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Buckeye Announces October – December Quarter Results

Buckeye Technologies Inc. (NYSE:BKI) today announced earnings for the October – December quarter of 7 cents per share (excluding a potential goodwill impairment charge) compared to 35 cents per share in the same period last year and 23 cents per share recorded in the July – September quarter of 2008 due to weakened demand and associated production downtime at several plants resulting from the global economic slowdown. Net sales of $184.7 million for the quarter were down 12.4% compared to the same quarter a year ago and were down 16.6% versus the record July-September quarter.

Due to adverse equity market conditions which have caused a decrease in current market multiples and the price of the company’s stock, which is currently trading well below book value, it has been determined that an indicator of potential goodwill impairment exists for the October-December quarter. Accordingly, the Company has commenced performing an interim goodwill impairment test, and expects by the first week of February to have an indication of whether an impairment charge will be required. In the event that there is a determination that goodwill is impaired, a non-cash charge, which would reduce reported net income and earnings per share for the quarter, would be required. The maximum goodwill balance that would be subject to impairment as of December 31, 2008 is $140 million.

Chairman and Chief Executive Officer John B. Crowe said, “This has been a challenging quarter for Buckeye, as the global economic recession has reduced demand for some of our products. While demand for most of our high-end specialty wood products remains solid, demand for our specialty cotton fibers has weakened significantly. Sales of our airlaid nonwovens products were also down primarily due to customer inventory reductions and normal seasonal weakness in Europe in December. As we previously announced, we took market downtime at our Foley, Memphis and Americana plants during the quarter to match production to shipment demand. In addition to a company-wide focus on reducing costs and maintaining tight control over our working capital, we have reduced our planned capital spending for this fiscal year from $64 million to $40 million in order to accelerate debt reduction efforts. We have established a goal of paying down our debt from the current level of $391 million to $350 million by December 2009 in order to ensure that we have sufficient borrowing capacity on our $200 million revolving credit facility to pay off the $110 million in bonds which mature in October 2010 without going to the credit markets for new financing. Buckeye was well in compliance with all of its debt covenants and had $114 million in available borrowing capacity plus $8.5 million in cash on its balance sheet at the end of December.”

Mr. Crowe went on to say, “Because of our restructuring efforts over the last few years, which included closing high cost capacity, lowering our operating costs, and reducing our debt from $700 million to under $400 million, we believe we are well positioned to deal with this economic downturn. While our visibility into future order trends at the moment is poor, we expect that the January-March quarter will show improved profitability at similar revenue levels as compared to the quarter just completed. While we expect fluff pulp prices to decline, we have instituted price increases in our high-end wood specialty markets effective January 1st and energy and transportation costs are down. Caustic prices will start to come down in February, but our average caustic cost for the quarter is still likely to be higher than it was in the October-December quarter.”

Buckeye has scheduled a conference call for Tuesday morning, January 27th, at 11:00 a.m. ET to discuss second quarter performance. Persons interested in listening by telephone may dial in at (877) 795-3635 within the United States. International callers should dial (719) 325-4773. Supplemental material for the call will be available on the Company’s website at or at

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.

Certain matters discussed in this press release may constitute forward-looking statements within the meaning of the federal securities laws that involve risks and uncertainties, including but not limited to economic, competitive, governmental, and technological factors affecting the Company’s operations, financing, markets, products, services and prices, and other factors. For further information on factors which could impact the Company and the statements contained herein, please refer to public filings with the Securities and Exchange Commission.

