ITEM 1. BUSINESS
GENERAL
Buckeye Cellulose Corporation (the Company or Buckeye) is a leading manufacturer and worldwide marketer of high-quality, value-added specialty cellulose pulps. The Company focuses on a wide array of technically demanding niche markets in which its proprietary products and commitment to customer technical service give it a competitive advantage. Buckeye believes it is the world's only manufacturer of both wood-based and cotton linter-based specialty cellulose pulps and, as such, produces the broadest range of specialty pulps in the industry. The Company believes that it has a leading position in most of the high-end niche markets in which it competes. Buckeye's focus on niche specialty pulp markets has enabled it to maintain consistently strong margins, even during downturns in the commodity pulp markets.
The cellulose pulp market generally can be divided into two categories: commodity pulps and specialty cellulose pulps. The Company participates exclusively in the estimated $7 billion annual specialty cellulose pulp market, which accounts for approximately 3% of the total cellulose pulp market. Specialty cellulose pulps are used to impart unique chemical or physical characteristics to a broad and diverse range of specialty end products. Specialty cellulose pulps generally command higher prices and tend to be less cyclical than commodity pulps. The more demanding performance requirements for specialty cellulose pulps limit customers' ability to substitute other products.
The Company manufactures approximately 600,000 metric tons of specialty pulp annually at its three plants in the United States and Germany. Since 1983, Buckeye has invested over $400.0 million in two of its U.S. plants and believes that both are state-of-the-art manufacturing facilities. The Company's plant located near Perry, Florida (the Foley Plant) has an annual capacity of approximately 450,000 metric tons. The Company's plant located in Memphis, Tennessee (the Memphis Plant) has an annual capacity of approximately 100,000 metric tons. In May 1996, the Company acquired the specialty cellulose pulp business of Peter Temming AG, a German company which has an annual capacity of approximately 50,000 metric tons at its plant in Gluckstadt, Germany (the Gluckstadt Plant). In September 1996 (fiscal year 1997), the Company added a fourth plant by acquiring Alpha Cellulose Holdings, Inc., the owner of a specialty cellulose pulp facility with an annual capacity of approximately 50,000 metric tons, located in Lumberton, North Carolina (the Alpha Plant).
COMPANY HISTORY
The Company has participated in the specialty cellulose pulp market for nearly 75 years and has developed uses for both wood-based and cotton linter-based pulps for many specialty pulp applications. In March 1993, an investor group consisting of Madison Dearborn Capital Partners, (MDCP) and members of the Company's current management organized the Company to acquire from the Cellulose & Specialties Division (C&S Division) of The Procter & Gamble Cellulose Company (P&GCC) substantially all of the assets of the Memphis Plant, as well as certain other assets of the C&S Division. At the same time, MDCP and members of current management also organized Buckeye Florida Corporation to serve as the sole general partner of Buckeye Florida, Limited Partnership (BFLP), which simultaneously acquired from P&GCC substantially all of the assets of the Foley Plant. P&GCC retained an interest in the Foley Plant as the sole limited partner of BFLP and granted Buckeye Florida Corporation an option to purchase P&GCC's limited partnership interest in BFLP.
In November 1995, the ownership of the Memphis Plant, the Foley Plant and related assets was combined into a single corporate ownership structure, Buckeye Florida Corporation became a wholly owned subsidiary of the Company, and the Company acquired P&GCC's remaining equity interest in BFLP for approximately $62.1 million (the Business Combination). Concurrently, the Company and MDCP made an initial public offering of the Common Stock, and the Company refinanced substantially all of its outstanding indebtedness (including all indebtedness to P&GCC) through a public offering of $150.0 million aggregate principal amount of 8-1/2% Senior Subordinated Notes due 2005 and the establishment of a bank credit facility. The Company also completed an offer to repurchase, and a related amendment to the terms of, a majority of its outstanding 10-1/4% Senior Notes due 2001. As a result of these transactions, P&GCC ceased to have any interest as an equity owner or lender to BFLP, a single capital structure for the Company's businesses was established and the Common Stock was listed for trading on the New York Stock Exchange.
The Company is incorporated in Delaware and its executive offices are located at 1001 Tillman Street, Memphis, Tennessee. Its telephone number is (901) 320-8100.
PRODUCTS
The Company believes that it is the only specialty cellulose pulp producer offering both wood-based and cotton linter-based products and, accordingly, produces a broader range of specialty pulps than any of its competitors. Buckeye believes that it has a leading position in most of the high-end niche markets in which it competes. The Company's specialty pulps can be broadly grouped into chemical cellulose pulps, absorbent pulps and customized paper pulps.
The following table presents relative gross sales for the Company's specialty pulps:
Fiscal Year Ended June 30 ----------------------------- 1996 1995 1994 ------ ------ ------ Chemical cellulose pulps .......... 45% 41% 44% Absorbent pulps ................... 37% 39% 38% Customized paper pulps ............ 18% 20% 18% ------ ------ ------ 100% 100% 100%
Chemical Cellulose Pulps: ------------------------- Chemical cellulose pulps, frequently referred to as dissolving pulps, are dissolved in chemical solutions which modify the molecular properties of the cellulose before it is regenerated to form an end-use product. Chemical cellulose pulp, a highly purified material, is the basic ingredient in the production of food casings, rayon filament, photographic film, transparent tape, acetate plastics, and thickeners for food, cosmetics, and pharmaceuticals. Chemical cellulose pulps are selected for these applications for their chemical and molecular, rather than physical, properties.
