving lines of credit......... (19,923) 64,841
Net payments on long-term debt.................................... (22,000) (22,000)
Payments for debt issuance costs.................................. (671) -
Payments on capital lease obligations............................. (400) (475)
Other............................................................. - 1,885
----------------------------
Net cash provided by (used in) financing activities............... (42,994) 49,121
Effect of foreign currency rate fluctuations on cash.............. 1,057 2,597
----------------------------
Increase (decrease) in cash and cash equivalents.................. (16,325) 35,940
Cash and cash equivalents at beginning of period.................. 56,006 12,932
----------------------------
Cash and cash equivalents at end of period........................ $ 39,681 $ 48,872
============================
See accompanying notes.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except per share data)
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 nine months ended March 31,
2003 are not necessarily indicative of the results that may be expected for the
year ended June 30, 2003. 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, 2002.
NOTE B -- CHANGE IN ACCOUNTING
Under the guidelines of SFAS 142, the Company has completed its initial
impairment assessments of the carrying value of goodwill. In the assessment of
the carrying value of goodwill, the Company developed its best estimate of
operating cash flows over the period approximating the remaining life of the
business' long-lived assets.
Based on this assessment, effective July 1, 2001, the Company reduced
its goodwill by $11,500 in its small single site converting business, which was
purchased as part of the Merfin acquisition in 1997. There was no tax benefit
recorded as a result of the reduction in the carrying value of the goodwill. The
low growth rate in the converting business did not support its goodwill on a
discounted basis. Under SFAS 142, the impairment adjustment recognized at
adoption of the new rules was reflected as a cumulative effect of accounting
change in the 2002 consolidated statement of operations. Impairment adjustments
recognized after adoption, if any, are required to be recognized as operating
expenses.
NOTE C -- RESTRUCTURING COSTS
During the year ended June 30, 2002, the Company entered into a
restructuring program. The program was designed to deliver cost reductions
through reduced overhead expenses. The cost recorded during the year ended June
30, 2002, comprised mainly of severance and other employee benefit costs, was
$1,605.
Involuntary termination benefits of $1,526 have been paid, leaving an
accrual of $79 at March 31, 2003. Payments related to the restructuring program
are expected to be completed during the current fiscal year. As a result of the
restructuring, approximately 200 positions have been eliminated. All costs of
the program were reported in the statements of operations under restructuring
costs. The nonwovens and cotton operations in North America and Europe are
impacted by this cost reduction program. As part of this restructuring, the
Company closed engineering offices located in Finland.
NOTE D -- IMPAIRMENT OF LONG-LIVED ASSETS
In early April 2003, the Company announced the discontinuation of
production of cotton linter pulp at its Lumberton, North Carolina facility, due
to the decline in demand for cotton content paper over the last five years. The
Company will continue to produce cosmetic cotton products at the Lumberton
location. Accordingly, the Company evaluated the ongoing value of the property,
plant and equipment associated with the Lumberton facility. Using the guidance
issued under SFAS No. 144 Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS No. 144), the Company determined that long-lived assets
(property, plant and equipment) with a carrying amount of $35,845 were impaired
and wrote them down to their estimated fair value of $7,791. Fair value was
based on the present value method of estimating future cash flows and
incorporated assumptions that marketplace participants would likely use in
estimating fair value for the Lumberton facility, using a discount rate
incorporating time value of money, expectations about timing and amount of
future cash flows, and an appropriate risk premium.
6
During the quarter ended March 31, 2003, the Company decided to abandon
certain equipment at the Gaston facility, which had a carrying value of $1,797.
The Company has determined that the estimated fair value of the abandoned
equipment, which did not operate as intended, was $104.
NOTE E -- INVENTORIES
The components of inventory consist of the following:
March 31 June 30
2003 2002
-------------------------
Raw materials........................... $ 38,667 $ 36,902
Finished goods.......................... 79,034 84,906
Storeroom and other supplies............ 24,472 23,295
-------------------------
$142,173 $145,103
=========================
NOTE F -- DEBT
Interest Rate Swap - In May 2001, the Company entered into an interest
rate swap on $100,000 of 8% fixed rate notes payable maturing in October 2010.
