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Buckeye Announces Third Quarter FY 2010 Results

Buckeye Technologies Inc. (NYSE:BKI) today announced third quarter net income of $19.3 million or $0.49 per share compared to net income of $4.3 million or $0.11 per share in the same period last year. Third quarter earnings included net income of $4.2 million, or $0.11 per share, from alternative fuel mixture credits (AFMC) recognized during the quarter, which was partly offset by after-tax costs relating to restructuring and early retirement of debt totaling $2.5 million, or $0.07 per share. In addition, income tax expense for the quarter was reduced by $7.4 million, or $0.19 per share for energy investment tax credits earned to-date on progress expenditures for our Foley Energy Independence project, of which $6.6 million or $0.17 per share was related to prior period expenditures. We expect to continue to receive investment tax credits over the next several years based on planned spending on energy projects at our Foley mill. Net sales were $191 million for the third quarter of fiscal 2010, up 11% versus net sales of $172 million in the third quarter of fiscal 2009.

Adjusted net income* for the quarter was $11.0 million, or $0.28 per share versus third quarter fiscal 2009 adjusted net income $4.3 million, or $0.11 per share. “Adjusted net income” is a “non-GAAP financial measure” as defined by SEC rules that adjusts net income for AFMC, investment tax credits on prior period expenditures, restructuring and early debt retirement costs and is reconciled in the table below. This $0.17 per share increase in adjusted earnings per share* compared to the same quarter a year ago was largely due to increased shipment volume, which was up about 19%, and the resulting improvement in capacity utilization. The impact of lower selling prices was offset by lower input costs. Also contributing $0.06 to this improvement in adjusted net income was a 46% reduction in interest expense versus the same quarter a year ago largely due to the reduction in long-term debt, which has come down by $115 million over the past twelve months. This was partly offset by a higher tax rate (-$0.04).

Adjusted earnings per share of $0.28 in the just completed quarter were up $0.06 compared to the $0.22 earned in the second quarter. Adjusted operating income* improved by $2.7 million, accounting for $0.04 of this improvement and reduced interest expense added another $0.01. Operating income for Specialty Fibers was up $4.1 million as increased selling prices due to strong demand in most of our markets more than offset higher costs for energy (driven primarily by cold weather) and transportation during the quarter. Operating income for Nonwovens was down $1.2 million as margins were compressed due to rising fluff pulp costs.

Chairman and Chief Executive Officer John B. Crowe said, “In spite of a slow start in January and February due to the cold weather, our third quarter was a good quarter. Our markets remain very strong and should continue to be so for the near term. Gross margin for the quarter improved to 17.4% of sales, which is the highest level achieved since the October-December quarter of 2007. We generated free cash flow* of $18.2 million during the quarter, enabling us to reduce our debt to $273.5 million and meet our fiscal year-end debt goal one quarter early. We have established a new target to reduce long-term debt below $250 million by the end of our fiscal year in June. We also completed the redemption of an additional $25 million of our 8.5% 2013 senior notes on April 19th using borrowings on our bank revolver, which will reduce the remaining notes outstanding to $140 million and further reduce interest costs going forward. Average selling prices of our products are expected to improve further in the fourth quarter. Also, in the near term, operational reliability and procurement of cotton linters will be the keys to building on the current quarter’s success.”

Buckeye has scheduled a conference call for April 28, 2009 at 11:00 a.m. ET to discuss third quarter fiscal year 2010 results. Those interested in listening by telephone may dial in at (800) 967-7138 within the United States. International callers should dial (719) 325-2306. Supplemental material for the call will be available on the Company’s website at www.bkitech.com or at www.streetevents.com.

Buckeye, a leading manufacturer and marketer of specialty fibers and nonwoven materials, is headquartered in Memphis, Tennessee, USA. The Company currently operates facilities in the United States, Germany, Canada, and Brazil. Its products are sold worldwide to makers of consumer and industrial goods.