The Company is one of the world's largest manufacturers of chemical cellulose pulp. Buckeye believes that it is well positioned to participate in the continued steady growth of the chemical cellulose markets in which it competes.
Absorbent Pulps: ---------------- Absorbent pulps, frequently referred to as fluff pulp, are used in applications such as disposable diapers, feminine hygiene products, and adult incontinence products. Absorbent pulps are selected for these applications for their special physical properties. The Company believes that the long, thick-walled slash pine fiber used in the production of the Company's fluff pulp
contributes to its excellent quality in terms of absorbency, fluid transport, and structural integrity. The performance of Buckeye's fluff pulp allows reduced quantities to be used in the manufacture of diapers relative to competitive pulps.
The Company is one of the world's major producers of absorbent pulps. While the volume of fluff pulp used in disposable diapers is negatively impacted by a move to thinner diapers, this has been more than offset by the increased use of disposable diapers in less developed countries, such as China and India, as well as growth in the use of training pants and adult incontinence products. The Company's understanding of the technology of absorbent products positions it to participate in this growth.
Customized Paper Pulps: ----------------------- Customized paper pulps are selected for their special physical property in filter and premium paper applications. Automotive air filters require high porosity so that large volumes of air can flow freely through the filter while extraneous particles are removed. Cotton linter pulps are used in currency paper, stock certificates, and wedding invitations, because the papers need to be long-lived, retain their original color, and resist tearing in use. Additionally, the Company's customized paper pulps are used in other high-performance applications, including laboratory and industrial filters, battery separators, printed circuits, decorative laminates, maps and personal stationery.
Buckeye believes it is the world's only manufacturer of both wood-based and cotton linter-based customized paper pulps. The special nature of the Company's customized paper pulps allows the Company to participate effectively in the relatively stable markets for these highly technical applications. Customized paper pulps for automotive air and oil filters demonstrate steady growth because a large majority of such filters are sold in the after-market and are therefore less influenced by variations in the market for new cars.
RAW MATERIALS
Slash pine timber and cotton linters are the principal raw materials used in the manufacture of the Company's specialty pulps and represent the largest components of the Company's variable costs of pulp production. The region surrounding the Foley Plant has a high concentration of slash pine timber, which enables Buckeye to purchase adequate supplies of a species well suited to its products at an attractive cost. In order to be better assured of a secure source of wood at reasonable prices, the Company entered into the Timberlands Agreement and the Timber Purchase Agreement (collectively, the Timber Supply Agreements) with The Procter & Gamble Company (Procter & Gamble). Under the terms of the Timberlands Agreement, the Company agreed to purchase an annual percentage of the slash pine timber harvest from specified timberlands near the Foley Plant, which percentage was initially set at 85% and will gradually reduce to 60% by the final year of the Timberlands Agreement. The Timberlands Agreement has an initial term of ten years and is subject to two renewals at the Company's option for five and three years, respectively, which, if exercised, would result in the Timberlands Agreement's extension through 2010. The term of the Timber Purchase Agreement expires in 2002. As of July 8, 1994, all of Procter & Gamble's interests in the timberlands subject to the Timber Supply Agreements, together with its rights and obligations with respect to such Timber Supply Agreements (other than certain expressly excluded obligations retained by Procter & Gamble), were assigned to Foley Timber and Land Company, L.P., a third party unrelated to either Procter & Gamble or the Company. The purchase price for the Timberlands Agreement is established according to a market-based formula set forth in the agreement and is annually adjusted to take into account pricing conditions in the Florida counties in which the covered timberlands are located. In addition, the Company has a right of first offer on a substantial portion of slash pine timber located on the
timberlands and not initially purchased pursuant to the Timberlands Agreement. Under the terms of the Timber Purchase Agreement, Buckeye agreed to purchase from Procter & Gamble its rights to harvest certain third party timber reserves at a purchase price determined according to a formula provided in the Timber Purchase Agreement. In fiscal 1996, timber acquired pursuant to the Timber Supply Agreements accounted for approximately 24% of the Company's total wood purchases.
The Company purchases cotton linters either directly from cotton seed oil mills which remove these short, fuzzy linters before processing the seed into vegetable oil and animal feed or indirectly through agents or brokers. The Memphis Plant is strategically located in the Mississippi Valley, one of the largest cotton linter producing regions in the world. Generally, the Company purchases substantially all of its requirements of cotton linters for the Memphis Plant domestically, and it is expected that substantially all of the cotton linters requirements for the Alpha Plant also will be purchased domestically. The Gluckstadt Plant purchases cotton linters principally from suppliers in the Middle East.
The cost of both slash pine timber and cotton linters is subject to market fluctuations caused by supply and demand factors beyond the Company's control.
SALES AND CUSTOMERS
The Company's products are marketed and sold through a highly trained and technically skilled in-house sales force. The Company maintains sales offices in Memphis, Tennessee and Geneva, Switzerland. The Company's worldwide sales are diversified by geographic region as well as end-product application. Buckeye's sales of specialty pulps are distributed to customers worldwide. The Company's fiscal 1996 sales reflect this geographic diversity, with 29% of sales in the United States, 34% in Europe, 23% in Asia and 14% in other regions.