The swap converts interest payments from a fixed rate to a floating rate of
LIBOR plus 1.97%. This arrangement qualifies as a fair value hedge under SFAS
No. 133 Accounting for Derivative Instruments and Hedging Activities. As such,
the net effect from the interest rate swap is recorded as part of interest
expense. The swap agreement settles quarterly until maturity in October 2010.
During the quarters ended March 31, 2003 and 2002, the swap reduced the
Company's interest expense by approximately $1,100 and $1,000, respectively.
Based upon current interest rates for similar transactions, the fair value of
the interest rate swap agreement resulted in an asset and a corresponding
increase in debt of $8,250 at March 31, 2003 and $2,555 at June 30, 2002.
As of March 31, 2003, the Company has guaranteed the following debt to
third parties entered into by its subsidiaries: a secured credit facility in
Canada of $13,631, a German credit facility of $5,500 of which none is
outstanding and a $1,000 bank loan to a U.S. subsidiary.
7
NOTE G -- COMPREHENSIVE LOSS
The components of comprehensive loss consist of the following:
Three Months Ended Nine Months Ended
March 31 March 31
------------------------- ------------------------
2003 2002 2003 2002
------------------------- ------------------------
Net loss.......................................... $(19,754) $(4,169) $(19,733) $(16,505)
Foreign currency translation adjustments, net..... 16,527 (1,806) 12,657 (2,728)
------------------------- ------------------------
Comprehensive loss................................ $ (3,227) $(5,975) $ (7,076) $(19,233)
========================= =========================
The change in the foreign currency translation adjustment is primarily
due to fluctuations in the exchange rate of the US dollar against the euro of
$8,035 and $13,136, the Brazilian real of $934 and $(3,360) and the Canadian
dollar of $7,558 and $2,881 for the three and nine months ended March 31, 2003,
respectively.
NOTE H - STOCKHOLDERS' EQUITY
On December 31, 2002, the Financial Accounting Standards Board issued
Statement No. 148, Accounting for Stock-Based Compensation - Transition and
Disclosure (SFAS 148). SFAS 148 amends the disclosure provisions of SFAS 123 and
APB Opinion No 28, Interim Financial Reporting, to require disclosure in the
summary of significant accounting policies of the effects of an entity's
accounting policy with respect to stock-based employee compensation on reported
net income and earnings per share in annual and interim financial statements.
At March 31, 2003, the Company has stock-based compensation plans which
it accounts for under recognition and measurement principles of APB Opinion No.
25, Accounting for Stock Issued to Employees, and related Interpretations. No
stock based compensation cost is reflected in the statement of operations. The
following table illustrates the effect on net loss and earnings per share if the
Company had applied the fair value recognition provisions of SFAS 123 to
stock-based compensation.
Three Months Ended Nine Months Ended
March 31 March 31
---------------------------- --------------------------
2003 2002 2003 2002
---------------------------- --------------------------
Net loss as reported $(19,754) $(4,169) $(19,733) $(16,505)
Deduct: Total stock-based compensation expense
determined under fair value based method for all
awards, net of related tax effects (643) (598) (2,146) (1,905)
---------------------------- ---------------------------
Pro forma net loss $(20,397) $(4,767) $(21,879) $(18,410)
============================ ===========================
Basic earnings per share:
As reported $ (0.53) $(0.12) $ (0.53) $ (0.48)
Pro forma $ (0.55) $(0.14) $ (0.59) $ (0.53)
Diluted earnings per share:
As reported $ (0.53) $(0.12) $ (0.53) $ (0.48)
Pro forma $ (0.55) $(0.14) $ (0.59) $ (0.53)
8
NOTE I - SUBSEQUENT EVENTS
On April 3, 2003, the Company announced its decision to discontinue
producing cotton linter pulp at its Lumberton, North Carolina facility. The
Company will continue to produce cosmetic cotton products at the location. The
Company estimates that the closure of the Lumberton cotton linter pulp operation
will result in the termination of approximately 100 employees and anticipates
the cash cost of discontinuing production of cotton linter pulp at Lumberton
will be approximately $2,000. The costs associated with the partial closure will
impact the next two quarters.
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Critical Accounting Policies
The preparation of Buckeye's financial statements requires estimates,
assumptions and judgements that affect the Company's assets, liabilities,
revenues and expenses. The Company bases these estimates and assumptions on
historical data and trends, current fact patterns, expectations and other
sources of information it believes are reasonable. Actual results may differ
from these estimates under different conditions. For a full description of the
Company's critical accounting policies, see Management's Discussion and Analysis
in the 2002 Annual Report on Form 10-K.
