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Buckeye’s First Quarter FY 2012 Results

Buckeye Technologies Inc. (NYSE:BKI) today announced first quarter adjusted net income* of $29.9 million or $0.74 per share, which excludes net income of $11.2MM or $0.28 per share from cellulosic biofuel credits generated in 2009. Adjusted net income* rose 118% as compared to the prior year period’s $13.7 million or $0.34 per share, which excluded net income of $51.3 million or $1.26 per share from cellulosic biofuel credits generated in 2009.

Net sales of $240 million were up 19% versus last year’s first quarter sales of $202 million. Sales benefited from higher selling prices and increased cotton linter pulp shipment volume. The $0.40 increase in adjusted EPS*, compared to the prior year period, was driven by these same factors. Aside from significantly higher cotton linter costs, cost inflation for chemicals, transportation and other raw materials was modest with energy prices stable.

Comparing the first quarter of fiscal 2012 to the fourth quarter of fiscal 2011, sales were down $16 million or 6% lower as we rebuilt inventories at our Foley mill back to target levels and nonwovens shipment volume was down. Adjusted Operating Income* was flat at $44.0 million even with the lower sales revenue as selling, research and administrative expenses and direct costs were down relative to the fourth quarter, and higher selling prices were sufficient to offset increases in input costs during the first quarter. Adjusted EPS* of $0.74 was up $0.06 compared to $0.68 in the fourth quarter. Adjusted EPS* benefitted from a foreign exchange gain, lower net interest expense and a lower effective tax rate.

Chairman and Chief Executive Officer John B. Crowe said, “We were pleased with our first quarter fiscal 2012 financial results. As we said on our August earnings call, our record fourth quarter revenue of $256 million was going to be hard to duplicate in the first quarter due to very low beginning specialty wood fibers inventory levels. Our first quarter sales revenue of $240 million is our second best quarter ever, and our gross margin of 23.7% of sales was significantly better compared to last year’s 18.0%. The key drivers to year over year improvements continue to be strong markets and selling prices, better capacity utilization at our Memphis specialty cotton fibers plant, and benefits from our cost improvement initiatives. We maintained a balanced approach to the allocation of the cash flow generated during the quarter. Our excellent first quarter cash flow generation allowed us to pay a record bonus to all of our employees (reflecting the record FY 2011 performance), invest $11 million in capital projects, repurchase 356,000 shares ($8.6 million) of Buckeye common stock, increase our dividend to $0.06 per share, and further reduce our debt by $7 million. We expect strong sales, earnings and cash flow trends to continue.”

Buckeye has scheduled a conference call for Wednesday morning, October 26, at 11:00 a.m. ET to discuss first quarter performance. Persons interested in listening by telephone may dial in at (800) 533-7619 within the United States. International callers should dial (785) 830-1923. 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.

Note Regarding Non-GAAP Financial Measures

*This release includes certain financial information not derived in accordance with generally accepted accounting principles (“GAAP”). The non-GAAP measures presented are “adjusted operating income”, “adjusted net income”, “adjusted earnings per share”, “free cash flow” and are equal to net income, pre-tax income, operating income and earnings per share excluding the after-tax effects of alternative fuel mixture credits (AFMC) and cellulosic biofuel credits (CBC), investment tax credits (ITC) on prior period expenditures, asset impairment cost, restructuring cost and early debt extinguishment cost.

1st Quarter

4th Quarter

($ in Millions)

2012

2011

2011

Operating income

Operating income in accordance with GAAP

44.0

23.6

30.9

Special items:

Restructuring costs

---

0.6

0.1

Asset impairment

---

---

13.0

Adjusted operating income

44.0

24.2

44.0

Net income

Net income in accordance with GAAP

41.1

64.4

14.1

Special items, after-tax:

Restructuring costs

---

0.6

0.1

AFMC / CBC

(11.2 ) (51.3 ) 0.6

Asset Impairment

---

---

13.0

Adjusted net income

29.9

13.7

27.8

Earnings per share (EPS)

EPS in accordance with GAAP

$

1.02

$

1.59

$

0.35

Special items, after-tax, per share:

Restructuring costs

---

0.01

---

AFMC / CBC

(0.28

)

(1.26

)

0.01

Asset impairment

---

---

0.32

Adjusted EPS

$

0.74

$

0.34

$

0.68

Free Cash Flow

Net cash provided by operating activities

28.5

82.0

68.0

Net cash used in investing activities

(10.8

)

(12.0

)

(16.5

)

Free Cash Flow

17.7

70.0

51.5

Note Regarding Forward-Looking Statements

This press release also 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 product, and expected levels of cash flow and debt reduction. 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 periodic filings with the Securities and Exchange Commission.

BUCKEYE TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(In thousands, except per share data)
Three Months Ended
September 30, 2011June 30, 2011September 30, 2010
Net sales $ 240,067 $ 255,900 $ 202,075
Cost of goods sold 183,215 196,333 165,762

Gross margin

56,85259,56736,313
Gross margin as a percentage of sales23.7%23.3%18.0%
Selling, research and administrative expenses 12,339 15,096 11,671
Amortization of intangibles and other 496 513 479
Asset impairment - 13,007 -
Restructuring costs - 85 552
Other operating income - - (7 )
Operating income44,01730,86623,618
Net interest expense and amortization of debt costs (3,311 ) (1,716 ) (3,597 )
Foreign exchange and other 502 (12 ) (614 )
Income before income taxes41,20829,13819,407
Income tax expense (benefit) 101 15,041 (45,018 )
Net income$41,107$14,097$64,425
Computation of diluted earnings per share under the two-class method:
Net income attributable to shareholders $ 41,107 $ 14,097 $ 64,425