The high-end, technically demanding specialty pulp niches that Buckeye serves require a higher level of sales and technical service support than do commodity pulp sales. The Company's technically trained sales and service engineers have worked for the Company for an average of over 20 years and typically began their careers in the Company's manufacturing or product development operations. These professionals work with customers in their plants to design pulps tailored precisely to their product needs and manufacturing processes.
Procter & Gamble, the world's largest diaper manufacturer, is the Company's largest customer, accounting for 36% of the Company's fiscal 1996 net sales. The Company and Procter & Gamble have entered into a long-term Pulp Supply Agreement, which requires Procter & Gamble to purchase a specified tonnage of the Company's fluff pulp through the year 2002. Shipments of fluff pulp under the Pulp Supply Agreement are made to Procter & Gamble affiliates worldwide, as directed by Procter & Gamble. The price of the fluff pulp sold pursuant to the Pulp Supply Agreement is based in the first six years of the Pulp Supply Agreement's term on a formula specified in the Pulp Supply Agreement. Pricing in the years 1999 and 2000 will be at the higher of the contract formula price or market and pricing in the years 2001 and 2002 will be at market. The formula price has three components: (i) a periodic margin adjustment, (ii) a general escalation component based on Consumer Price Index changes, and (iii) a provision to adjust for all actual changes in the price of timber, the major raw material component of the pulp purchased under the contract. Buckeye's other large customers include Akzo Nobel N.V. (rayon filament and cellulose ethers), A. Ahlstrom Corporation (automotive filter paper), Hercules Incorporated (cellulose ethers), and Eastman Chemical Company (cellulose acetate).
Substantially all of the Company's worldwide sales are denominated in U.S. dollars, and such sales are not subject to exchange rate fluctuations. Because the cost of shipping is borne by the customer, Buckeye's margin on a sale to any given customer is similar regardless of a customer's location. The Company's products are shipped by rail, truck and ocean carrier.
RESEARCH AND DEVELOPMENT
The Company's research and development activities focus on developing new specialty cellulose pulps, improving existing products, and enhancing process technologies to further reduce costs and respond to environmental needs. Buckeye has pilot plant facilities in which to produce experimental pulps for qualification in customers' plants. The Company has a history of innovation in specialty cellulose pulps. The Company's latest product developments include:
- a higher porosity automotive air filter pulp providing a 50% increase in air permeability;
- a higher purity pulp for food casings;
- a highly uniform acetate wood pulp; a higher viscosity ether pulp yielding superior thickening performance; and a process technology coupled with customized refining providing improved cotton linter paper pulps.
COMPETITION
Buckeye's competitors include the following specialty pulp producers: Alfa Cellulose de Mexico S.A. (Mexico), Borregaard Industries, Ltd. (Norway), Georgia-Pacific Corporation (U.S.), International Paper Company (U.S.), Louisiana-Pacific Corporation (U.S.), Rayonier, Inc. (U.S.), Sappi Limited (South Africa), Southern Cellulose Products Inc. (U.S.), Tembec Inc. (Canada), Western Pulp Limited Partnership (Canada), and Weyerhaeuser Company (U.S.). Competition in specialty cellulose pulp markets is based on product performance, technical service, and, to a lesser extent, price. Southern Cellulose Products Inc. is owned by Archer Daniels Midland, a subsidiary of which supplies cotton linters to the Company.
The Company produces a broader range of specialty pulps than any of its competitors and believes it is the only specialty cellulose pulp producer offering both wood-based and cotton linter-based products. Buckeye is the world's largest cotton linter pulp producer. The Company believes that the number of specialty pulp producers is unlikely to increase significantly in the foreseeable future given the substantial investment and technological expertise required to enter this market.
INTELLECTUAL PROPERTY
The Company currently holds four U.S. patents, three foreign patents and has one new application filed. In addition, it has access to royalty-free licenses for five U.S. patents and two foreign patents. Buckeye intends to maintain its patents and file applications for any future inventions which are deemed to be important to its business operations. The Company has four trademarks, including the name Buckeye(R).
INFLATION
The Company believes that inflation has not had a material effect on its results of operations or financial condition during recent periods.
SEASONALITY
The Company's business has generally not been seasonal to any significant extent.
EMPLOYEES
On June 30, 1996, the Company employed approximately 1,400 individuals at its facilities in Memphis, Tennessee; Perry, Florida; Savannah, Georgia; Gluckstadt, Germany and Geneva, Switzerland. Collective bargaining agreements are in place at the Foley Plant with the United Paper Workers International Union, AFL-CIO, Local #1192; and at the Memphis Plant with the Pulp and Processing Workers of the Retail, Wholesale, and Department Store Union, AFL-CIO, Local #910. The agreement for the Foley Plant covers the period April 1, 1995 to April 1, 1998. The agreement for the Memphis Plant covers the period March 18, 1994 to March 18, 1997. Approximately 54% of the Company's employees are members of these two unions. A Works Council provides employee representation for all non-management workers at the Gluckstadt Plant.
The Foley Plant has not experienced any work stoppages due to labor disputes in over 25 years, and the Memphis Plant has not experienced any work stoppages due to labor disputes in over 45 years. The Company believes its relationship with its employees is very good.