* This release includes certain financial information not derived in accordance with generally accepted accounting principles (“GAAP”). The non-GAAP measures used are “adjusted operating income”, “adjusted net income”, “adjusted earnings per share” and “free cash flow” The first three are equal to net income, operating income and earnings per share excluding income from alternative fuel mixture credits, investment tax credits on prior period expenditures, restructuring, and early debt retirement costs. We define “free cash flow” as net cash provided by operating activities less net cash used in investing activities.

The Company believes that the presentation of these non-GAAP measures provides information that is useful to investors as it allows for a more meaningful comparison of these financial measures to prior periods, but this information should not be considered a substitute for any measures derived in accordance with GAAP. The Company manages its business units by financial measures which exclude these items. Operating income and earnings per share targets for our all-employee bonus and at-risk compensation also exclude the benefit of alternative fuel mixture credits. Free cash flow is provided because it is widely used by investors as a valuation and liquidity measure in our industry.

Jan-Mar Oct-Dec Jan-Mar
($ in Millions) 2010 2009 2009
Operating income
Operating income in accordance with GAAP 23.7 55.7 12.8
Restructuring costs 2.4
Alternative fuel mixture credits (4.8) (37.1)
Adjusted operating income 21.3 18.6 12.8
Net income
Net income in accordance with GAAP 19.3 46.3 4.3
Restructuring costs 1.5
Alternative fuel mixture credits ( 4.2) (37.5)
Early extinguishment of debt 1.0
ITC on prior period expenditures ( 6.6)
Adjusted net income 11.0 8.8 4.3
Diluted earnings per share (EPS)
EPS in accordance with GAAP $ 0.49 $ 1.18 0.11
Restructuring costs 0.04
Alternative fuel mixture credits (0.11) ( 0.96)
Early Extinguishment of Debt 0.03
ITC on prior period expenditures (0.17)
Adjusted EPS $ 0.28 $ 0.22 $ 0.11
Free Cash Flow
Net cash provided by operating activities 29.4 10.9 21.3
Net cash used in investing activities (11.2) (10.1) ( 9.1)
Free cash flow 18.2 0.8 12.2

This press release contains forward-looking statements within the meaning of the federal securities laws and is intended to qualify for the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995. “Forward-looking statements” generally can be identified by the use of forward-looking terminology such as “assumptions,” “target,” “guidance,” “outlook,” “plans,” “projection,” “may,” “will,” “would,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “potential,” or “continue (or the negative or other derivatives of each of these terms or similar terminology). The “forward-looking statements” include, without limitation, statements regarding the economic outlook for the Company and the demand for its products, the receipt of future investment tax credits and debt reduction goals. These statements are based on management’s estimates and assumptions with respect to future events and financial performance and are believed to be reasonable, though are inherently uncertain and difficult to predict. Actual results could differ materially from those projected as a result of certain factors. A discussion of factors that could cause results to vary is included in the Company’s Annual Report on Form 10-K and other period filings with the Securities and Exchange Commission.

BUCKEYE TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share data)
Three Months EndedNine Months Ended
March 31, 2010December 31, 2009March 31, 2009March 31, 2010March 31, 2009
Net sales $ 190,714 $ 183,308 $ 171,635 $ 551,296 $ 577,593
Cost of goods sold 157,567 153,095 147,765 463,028 495,253
Gross margin33,14730,21323,87088,26882,340
Gross margin as a percentage of sales17.4%16.5%13.9%16.0%14.3%
Selling, research and administrative expenses 11,985 11,181 10,601 34,666 34,077
Amortization of intangibles and other 472 477 465 1,422 1,405
Goodwill impairment - - - - 138,008
Restructuring costs 2,395 - - 3,209 -
Alternative fuel mixture credits (4,762 ) (37,073 ) - (77,677 ) -
Mitigation bank sales (633 ) (91 ) - (724 ) -
Operating income23,69055,71912,804127,372(91,150)
Net interest expense and amortization of debt costs (3,920 ) (4,621 ) (7,206 ) (13,830 ) (22,113 )
Early extinguishment of debt (1,537 ) - - (1,372 ) 401
Foreign exchange and other (421 ) (199 ) 100 (720 ) (518 )
Income (loss) before income taxes17,81250,8995,698111,450(113,380)
Income tax expense (benefit) (1,531 ) 4,616 1,412 6,592 (1,532 )
Net income (loss)$19,343$46,283$4,286$104,858$(111,848)
Earnings (loss) per share $ 0.50 $ 1.19 $ 0.11 $ 2.71 $ (2.89 )
Diluted earnings per share $ 0.49 $ 1.18 $ 0.11 $ 2.66 $ (2.89 )
Weighted average shares for basic earnings per share
38,785 38,752 38,672 38,754 38,682
Weighted average shares for diluted earnings per share
39,638 39,282 38,765 39,352 38,682