Less: Distributed and undistributed income allocated to participating securities (nonvested stock)

(606 ) (204 ) (1,186 )

Distributed and undistributed income available to shareholders

$ 40,501 $ 13,893 $ 63,239
Diluted weighted average shares outstanding 39,839 40,118 39,716
Diluted earnings per share$1.02$0.35$1.59

BUCKEYE TECHNOLOGIES INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
September 30June 30September 30
201120112010
Current assets:
Cash and cash equivalents$32,794$30,494$22,400
Accounts receivable, net135,322140,582126,887
Income tax and AFMC Receivable--24,513
Inventories101,58891,02485,862
Deferred income taxes and other11,39612,21610,101
Total current assets281,100274,316269,763
Property, plant and equipment, net514,743530,468530,790
Goodwill2,4252,4252,425
Deferred income taxes44,97032,74114,824
Intellectual property and other, net29,02629,90126,569
Total assets$872,264$869,851$844,371
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable$37,728$41,437$33,715
Accrued expenses60,41871,72249,020
Current portion of long-term debt--17,580
Total current liabilities98,146113,159100,315
Long-term debt90,35196,921147,420
Deferred income taxes5,4387,9686,602
Other liabilities87,37472,50677,644
Stockholders' equity590,955579,297512,390
Total liabilities and stockholders' equity$872,264$869,851$844,371

BUCKEYE TECHNOLOGIES INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(In thousands)
Three Months Ended
September 30, 2011June 30, 2011September 30, 2010
OPERATING ACTIVITIES
Net income$41,107$14,097$64,425

Adjustments to reconcile net income to net cash provided by operating activities:

Impairment of long-lived assets - 13,007 -
Depreciation 13,026 13,146 11,974
Amortization 651 668 677
Deferred income taxes (13,632 ) (735 ) (65,435 )
Payable for exchange of alternative fuel mixture credits 15,462 1,516 41,144
Loss on disposal of equipment 283 387 99
Provision for bad debts 555 (124 ) 112
Excess tax benefit from stock based compensation (765 ) (1,666 ) (10 )
Stock-based compensation expense 966 1,224 935
Other (112 ) (258 ) (132 )
Change in operating assets and liabilities
Accounts receivable (1,462 ) (1,174 ) (1,376 )
Income tax and AFMC receivable - 1,460 43,843
Inventories (12,447 ) 7,182 (9,749 )
Other assets 359 31 897
Accounts payable and other liabilities (15,527 ) 19,276 (5,364 )
Net cash provided by operating activities28,46468,03782,040
INVESTING ACTIVITIES
Purchases of property, plant & equipment (10,713 ) (16,175 ) (11,916 )
Proceeds from sale of assets - 3 4
Other (51 ) (290 ) (72 )
Net cash used in investing activities(10,764)(16,462)(11,984)
FINANCING ACTIVITIES
Net borrowings (payments) under line of credit (6,570 ) (39,649 ) (72,530 )
Excess tax benefit from stock based compensation 765 1,666 10
Purchase of treasury shares (8,648 ) (9,799 ) -
Net proceeds from sale of equity interests 638 678 41
Payment of dividend (2,410 ) (2,013 ) (1,617 )
Other (469 ) (1,185 ) -
Net cash used in financing activities(16,694)(50,302)(74,096)
Effect of foreign currency rate fluctuations on cash 1,294 1,429 4,319
Increase in cash and cash equivalents2,3002,702279
Cash and cash equivalents at beginning of period30,49427,79222,121
Cash and cash equivalents at end of period$32,794$30,494$22,400

BUCKEYE TECHNOLOGIES INC.
SUPPLEMENTAL FINANCIAL DATA
(unaudited)
(In thousands)
Three Months Ended
SEGMENT RESULTSSeptember 30, 2011June 30, 2011September 30, 2010
Specialty Fibers
Net sales$183,422$193,883$142,792
Operating income (a)43,83142,57022,140
Depreciation and amortization (b)8,3598,5657,787
Capital expenditures8,98512,72610,903
Nonwoven Materials
Net sales$64,685$69,896$68,120
Operating income (a)2,3285,2744,603
Depreciation and amortization (b)4,2174,0843,727
Capital expenditures1,6893,156782
Corporate
Net sales$(8,040)$(7,879)$(8,837)
Operating income (loss) (a)(2,142)(16,978)(3,125)
Depreciation and amortization (b)9461,011939
Capital expenditures39293231
Total
Net sales$240,067$255,900$202,075
Operating income (loss) (a)44,01730,86623,618
Depreciation and amortization (b)13,52213,66012,453
Capital expenditures10,71316,17511,916

(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 Ended
ADJUSTED EBITDASeptember 30, 2011June 30, 2011September 30, 2010
Net income (loss)$41,107$14,097$64,425
Income tax expense10115,041(45,018)
Interest expense3,3481,6353,433
Amortization of debt costs155155198
Depreciation, depletion and amortization13,52213,65912,453
EBITDA58,23344,58735,491
Asset impairments-13,007-
Restructuring-85-
Non cash charges300424100
Adjusted EBITDA$58,533$58,103$35,591

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, restructuring charges incurred since the inception of the current credit facility, non-cash charges and other (gains) losses and deducting any non-cash expense associated with alternative fuel mixture credits. 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 October 22, 2010, 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.).  Prior period amounts have been adjusted to conform to the definition contained in our new credit facility.

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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