ENVIRONMENTAL REGULATIONS AND LIABILITIES
The Company's facilities and operations are subject to extensive general and industry-specific federal, state, local and foreign environmental laws and regulations. The Company devotes significant resources to maintaining compliance with such requirements and believes that its facilities and operations are in substantial compliance with all such requirements. The Company expects that, due to the nature of its operations, it will be subject to increasingly stringent environmental requirements (including anticipated standards applicable to waste water discharges and air emissions) and will continue to incur substantial costs to comply with such requirements. Based upon its understanding of current and anticipated requirements, the Company believes that continued compliance with environmental requirements will not have a material adverse effect on its business, results of operations or financial condition and will not adversely affect the Company's competitive position. However, given the uncertainties associated with predicting the scope of future requirements, there can be no assurance that the Company will not in the future incur material environmental compliance costs or liabilities.
The Foley Plant discharges treated waste water into the Fenholloway River. The Fenholloway River is currently classified under Florida Statutes as a Class 5 (industrial) stream. Under the federal Clean Water Act, the State of Florida is required to perform an analysis every three years of the feasibility of reclassifying the river to Class 3 (fishable/swimmable) status. Such an analysis recommending reclassification was completed in early 1994 and approved by the Florida Department of Environmental Protection ("DEP") at an administrative hearing in December 1994. At this administrative hearing, the Company and the State of Florida reached agreement on a plan to attain Class 3 objectives, which relies primarily on the laying of an extensive pipeline by the Company to relocate the Foley Plant's waste water discharge point. The plan also includes process changes in the Foley Plant designed to reduce the coloration of
its waste water discharge, provide oxygen enrichment of the effluent prior to discharge and restore certain wetlands areas. The reclassification will not become effective until December 1997 (with a final compliance deadline of December 1999) to allow the Company to obtain all the necessary permits for implementation of the approved plan and complete construction of the pipeline and the treatment upgrades. The Company estimates that implementation of the approved plan will result in approximately $39 million of capital expenditures, the majority of which will likely be expended during fiscal 1998 and fiscal 1999.
In 1993, the U.S. Environmental Protection Agency (EPA) issued a set of proposed regulations for the pulp and paper industry addressing the emission of "hazardous air pollutants" under the Clean Air Act and waste water discharges under the Clean Water Act, commonly known as the "cluster rules". The Company is examining and evaluating the potential impact of the cluster rules, as proposed, on its operations and capital expenditures over the next several years. The Company believes that the proposed cluster rules will likely be amended significantly prior to their promulgation, which is anticipated to occur in 1997, with compliance to be phased in between 1999 and 2002. Although the Company anticipates that significant capital expenditures for environmental control equipment and related costs will be required to comply with the cluster rules when promulgated (which the Company currently projects will be approximately $14 million through fiscal 2000), such expenditures are not likely to have a material adverse effect on the Company's business or financial condition.
The Foley Plant is on the EPA CERCLIS (as defined) list of potential hazardous substance release sites prepared pursuant to CERCLA (as defined). The EPA conducted a site investigation in early 1995. Although the Company considers it unlikely that the Foley Plant will be listed on the CERCLA National Priorities List and hence require remedial action, the possibility of such listing cannot be ruled out. If the site were to be placed on the National Priorities List, the costs associated with conducting a CERCLA remedial action could be material.
As of June 30, 1996, the Company had established reserves of $4.2 million to address certain environmental matters. Because an environmental reserve is not established until a liability is determined to be probable and reasonably estimable, not all potential future environmental liabilities are covered by the Company's reserves. Accordingly, there can be no assurance that the Company's environmental reserves will be sufficient to meet the Company's obligations, and additional charges to earnings are possible.
FORWARD-LOOKING INFORMATION MAY PROVE INACCURATE
This document contains various forward-looking statements and information which is based on management's beliefs as well as assumptions made by and information currently available to management. Statements in this document which are not historical statements are forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties, including among other things, pricing fluctuations and industry cyclicality; the Company's dependence on its largest customer, Procter & Gamble; fluctuation in the costs of raw materials; competition; inability to predict scope of future environmental compliance costs or liabilities; and ability of the Company to obtain additional capital, maintain adequate cash flow to service debt as well as meet operating needs. Should one or more of these risks materialize, or should underlying assumptions prove incorrect, actual results may differ materially from those anticipated, estimated or projected.
ITEM 2.

ITEM 2. PROPERTIES
Corporate Headquarters And Sales Offices. The Company's corporate headquarters, research and development laboratories, and pilot plants are located in Memphis, Tennessee. The Company owns the corporate headquarters, the Memphis Plant, the Foley Plant and the Gluckstadt Plant and leases sales offices in Geneva, Switzerland and distribution facilities in Savannah, Georgia.
Memphis Plant. The Memphis Plant is located on a 60-acre site adjacent to the headquarters complex. The Company believes that the Memphis Plant utilizes a state-of-the-art continuous pulping process. During fiscal 1996, its capacity was expanded to approximately 100,000 annual metric tons. The Memphis Plant is ISO 9002 certified.
Foley Plant. The Foley Plant is located at Perry, Florida, on a 2,900 acre site. The Company also owns 13,000 acres of real property near the plant site. The Foley Plant is a state-of-the-art facility with two separate production lines and has been continuously modernized and expanded to a current capacity of approximately 450,000 annual metric tons. The Foley Plant has operated at full capacity for over 30 years. In 1994, the Foley Plant was selected by Plant Engineering magazine and the American Institute of Plant Engineers as the sole winner of the annual North American Maintenance Excellence Award. The Foley Plant is ISO 9002 certified.