Results of Operations
Net sales for the quarter ended March 31, 2003 were $163.5 million
compared to $164.2 million for the same period in 2002, a decrease of $0.7
million or 0.4%. Net sales for the nine month period ended March 31, 2003 were
$473.1 million compared to $475.1 million for the same period in the prior
fiscal year a decrease of $2.0 million or 0.4%. The decrease in net sales for
both the three and nine month periods were primarily due to lower sales prices
for cotton cellulose products.
Gross margin for the quarter ended March 31, 2003 was $20.3 million
(12.4% of sales) compared to $17.9 million (10.9% of sales) for the same period
in 2002, an increase of $2.4 million. Gross margin for the nine months ended
March 31, 2003 was $62.4 million (13.2% of sales) compared to $56.9 million
(12.0% of sales) for the same period in the prior fiscal year an increase of
$5.5 million. Cotton raw material costs have fallen to more normal levels and
the Company has reduced its cotton sales prices in an effort to regain volume
lost during the raw material and sales price run-up during calendar year 2001.
Higher selling prices and lower manufacturing costs for the wood cellulose
business also contributed to the improvement, partially offset by a cotton raw
material writedown in fiscal 2003.
Net interest expense and amortization of debt costs for the quarters
ended March 31, 2003 and 2002 were $11.4 million and $12.3 million,
respectively. The decrease of $0.9 million was due primarily to lower debt
levels and lower interest rates in 2003. Net interest expense and amortization
of debt costs were $35.2 million for the nine months ended March 31, 2003
compared to 35.6 million for the same period of the prior fiscal year. The
decrease was primarily due to lower debt levels and lower interest rates in
fiscal 2003 which was nearly offset by $1.7 million of interest capitalization
in fiscal 2002.
In early April 2003, the Company announced the discontinuation of
production of cotton linter pulp at its Lumberton, North Carolina facility by
mid - 2003. The Company will continue to produce cosmetic cotton products at
that location. The cotton fiber paper industry has contracted by about one-third
since the late 1990's. While cotton linter pulp is a core business for the
Company, it can no longer economically justify operating equipment which can
only produce products for paper applications. The Company estimates that the
closure of the Lumberton cotton linter pulp operation will result in the
termination of approximately 100 employees and anticipates the cash cost of
discontinuing production of cotton linter pulp at Lumberton will be
approximately $2.0 million. The costs associated with the partial closure will
impact the next two quarters.
10
The Company will better meet customer needs by consolidating U.S.
cotton linter pulp production at its larger Memphis, Tennessee facility which is
capable of producing products for both chemical and paper applications. This
consolidation will enable the Company to improve its overall cotton linter pulp
operating results by at least $6 million annually on a prospective basis and
reduce working capital needs by approximately $10 million. The more efficient
operating configuration will reduce the Company's cost of goods sold beginning
in the second half of fiscal year 2004.
Accordingly, the Company evaluated the ongoing value of the property,
plant and equipment associated with the Lumberton facility. Using the guidance
issued under SFAS No. 144 Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS No. 144), the Company determined that long-lived assets
with a carrying amount of $35.8 million were no longer recoverable and were in
fact impaired, and wrote them down to their estimated fair value of $7.8
million. The impairment resulted in a $28.0 million non-cash charge against
operations and a $18.2 million after tax increase in net loss for the quarter
ended March 31, 2003.
During the quarter ended March 31, 2003, the Company decided to abandon
certain equipment at the Gaston facility, which had a carrying value of $1.8
million. The Company evaluated the ongoing value of these assets, which did not
operate as intended, and wrote them down to their estimated fair value of $0.1
million. The impairment resulted in a $1.7 million decrease in operating income
and a $1.0 million after tax increase in net loss for the quarter ending March
31, 2003.
Foreign exchange, amortization of intangibles and other expense for the
quarters ended March 31, 2003 and 2002 were $1.2 million and $0.7 million,
respectively. This unfavorable variance resulted from recognizing $0.5 million
higher foreign exchange losses during the quarter ended March 31, 2003 versus
2002. Foreign exchange, amortization of intangibles and other expense for the
nine months ended March 31, 2003 and 2002 were $2.2 million and $1.2 million,
respectively. This $1.0 million unfavorable variance was primarily due to the
settlement of a contract dispute and the impact of a natural gas forward
contract, partially offset by $0.7 million higher foreign currency gains in
fiscal 2003.