(In thousands, except per share data)
Three Months EndedSix Months Ended
December 31, 2008September 30, 2008December 31, 2007December 31, 2008December 31, 2007
Net sales $ 184,665 $ 221,293 $ 210,922 $ 405,958 $ 408,321
Cost of goods sold 161,533 185,955 168,943 347,488 325,687
Gross margin23,13235,33841,97958,47082,634
Gross margin as a percentage of sales12.5%16.0%19.9%14.4%20.2%
Selling, research and administrative expenses 11,266 12,210 11,796 23,476 23,270
Amortization of intangibles and other 471 469 361 940 922
Restructuring costs - - - - 96
Operating income11,39522,65929,82234,05458,346
Net interest expense and amortization of debt costs (7,469 ) (7,438 ) (8,524 ) (14,907 ) (17,681 )
Early extinguishment of debt 401 - 251 401 (535 )
Foreign exchange and other 213 (831 ) (94 ) (618 ) (262 )
Income before income taxes4,54014,39021,45518,93039,868
Income tax expense 1,926 5,540 7,589 7,466 12,505
Net income$2,614$8,850$13,866$11,464$27,363
Earnings per share $ 0.07 $ 0.23 $ 0.36 $ 0.30 $ 0.70
Diluted earnings per share $ 0.07 $ 0.23 $ 0.35 $ 0.30 $ 0.70
Weighted average shares for basic earnings per share
38,669 38,704 38,953 38,687 38,848
Weighted average shares for diluted earnings per share
38,829 38,883 39,448 38,856 39,354

(In thousands)
December 31September 30June 30
Current assets:
Cash and cash equivalents$8,491$18,451$10,393
Accounts receivable, net108,111128,549127,521
Deferred income taxes and other11,18611,35511,530
Total current assets243,336267,566259,698
Property, plant and equipment, net522,785537,556555,708
Intellectual property and other, net26,08828,03630,197
Total assets$932,642$989,958$1,009,225
Liabilities and stockholders' equity
Current liabilities:
Trade accounts payable$33,678$41,618$49,157
Accrued expenses42,89259,24850,451
Current portion of capital lease obligations-253358
Short-term debt-285207
Total current liabilities76,570101,404100,173
Long-term debt391,311392,439393,910
Deferred income taxes58,94157,75457,963
Other liabilities25,43025,42327,622
Stockholders' equity380,390412,938429,557
Total liabilities and stockholders' equity$932,642$989,958$1,009,225

(In thousands)
Three Months EndedSix Months Ended
December 31, 2008September 30, 2008December 31, 2007December 31, 2008December 31, 2007
Net income$2,614$8,850$13,866$11,464$27,363
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 12,026 12,743 12,780 24,769 25,409
Amortization 613 639 624 1,252 1,126
Loss on early extinguishment of debt (401 ) - (251 ) (401 ) 535
Deferred income taxes 2,476 1,345 5,834 3,821 10,458
Loss on disposal of equipment 507 167 448 674 564
Provision for bad debts 17 (27 ) (1 ) (10 ) (10 )
Excess tax benefit from stock based compensation - - (29 ) - (44 )
Other (327 ) 391 364 64 548
Change in operating assets and liabilities
Accounts receivable 16,705 (5,125 ) 951 11,580 (775 )
Inventories (8,540 ) (841 ) 2,166 (9,381 ) (3,405 )
Other assets 181 142 555 323 336
Accounts payable and other liabilities (19,387 ) 3,772 (14,925 ) (15,615 ) (7,970 )
Net cash provided by operating activities6,48422,05622,38228,54054,135
Purchases of property, plant & equipment (13,929 ) (11,082 ) (9,702 ) (25,011 ) (18,692 )
Other (50 ) (23 ) (89 ) (73 ) (135 )
Net cash used in investing activities(13,979)(11,105)(9,791)(25,084)(18,827)
Net borrowings (payments) under line of credit 3,773 (1,232 ) (6,267 ) 2,541 82,000
Payments on long term debt and other (5,253 ) (105 ) (98 ) (5,358 ) (113,817 )
Payments for debt issuance costs - - (112 ) - (1,401 )
Excess tax benefit from stock based compensation - - 29 - 44
Purchase of treasury shares - (494 ) - (494 ) -
Net proceeds from sale of equity interests - - 3,037 - 5,742
Net cash used in financing activities(1,480)(1,831)(3,411)(3,311)(27,432)
Effect of foreign currency rate fluctuations on cash (985 ) (1,062 ) 383 (2,047 ) 900
Increase (decrease) in cash and cash equivalents(9,960)8,0589,563(1,902)8,776
Cash and cash equivalents at beginning of period18,45110,39314,79010,39314,790
Cash and cash equivalents at end of period$8,491$18,451$24,353$8,491$23,566