Gluckstadt Plant. The Gluckstadt Plant is located in close proximity to the Elbe River near Hamburg. The site is adjacent to the paper plant of Steinbeis Temming Papier GmbH. Some utilities, including steam, power, water and waste treatment, are shared between the plants pursuant to various utility agreements. The Gluckstadt Plant is the largest cotton linter specialty pulp plant in Europe. The Gluckstadt Plant is ISO 9002 certified.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various claims, complaints and other legal actions that have arisen in the normal course of business from time to time. Other than the lawsuits relating to the Foley Plant discussed in the Notes to the Consolidated Financial Statements under Note 13-Contingencies, the Company is not currently involved in any legal proceedings, which, in the aggregate, could be expected to have a material adverse effect on its business, results of operations or financial position.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Except for certain matters submitted to the Company's shareholders related to the Business Combination and the adoption of certain stock option plans prior to the Company's initial public offering in November 1995, no matters were submitted to a vote of security holders during the period from July 1, 1995 through June 30, 1996, through solicitation of proxies or otherwise.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange under the symbol "BKI" since the Company's initial public offering in November 1995. The following table sets forth, for the periods indicated, the high and low sale prices for the common stock on such market.
Year Ended June 30, 1996: High Low -------- ------- Second quarter (since November 22, 1995)..... $22-1/2 $19 Third quarter................................ 24 21-1/4 Fourth quarter............................... 29-1/8 21-7/8
At September 23, 1996, the Company had approximately 4,200 shareholders of its common stock and 19,311,498 shares outstanding. The Company has no plans to pay dividends in the foreseeable future.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA
(In thousands, except per share data) Company: Predecessor:(a) -------------------------------------- ------------------ March 16, July 1, 1993 1992 Year through through Ended Year Ended June 30 June 30, March 15, June 30, 1996 1995 1994 1993 1993 1992 -------- -------- -------- --------- --------- --------- OPERATING DATA: (b) Net sales .......... $470,979 $408,587 $371,526 $113,074 $233,460 $357,493 Operating income ... 108,567 79,172 55,689 21,031 21,366 36,696 Income before extraordinary loss. 47,010 21,712 12,968 4,704 21,366 36,696 Net income .......... 43,061 21,712 12,968 4,704 21,366 36,696
Earnings per share:(c) Income before extraordinary loss. 2.23 Net income ......... 2.04
BALANCE SHEET DATA: Total assets ....... $452,799 $379,056 $374,204 $403,542 $446,732 $445,454 Long-term debt less current portion .. 217,873 166,202 203,482 278,713
OTHER DATA: EBITDA (d) ........ $134,670 $104,088 $ 81,879 $ 28,185 $ 40,628 $ 62,491
- - ---------- (a) The Predecessor was historically operated as part of the C&S Division of Procter & Gamble. The Predecessor was allocated certain expenses for services provided by the C&S Division and Procter & Gamble, including sales, general management, and financial services. Costs and expenses were allocated using formulas, primarily based on estimates of efforts expended and sales. Since debt obligations of Procter & Gamble were not specifically identifiable with individual operating
units, interest charges are not reflected in the financial data of the Predecessor. Since Procter & Gamble had no tax sharing agreement for allocating income taxes to operating units, income tax expense or benefit is not reflected in the financial data of the Predecessor. On March 16, 1993, the Company acquired from P&GCC all of the assets of the Predecessor.
(b) In fiscal 1996, an extraordinary loss of $3,949, net of tax benefit, was recognized on the early retirement of a portion of the Senior Notes. Minority interest charge representing P&GCC's limited partnership interest in BFLP ceased on November 28, 1995.
(c) Historical net income per share has not been presented as it is not considered relevant for periods prior to June 30, 1996.
(d) EBITDA represents earnings before secondary offering costs, interest, taxes, minority interest, extraordinary loss, depreciation, depletion, amortization and other non-cash charges. This data should not be considered in isolation and is not intended to be a substitute for income statement or cash flow statement data as a measure of the Company's profitability (see Consolidated Financial Statements).
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
Buckeye Cellulose Corporation (the Company) manufactures specialty cellulose pulps in the United States and Europe, and sells these products in worldwide markets. The Company began operations under current management on March 16, 1993 by acquiring the Memphis, Tennessee based production, research and administrative facilities of Procter & Gamble Cellulose Company (P&GCC). At the same time, current management formed a partnership to acquire the Perry, Florida based production facilities of P&GCC, in which P&GCC retained a financial minority interest. In November 1995, the Company (1) acquired the remaining partnership interest of P&GCC and combined the Memphis, Tennessee and Perry, Florida businesses under a common ownership; (2) completed an initial primary and secondary public offering of common stock; and (3) refinanced substantially all of its outstanding indebtedness. In May 1996, the Company acquired the specialty cellulose pulp facilities of Peter Temming AG, located in Gluckstadt, Germany, thereby increasing annual production capacity by 8%. The results of this acquisition are included in the Company's operations for the period May 1, 1996 through June 30, 1996.