The Company's income tax benefit differs from the amount computed by
applying the statutory federal income tax rate of 35% to loss before income
taxes due to the following:
Three Months Ended Nine Months Ended
March 31 March 31
---------------------------- ---------------------------
2003 2002 2003 2002
---------------------------- ---------------------------
(In thousands) (In thousands)
Expected tax benefit at 35% $(11,075) $(1,930) $(11,226) $(2,637)
Foreign operations (213) 629 (309) 1,888
Extraterritorial income benefit (263) (171) (788) (514)
Research and development credits (50) (50) (350) (150)
Canadian rate reduction - - - (588)
Other (287) 178 333 (528)
------------------------------ -----------------------------
$(11,888) $(1,344) $(12,340) $(2,529)
============================== =============================
Effective July 1, 2001, the Company adopted SFAS No. 142, Goodwill and
Other Intangible Assets, which established new accounting and reporting
requirements for goodwill and other intangible assets as described in our
critical accounting policies. Based on the assessment, effective July 1, 2001,
the Company has reduced its goodwill by $11.5 million in the converting
business, which was purchased as part of the Merfin acquisition in 1997. There
was no tax benefit recorded as a result of the reduction in the carrying value
of the goodwill.
11
Financial Condition
Cash Flow
Cash provided by operating activities of $41.8 million for the nine
months ended March 31, 2003 was $28.0 million higher than the same period in the
prior year. This improved cash flow was due to a $14.8 million increase in
operating results before the effect of non-cash charges (a change in accounting
and impairment of long-lived assets). The receipt of an $18.3 million federal
tax refund generated additional cash flow and reduced the Company's prepaid
expenses in 2003. These increases were partially offset by the increase in
accounts receivable during the nine months ended March 31, 2003, due to a change
in the terms of a supply contract with a significant customer and higher
shipments late in the quarter.
Cash provided from operations and cash on hand financed capital
expenditures of $19.3 million and debt repayments of $41.9 million during the
nine months ended March 31, 2003. The $9.4 million reduction in capital
expenditures versus the same period in fiscal 2002 is attributable to the
completion of construction of the large airlaid nonwovens machine at the Gaston
plant during the first quarter of fiscal 2002.
Liquidity and Capital Resources
The Company has the following major sources of financing: revolving
credit facility, receivables based credit facility and senior subordinated
notes. The Company's revolving credit facility and senior subordinated notes
contain various covenants. At March 31, 2003, the Company was in compliance with
such covenants. During the upcoming quarter, the Company will be negotiating
with the bank group to amend the covenants for future quarters in order to avoid
a potential 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.
Revolving Credit Facility - The Company amended its Revolving Credit
Facility on August 20, 2002. This amendment eliminated the requirement that the
Company sell additional equity. In addition, the banks consented to Buckeye's
immediate prepayment of the $22 million note due on October 1, 2002 to
UPM-Kymmene. This note was paid on August 21, 2002, thereby reducing the
Company's interest expense for the nine months ended March 31, 2003. Also,
during the quarter ended March 31, 2003, the Company reduced its borrowings
against the Revolving Credit Facility by $5 million. The Company had $210
million outstanding on its Revolving Credit Facility as of March 31, 2003.
Receivables Based Credit Facility - On September 3, 2002, the Company
amended its $30 million receivables based credit facility. The amendment
extended the maturity from December 4, 2002 to December 4, 2003 and reduced the
interest rate to one-week LIBOR plus 0.75%. At March 31, 2003, the Company had
unused borrowing availability of $25.0 million on its receivables based credit
facility.
Senior Subordinated Notes - The Company's fixed charge coverage ratio
(as defined in the subordinated note indentures) is below 2:1. As specified in
those indentures, the Company's debt is limited to a "Permitted Indebtedness"
limitation (also defined in the indentures), until the ratio again equals or
exceeds 2:1. Under the "Permitted Indebtedness" limitation, the Company is
limited to, but able to maintain, its current borrowings under the Revolving
Credit Facility. In addition, the Company has a $25 million basket (as defined
in the 1995 Indenture) that can be used for any new indebtedness. At March 31,
2003, all of this basket is available for borrowings from the receivables based
credit facility.