BUCKEYE TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
March 31December 31June 30
201020092009
Current assets:
Cash and cash equivalents$26,935$20,797$22,061
Accounts receivable, net126,981120,420111,292
Income tax and AFMC Receivable73,80964,8149,374
Inventories83,14783,89487,637
Deferred income taxes and other6,1666,2906,507
Total current assets317,038296,215236,871
Property, plant and equipment, net526,201530,360526,589
Goodwill2,4252,4252,425
Intellectual property and other, net18,88620,11826,499
Total assets$864,550$849,118$792,384
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable$32,814$26,780$30,882
Accrued expenses43,19033,40340,804
Current portion of long-term debt-19,000-
Total current liabilities76,00479,18371,686
Long-term debt273,476271,000327,465
Deferred income taxes48,12046,98848,399
Capital lease obligations---
Other liabilities32,99333,89826,803
Stockholders' equity433,957418,049318,031
Total liabilities and stockholders' equity$864,550$849,118$792,384

BUCKEYE TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
Three Months EndedNine Months Ended
March 31, 2010December 31, 2009March 31, 2009March 31, 2010March 31, 2009
OPERATING ACTIVITIES
Net income$19,343$46,284$4,286$104,858$(111,848)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 11,500 11,530 11,824 34,324 36,593
Amortization 704 735 634 2,187 1,886
Loss on early extinguishment of debt 1,537 - - 1,372 (401 )
Loss on goodwill impairment - - - - 138,008
Deferred income taxes 1,718 (1,844 ) 1,828 75 (4,761 )
Loss on disposal of equipment 286 142 217 459 891
Provision for bad debts (98 ) (97 ) 263 (354 ) 253
Excess tax benefit from stock based compensation (3 ) (16 ) - (19 ) -
Other (94 ) (269 ) 154 (777 ) 218
Change in operating assets and liabilities
Accounts receivable (7,458 ) (6,285 ) (4,783 ) (8,363 ) 6,797
Income tax and AFMC receivable (8,995 ) (27,119 ) - (64,435 ) -
Inventories 466 (988 ) 13,467 5,247 4,086
Other assets 271 2,089 866 960 1,189
Accounts payable and other liabilities 10,244 (13,284 ) (7,485 ) (1,135 ) (23,100 )
Net cash provided by operating activities29,42110,87821,27174,39949,811
INVESTING ACTIVITIES
Purchases of property, plant & equipment (11,097 ) (9,910 ) (8,994 ) (29,769 ) (34,005 )
Proceeds from sale of assets - 8 - 8 -
Proceeds from State of Florida grant - - - 7,381 -
Other (158 ) (145 ) (98 ) (319 ) (171 )
Net cash used in investing activities(11,255)(10,047)(9,092)(22,699)(34,176)
FINANCING ACTIVITIES
Net borrowings (payments) under line of credit 18,470 (5,000 ) (2,655 ) 90,999 (114 )
Payments on long term debt and other (35,000 ) - - (145,000 ) (5,358 )
Excess tax benefit from stock based compensation 3 16 - 19 -
Purchase of treasury shares - - - - (494 )
Net proceeds from sale of equity interests 539 33 - 694 -
Net cash used in financing activities(15,988)(4,951)(2,655)(53,288)(5,966)
Effect of foreign currency rate fluctuations on cash 3,960 1,662 864 6,462 (1,183 )
Increase (decrease) in cash and cash equivalents6,138(2,458)10,3884,8748,486
Cash and cash equivalents at beginning of period20,79723,2558,49122,06110,393
Cash and cash equivalents at end of period$26,935$20,797$18,879$26,935$18,879