RESULTS OF OPERATIONS
Comparison of Fiscal Years Ended June 30, 1996 and June 30, 1995 ---------------------------------------------------------------- Net sales for 1996 were $471.0 million compared to $408.6 million for 1995, an increase of $62.4 million or 15.3%. The increase was primarily due to higher average unit sales prices which, excluding the effect of product mix changes due to the acquisition, were 19.3% above 1995. The increase in net sales was partially offset by a 4.2% decrease in unit sales volume in 1996 as the result of softer market demand for pulp, in comparison to strong market demand in 1995.
In 1996, operating income rose to 23.1% of sales, an improvement of 3.7 percentage points from 1995. The impact of higher sales discussed previously was partially offset by higher raw material costs for wood, cotton linters and process chemicals. Selling, research and administrative expenses were $2.8 million higher in 1996 than in 1995, but decreased as a percentage of sales from 5.9% to 5.7%. The increase in selling, research and administrative expenses was primarily due to increased employment and transition expenses related to the acquisition of the specialty pulp business of Peter Temming AG.
Net interest and amortization of debt costs for 1996 were $17.0 million compared to $21.2 million for 1995, a decrease of $4.2 million or 19.6%, primarily due to lower average debt balances during the period preceding the November 1995 business combination, and lower interest rates following the business combination as the result of the refinancing of indebtedness.
Minority interest for 1996 was $16.6 million for the five month period July-November 1995, compared to $23.2 million for the full twelve months of 1995, a decrease of $6.6 million or 28.4%. The decrease is the result of the purchase of P&GCC's remaining partnership interest as part of the November 1995 combination of related businesses.
Non-recurring charges associated with the November 1995 and July 1996 secondary stock offerings totaled $1.9 million and reduced net income by $.09 per share in fiscal year 1996. There were no non-recurring charges in fiscal year 1995.
The effective income tax rate decreased to 35.2% in 1996 from 36.5% in the prior year, primarily as the result of establishing a foreign sales corporation in November 1995.
The Company incurred an extraordinary loss of $3.9 million, net of taxes, in 1996. This loss resulted from the retirement of $57.8 million in principal amount of the Company's 10 1/4% Senior Notes due 2001.
The Company's income before extraordinary loss for 1996 was $47.0 million, or $2.23 per share, more than double 1995 net income of $21.7 million. Net income for 1996 was $43.1 million, or $2.04 per share, which is nearly double 1995 net income of $21.7 million.
Comparison of Fiscal Years Ended June 30, 1995 and June 30, 1994 ---------------------------------------------------------------- Net sales for 1995 were $408.6 million compared to $371.5 million for 1994, an increase of $37.1 million or 10%. The increase was primarily due to a 12% average increase in unit selling prices and by a move to a higher value-added product mix. The sales price increase reflected strong domestic and international market demand for pulp, which resulted in sales price increases on the Company's specialty pulps beginning in January 1995. This increase in unit sales prices was partially offset by a 2% reduction in unit sales volume.
In 1995, operating income rose to 19.4% of sales, an improvement of 4.4 percentage points from 1994. The impact of higher sales discussed previously was partially offset by higher raw material costs for cotton linters, wood, and process chemicals. Selling, research and administrative expenses decreased as a percentage of sales by 0.6 percentage points.
Net interest and amortization of debt costs for 1995 was $21.2 million compared to $26.5 million in 1994, a decrease of $5.3 million or 20%. The decrease was due to substantially lower debt levels as cash from operations was used to retire $51.4 million in long-term debt during fiscal 1995.
Minority interest for 1995 was $23.2 million compared to $8.3 million for 1994, an increase of $14.9 million. The increase reflected the higher net income of Buckeye Florida, Limited Partnership, in which P&GCC held a 50% limited partnership interest during the period.
The effective income tax rate was 36.5% for 1995 compared to 35.9% for 1994.
The Company's net income for 1995 was $21.7 million compared to $13.0 million for 1994, an increase of $8.7 million or 67%.
FINANCIAL CONDITION
Cash Flow ---------
Cash provided by operating activities is the major source of funds for the Company, totaling $60.1 million in 1996, $77.8 million in 1995, and $86.4 million in 1994. Net income increased in each of these years, contributing to increased cash flow. However, in 1996 an increase of $22.7 million in accounts receivable and $27.6 million in inventories offset the increase in net income.
The accounts receivable increase was due to higher sales prices, the Temming acquisition, and higher shipment volume in April-June 1996 compared to April-June 1995. The inventory increase was the result of higher quantities and prices for raw materials and higher quantities of finished goods.
Capital expenditures for property, plant and equipment were $34.8 million in 1996, $24.9 million in 1995, and $15.7 million in 1994. The Company used all of the expenditures to purchase, modernize, and upgrade production equipment and to maintain its facilities. Capital expenditures (including environmental expenditures) for 1997 are expected to be approximately $50 million.
During 1996, $62.1 million was used to purchase the remaining minority interest of P&GCC as part of the November 1995 business combination and $27.1 million was used for the Temming acquisition.
Leverage/Capitalization -----------------------
Total debt increased to $219.5 million at June 30, 1996 from $174.7 million at June 30, 1995, reflecting (1) the Company's refinancing of substantially all its debt in connection with the November 1995 business combination; (2) the purchase of P&GCC's remaining minority interest in the Perry, Florida business; and (3) the acquisition of the specialty pulp business of Temming. In 1995, strong operating cash flow enabled the Company to reduce total debt to $174.7 million from $217.6 million in 1994.