12
While there can be no assurances, the Company believes that operating
results will continue to improve and fixed charges will continue to decline on a
rolling four-quarter basis. Thus, the Company expects to exceed the 2:1 ratio
during this calendar year. While there can be no assurances, the Company
believes that its cash flow from operations along with current cash, cash
equivalents and short-term investments, combined with available external
financing, will be sufficient to fund capital expenditures (expected not to
exceed $30 million for this fiscal year), working capital and service all debt
requirements for the foreseeable future.
Shelf Registration - On March 15, 2002, the Company filed a Form S-3
shelf registration statement. The shelf registration statement allows the
Company to issue various types of securities, including common stock, preferred
stock and debt securities, from time to time, up to an aggregate of $300
million. The Company filed the registration statement to gain additional
flexibility in accessing capital markets for general corporate purposes. This
S-3 registration statement became effective on April 18, 2002. The Company
currently has no plans to issue additional securities.
Interest Rate Swap - In May 2001, the Company entered into an interest
rate swap on $100 million of 8% fixed rate notes maturing in October 2010. The
swap converts interest payments from a fixed rate to a floating rate of LIBOR
plus 1.97%. This arrangement qualifies as a fair value hedge under SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. As such, the net
effect from the interest rate swap is recorded as part of interest expense. The
swap agreement settles quarterly until maturity in October 2010. During the
quarters ended March 31, 2002 and 2002, the swap reduced the Company's interest
expense by $1.1 million and $1.0 million, respectively. Based upon current
interest rates for similar transactions, the fair value of the interest rate
swap agreement was recorded as an asset and a corresponding increase in debt of
$8.2 million at March 31, 2003 and $2.6 million at June 30, 2002.
Total debt, including capital lease obligations and the $8.2 million
debt recorded for the interest rate swap agreement discussed above, at March 31,
2003 was $665.5 million, a reduction of $35.7 million from June 30, 2002. During
the nine months ended March 31, 2003, the Company reclassified its Canadian loan
(maturing September 30, 2003), its final payment to UPM-Kymmene (due October 1,
2003) and its receivables based credit facility (maturing December 4, 2003) to
current liabilities. The Company has reached agreement in principle to renew its
Canadian loan. The renewal would be for a 14 month period to November 30, 2004
and would require a 20% reduction of the principal on September 30, 2003. It is
the Company's intent to extend the receivables based credit facility for one
year.
Net debt is presented as an additional means of evaluating the
Company's financial condition, liquidity and its ability to satisfy rating
agency and creditor requirements. The Company holds a significant amount of
cash, cash equivalents and short-term investments due to the "Permitted
Indebtedness" limitation described in the bond indentures. Net debt was $609.2
million at March 31, 2003. Net debt at March 31, 2003 was $21.2 million lower
than at June 30, 2002 and $48.7 million lower than the $657.8 million of net
debt at March 31, 2002. Using this information along with long-term debt and
capital lease obligation balances provides a more complete analysis of the
Company's financial position. Long term debt and capital lease obligations are
the most directly comparable GAAP measures.
13
March June March
2003 2002 2002
------------- ------------ ------------
Debt and capital lease obligations on balance sheet $665.5 $701.2 $710.8
less: interest rate swap non-cash fair value adjustment to debt (8.2) (2.6) (0.7)
less: cash, cash equivalents, restricted cash, and short-term
investments (48.1) (68.2) (52.3)
------------- ------------ ------------
Net debt $609.2 $630.4 $657.8
============= ============ ============
Forward-Looking Statements
Except for the historical information contained herein, the matters
discussed in this Form 10-Q are forward-looking statements that involve risks
and uncertainties that could cause actual results to differ materially,
including but not limited to, economic, competitive, governmental, and
technological factors affecting the Company's operations, financing, markets,
products, services, prices, and other factors. The Company undertakes no
obligation to publicly release the result of any revisions to these
forward-looking statements to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events. For additional
factors that could impact future results, please see the Company's 2002 Annual
Report on Form 10-K on file with the Securities and Exchange Commission.