(In thousands)
Three Months EndedSix Months Ended
SEGMENT RESULTSDecember 31, 2008September 30, 2008December 31, 2007December 31, 2008December 31, 2007
Specialty Fibers
Net sales$137,739$164,979$148,208$302,718$283,909
Operating income (a)11,57720,11825,88931,69547,955
Depreciation and amortization (b)8,0608,3488,15716,40816,172
Capital expenditures11,85510,0978,46821,95216,388
Nonwoven Materials
Net sales$56,841$65,862$71,966$122,703$143,596
Operating income (a)1,5863,5935,2735,17913,227
Depreciation and amortization (b)3,4974,0454,2417,5428,473
Capital expenditures1,5587787372,3361,444
Net sales$(9,915)$(9,549)$(9,252)$(19,463)$(19,184)
Operating loss (a)(1,768)(1,052)(1,340)(2,820)(2,836)
Depreciation and amortization (b)9408197441,7591,688
Capital expenditures516207497723860
Net sales$184,665$221,292$210,922$405,958$408,321
Operating income (a)11,39522,65929,82234,05458,346
Depreciation and amortization (b)12,49713,21213,14225,70926,333
Capital expenditures13,92911,0829,70225,01118,692
(a) The corporate segment includes operating elements such as segment eliminations, amortization of intangibles, impairment of long-lived assets, charges related to restructuring, unallocated at-risk compensation and unallocated stock-based compensation for executive officers and certain other employees. We have reclassified the at-risk compensation and stock based compensation from the specialty fibers and nonwovens segments for previous periods for comparability. 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 EndedSix Months Ended
ADJUSTED EBITDADecember 31, 2008September 30, 2008December 31, 2007December 31, 2008December 31, 2007
Income tax expense1,9265,5407,5897,46612,505
Interest expense7,2717,2338,43514,50417,407
Amortization of debt costs261262268523570
Early extinguishment of debt(401)-(251)(401)535
Depreciation, depletion and amortization12,49713,21213,14025,70926,331
Asset impairments-----
Non cash charges522208447730564
Other (gains) losses-----
Adjusted EBITDA$24,690$35,305$43,494$59,995$85,275
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.).

(In thousands, except per share data)
Three Months EndedSix Months Ended
December 31, 2007 reconciled to December 31, 2008September 30, 2008 reconciled to December 31, 2008September 30, 2008 reconciled to December 31, 2008
Net sales$210.9$221.3$408.3
Sales volume (1)(41.6)(35.3)(43.5)
Pricing (2)17.92.640.4
Product sales mix and other (3)(2.5)(3.9)0.8
Net sales$184.7$184.7$406.0
(1) Sales volume relates to the change in sales volume on comparable products
(2) Pricing relates to the changes in unit prices on comparable products
(3) Product sales mix relates to the impact of changes in the mix of products shipped. Other includes the impact of changes in foreign currency exchange rates have on the currency translation of sales denominated in currencies other than the US dollar.
Three Months EndedSix Months Ended
December 31, 2007 reconciled to December 31, 2008September 30, 2008 reconciled to December 31, 2008December 31, 2008 reconciled to December 31, 2008
Sales volume (5)(0.12)(0.07)(0.15)
Pricing / product mix (6)
Costs (7)(0.48)(0.14)(0.99)
Restructuring, impairment, early debt extinguishment costs-0.010.01
Corporate / Other (8)0.040.02-
(4) All calculations are net of taxes
(5) Sales volume - Changes in sales volume on comparable products at prior period gross margins (price, unit cost and mix are at the same levels as the prior quarter).
(6) Pricing / Product Mix - Impact of changes in selling prices (on comparable products) and changes in the mix of products shipped.
(7) Costs - Changes in production volume, energy related prices, price and usage of chemicals and raw materials, transportation costs, direct spending and selling, research and administrative expenses.
(8) Corporate / Other - Net interest expense, intangible amortization, foreign exchange gain(loss), gain(loss) on sale of assets, other income(expense), and tax adjustments and changes in tax rate.


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

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