The total debt to capital ratio was 60.9% at June 30, 1996, compared to 67.4% in 1995, and 77.6% in 1994. The interest coverage ratio increased to 7.9x in 1996 from 4.9x in 1995 and 3.1x in 1994.
At June 30, 1996, the Company had a $135 million bank credit facility in place with $70.7 million of unused borrowing capacity. On August 30, 1996, the bank credit facility was increased to $155 million.
Subsequent Events -----------------
On July 2, 1996 (fiscal year 1997), the Company completed a stock repurchase of 2,259,887 shares of common stock for $50 million, reducing the total number of shares outstanding to 19,147,336. On the same date, the Company completed a public offering for $100 million in 9 1/4% Senior Subordinated Notes. The Company used $50 million of the proceeds from the debt offering to fund the stock repurchase. On September 1, 1996, the remaining proceeds of the debt offering and borrowings from the existing bank credit facility were used to fund the purchase of Alpha Cellulose Holdings, Inc. and its related pulp production facility located in Lumberton, North Carolina for a purchase price of approximately $63 million plus assumed liabilities.
On August 9, 1996 the Company announced that its Board of Directors authorized the repurchase of up to one million shares of its common stock from time to time on the open market or in privately negotiated purchases.
Liquidity ---------
The Company believes that its cash flow from operations, together with the borrowings available under the existing bank credit facility will be sufficient to fund capital expenditures (including environmental expenditures), meet operating expenses, fund any common stock repurchases, and service all debt requirements for the foreseeable future. Consistent with the Company's stated policy, there are no plans to pay dividends in the foreseeable future.
ENVIRONMENTAL MATTERS
The Company has reached an agreement (the Fenholloway Agreement) with the Florida Department of Environmental Protection based upon the results of the recently completed Fenholloway River reclassification analysis. In order to comply with the Fenholloway Agreement, the Company expects to invest approximately $39 million through fiscal 1999 to modify its facilities. In addition to capital spending pursuant to the Fenholloway Agreement, the Company projects that it will spend approximately $14 million in environmental capital expenditure costs through fiscal 2000, primarily to comply with the anticipated federal cluster rule regulations applicable to the Company, at such time as they are promulgated.
ITEM 8.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following report of independent auditors and financial statements are included in Item 8:
Buckeye Cellulose Corporation: - Report of Management - Report of Independent Auditors - Consolidated Balance Sheets -- June 30, 1996 and 1995 - Consolidated Statements of Income -- For the years ended June 30, 1996, June 30, 1995 and June 30, 1994 - Consolidated Statements of Changes in Stockholders' Equity -- For the years ended June 30, 1996, June 30, 1995 and June 30, 1994 - Consolidated Statements of Cash Flows -- For the years ended June 30, 1996, June 30, 1995 and June 30, 1994 - Notes to Consolidated Financial Statements
REPORT OF MANAGEMENT ------------------------------------------------------------------------- The preparation and integrity of the financial statements of Buckeye Cellulose Corporation are the responsibility of its management. These statements, which include amounts based on management's best estimates and judgments, have been prepared in conformity with generally accepted accounting principles and in the opinion of management fairly present the Company's financial position, results of operations and cash flows.
The Company maintains accounting and internal control systems which it believes are adequate to provide reasonable assurance that assets are safeguarded against loss from unauthorized use or disposition and that the financial records are reliable for preparing financial statements. The selection and training of qualified personnel, plus the establishment and communication of accounting and administrative policies and procedures, are important elements of these control systems.
The report of Ernst & Young LLP on their audits of the accompanying financial statements follows. This report states that the audits were made in accordance with generally accepted auditing standards. These standards include a study and evaluation of internal controls for the purpose of establishing a basis for reliance thereon relative to the scope of their audits of the financial statements.
The Board of Directors, through its Audit Committee consisting solely of outside directors, meets periodically with management and the independent auditors to discuss audit and financial reporting matters. To assure independence, Ernst & Young LLP has direct access to the Audit Committee.
Robert E. Cannon David B. Ferraro Chairman of the Board President and and Chief Executive Officer Chief Operating Officer
REPORT OF INDEPENDENT AUDITORS -------------------------------------------------------------------------
To the Board of Directors and Stockholders of Buckeye Cellulose Corporation
We have audited the accompanying consolidated balance sheets of Buckeye Cellulose Corporation as of June 30, 1996 and 1995 and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended June 30, 1996. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Buckeye Cellulose Corporation at June 30, 1996 and 1995, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 30, 1996 in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Memphis, Tennessee
August 8, 1996, except for Note 16, as to which the date is September 1, 1996
CONSOLIDATED STATEMENTS OF INCOME (In thousands, except share data)
Year Ended June 30 ---------------------------------- 1996 1995 1994 --------- --------- ----------
Net sales ................................ $ 470,979 $ 408,587 $ 371,526 Cost of goods sold ....................... 335,377 305,150 291,833 --------- --------- --------- Gross margin ............................. 135,602 103,437 79,693 Selling, research and administrative expenses ............. 27,035 24,265 24,004 --------- --------- --------- Operating income ......................... 108,567 79,172 55,689 Other income (expense): Interest income .......................... 1,060 1,138 314 Interest expense and amortization of debt costs ....................... (18,061) (22,290) (26,859) Other .................................... (451) (615) (632) Minority interest ........................ (16,628) (23,223) (8,291) Secondary offering costs.................. (1,945) -- -- --------- --------- --------- (36,025) (44,990) (35,468) --------- --------- --------- Income before income taxes and extraordinary loss .................. 72,542 34,182 20,221 Income taxes ............................. 25,532 12,470 7,253 --------- --------- --------- Income before extraordinary loss ......... 47,010 21,712 12,968 Extraordinary loss, net of tax benefit.... (3,949) -- -- --------- --------- ---------- Net income ............................... $ 43,061 $ 21,712 $ 12,968 ========= ========= ========= Earnings per share: Income before extraordinary loss........ $ 2.23 Extraordinary loss, net of tax benefit.. (0.19) --------- Net income per share...................... $2.04 ========== Weighted average shares outstanding....... 21,111,793 ==========
See accompanying notes.