14
Item 3. Quantitative and Qualitative Disclosures About Market Risk
No material changes occurred during the quarter to information
previously provided in the Company's Report on Form 10-K for the period ended
June 30, 2002.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures. The Company's chief
executive officer and chief financial officer have evaluated the effectiveness
of the design and operation of the Company's disclosure controls and procedures
(as defined in Exchange Act Rule 13a-14(c)) as of a date within 90 days of the
filing date of this quarterly report. Based on that evaluation, the chief
executive officer and chief financial officer have concluded that the Company's
disclosure controls and procedures are effective to ensure that material
information relating to the Company and the Company's consolidated subsidiaries
is made known to such officers by others within these entities, particularly
during the period this quarterly report was prepared, in order to allow timely
decisions regarding required disclosure.
Changes in Internal Control. There have not been any significant
changes in the Company's internal controls or in other factors that could
significantly affect these controls subsequent to the date of their evaluation.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Listing of Exhibits
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
signed by David B. Ferraro, the Chief Executive Officer of
Buckeye Technologies Inc. on May 2, 2003.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
signed by Gayle L. Powelson, the Chief Financial Officer of
Buckeye Technologies Inc. on May 2, 2003.
(b) Reports on Form 8-K
During the quarter ended March 31, 2003, the following report was filed
on Form 8-K:
- Report dated January 7, 2003 announcing its scheduled conference
call regarding its operating results for the second quarter
of fiscal year 2003 ended December 31, 2002.
- Report dated March 26, 2003 announcing the resignation of
Robert E. Cannon as, Chairman and Chief Executive Officer,
effective April 1, 2003 and his retirement from the Company in
June 2003.
15
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
--------------------------------------------------------------------
David B. Ferraro, Chairman and Chief Executive Officer
Date: May 2, 2003
By:/S/ GAYLE L. POWELSON
--------------------------------------------------------------------
Gayle L. Powelson, Senior Vice President and Chief Financial Officer
Date: May 2, 2003
16
Certification of Chief Executive Officer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, David B. Ferraro, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Buckeye
Technologies Inc. ("Buckeye").
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report.
3. Based on my knowledge, the financial statements and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of Buckeye as of and for the periods
presented in this quarterly report.
4. Buckeye's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for Buckeye
and have:
a) designed such disclosure controls and procedures to ensure that
material information relating to Buckeye, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b) evaluated the effectiveness of Buckeye's disclosure controls
and procedures as of a date within 90 days prior to the filing
date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date.
5. Buckeye's other certifying officer and I have disclosed, based on
our most recent evaluation, to Buckeye's auditors and the audit
committee of Buckeye's board of directors:
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect Buckeye's
ability to record, process, summarize and report financial data
and have identified for Buckeye's auditors any material
weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in Buckeye's
internal controls.
6. Buckeye's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.
Date: May 2, 2003
/S/ DAVID B. FERRARO
---------------------------------------
Chairman of the Board
and Chief Executive Officer
17
Certification of Chief Financial Officer
Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
I, Gayle L. Powelson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of
Buckeye Technologies Inc. ("Buckeye").
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not
misleading with respect to the period covered by this quarterly
report.
3. Based on my knowledge, the financial statements and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of Buckeye as of and for the periods
presented in this quarterly report.
4. Buckeye's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures
(as defined in Exchange Act Rules 13a-14 and 15d-14) for Buckeye
and have:
(a) designed such disclosure controls and procedures to ensure
that material information relating to Buckeye, including
its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the
period in which this quarterly report is being prepared;
(b) evaluated the effectiveness of Buckeye's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this quarterly report (the
"Evaluation Date"); and
(c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date.
5. Buckeye's other certifying officer and I have disclosed, based on
our most recent evaluation, to Buckeye's auditors and the audit
committee of Buckeye's board of directors:
(a) all significant deficiencies in the design or operation of
internal controls which could adversely affect Buckeye's
ability to record, process, summarize and report financial
data and have identified for Buckeye's auditors any
material weaknesses in internal controls; and
(b) any fraud, whether or not material, that involves
management or other employees who have a significant role
in Buckeye's internal controls.
6. Buckeye's other certifying officer and I have indicated in this
quarterly report whether there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: May 2, 2003
/S/ GAYLE L. POWELSON
----------------------------------------
Senior Vice President
and Chief Financial Officer