BUCKEYE TECHNOLOGIES INC.
SUPPLEMENTAL FINANCIAL DATA
(unaudited)
(In thousands)
Three Months EndedNine Months Ended
SEGMENT RESULTSMarch 31, 2010December 31, 2009March 31, 2009March 31, 2010March 31, 2009
Specialty Fibers
Net sales$137,049$129,585$123,853$388,793$426,571
Operating income (a)20,34516,24610,86145,94342,271
Depreciation and amortization (b)7,3937,4117,79321,84424,201
Capital expenditures10,3358,7947,78926,56529,741
Nonwoven Materials
Net sales$59,922$60,241$57,210$182,891$179,913
Operating income (a)3,3474,5602,91213,0517,948
Depreciation and amortization (b)3,6533,6683,57711,12811,119
Capital expenditures6631,1358662,5263,202
Corporate
Net sales$(6,257)$(6,518)$(9,428)$(20,388)$(28,891)
Operating income (loss) (a)(2)34,914(969)68,378(141,369)
Depreciation and amortization (b)9269299192,7762,678
Capital expenditures99(19)3396781,062
Total
Net sales$190,714$183,308$171,635$551,296$577,593
Operating income (loss) (a)23,69055,72012,804127,372(91,150)
Depreciation and amortization (b)11,97212,00812,28935,74837,998
Capital expenditures11,0979,9108,99429,76934,005
(a) The corporate segment includes operating elements such as segment eliminations, amortization of intangibles, impairment of long-lived assets, alternative fuel mixture credits, charges related to restructuring, unallocated at-risk compensation and unallocated stock-based compensation for executive officers and certain other employees. Corporate net sales represents the elimination of intersegment sales included in the specialty fibers reporting segment.
(b) Depreciation and amortization includes depreciation, depletion and amortization of intangibles.
Three Months EndedNine Months Ended
ADJUSTED EBITDAMarch 31, 2010December 31, 2009March 31, 2009March 31, 2010March 31, 2009
Net income (loss)$19,343$46,283$4,286$104,858$(111,848)
Income tax expense(1,531)4,6161,4126,592(1,532)
Interest expense3,7064,4126,97913,18521,483
Amortization of debt costs232258262759785
Early extinguishment of debt1,537--1,372(401)
Depreciation, depletion and amortization11,97212,00712,28935,74637,998
EBITDA35,25967,57625,228162,512(53,515)
Asset impairments----138,008
Non cash charges3971593616461,091
Adjusted EBITDA$35,656$67,735$25,589$163,158$85,584
We calculate EBITDA as earnings before cumulative effect of change in accounting plus interest expense, income taxes and depreciation and amortization. Adjusted EBITDA further adjusts EBITDA by adding back the following items: asset impairment charges, non-cash charges and other (gains) losses. You should not consider adjusted EBITDA to be an alternative measure of our net income, as an indicator of operating performance; or our cash flow, as an indicator of liquidity. Adjusted EBITDA corresponds with the definition contained in our US revolving credit facility, established on July 25, 2007, and it provides useful information concerning our ability to comply with debt covenants. Although we believe adjusted EBITDA enhances your understanding of our financial condition, this measure, when viewed individually, is not a better indicator of any trend as compared to other measures (e.g., net sales, net earnings, net cash flows, etc.).

Contacts:

Buckeye Technologies Inc.
Steve Dean, 901-320-8352
Senior Vice President and Chief Financial Officer
or
Daryn Abercrombie, 901-320-8908
Investor Relations
Website: www.bkitech.com

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