CONSOLIDATED BALANCE SHEETS (In thousands, except share data) June 30 ----------------------- 1996 1995 -------- --------- ASSETS Current assets: Cash and cash equivalents ...................... $ - $ 11,789 Short-term investments ......................... 2,900 9,706 Accounts receivable--trade, net of allowance for doubtful accounts of $980 and $1,152 at June 30, 1996 and 1995, respectively .......................... 65,423 43,519 Accounts receivable--other ..................... 1,382 548 Inventories .................................... 101,028 61,947 Deferred income taxes .......................... 3,225 541 Prepaid expenses and other ..................... 5,414 2,530 -------- -------- Total current assets ........................ 179,372 130,580 Property, plant and equipment: Land and land improvements ..................... 5,415 3,980 Buildings ...................................... 42,301 36,842 Machinery and equipment ........................ 252,824 232,653 Construction in progress ....................... 14,341 8,696 -------- -------- 314,881 282,171 Less allowances for depreciation ............... 57,283 54,072 -------- -------- Net property, plant and equipment .......... 257,598 228,099 Goodwill ......................................... 6,624 16,998 Deferred debt costs and other .................... 9,205 3,379 -------- -------- Total assets ............................... $452,799 $379,056 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Trade accounts payable ...................... $ 23,226 $ 14,908 Accrued expenses ............................ 36,414 27,937 Income taxes payable ........................ -- 1,230 Notes payable ............................... 1,620 8,500 Other liabilities ........................... 147 898 -------- -------- Total current liabilities ........... 61,407 53,473 Long-term debt ................................... 217,873 166,202 Accrued postretirement benefits .................. 13,487 12,400 Deferred income taxes ............................ 14,976 5,848 Other liabilities ................................ 4,168 4,408 Minority interest ................................ -- 52,104 Commitments and contingencies .................... -- -- Stockholders' Equity: Preferred stock, $.01 par value; 5,000,000 shares authorized;none issued or outstanding....... -- -- Common stock, $.01 par value; 60,000,000 shares authorized; 21,407,223 and 19,681,458 shares issued and outstanding at June 30, 1996 and 1995, respectively ......................... 214 197 Additional paid-in capital .................... 61,285 45,040 Deferred stock compensation ................... (2,373) -- Cumulative translation adjustment ............. (683) -- Retained earnings ............................. 82,445 39,384 -------- -------- Total stockholders' equity ................. 140,888 84,621 -------- -------- Total liabilities and stockholders' equity.. $452,799 $379,056 ======== ======== See accompanying notes.
See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Year Ended June 30 --------------------------------- 1996 1995 1994 --------- -------- --------- OPERATING ACTIVITIES Net income ................................. $ 43,061 $ 21,712 $ 12,968 Adjustments to reconcile net income to net cash provided by operating activities: Extraordinary loss, net of tax benefit .. 3,949 -- -- Minority interest ....................... 16,628 23,223 8,291 Depreciation ............................ 25,212 23,784 24,613 Amortization ............................ 1,481 2,113 2,009 Deferred income taxes ................... 8,797 4,179 2,743 Other ................................... 1,523 1,915 2,583 Changes in operating assets and liabilities: Accounts receivable ................... (22,700) (4,709) 4,702 Inventories ........................... (27,609) 3,099 17,683 Prepaid expenses and other assets ..... (3,325) (1,124) 1,463 Accounts payable and other current liabilities ....................... 13,043 3,595 9,333 --------- -------- -------- Net cash provided by operating activities ... 60,060 77,787 86,388
INVESTING ACTIVITIES Acquisition of Temming Business ............. (27,114) -- -- Purchase of minority interest in BFLP ....... (62,078) -- -- Purchases of property, plant and equipment .. (34,807) (24,922) (15,725) Purchases of short-term investments ......... (2,920) (13,616) (14,743) Proceeds from sales of short-term investments 9,726 14,685 3,968 Other ....................................... (954) (1,074) 704 --------- -------- -------- Net cash used in investing activities ....... (118,147) (24,927) (25,796)
FINANCING ACTIVITIES Proceeds from sales of equity interests ..... 13,149 81 6,600 Proceeds from revolving line of credit and long-term debt ......................... 237,553 8,500 6,000 Payments for debt issuance costs ............ (5,506) -- -- Distribution to minority interest ........... (1,590) (4,598) (2,895) Principal payments on revolving line of credit, long-term debt and other ....... (197,181) (52,155) (74,383) --------- -------- -------- Net cash provided by (used in) financing activities ................... 46,425 (48,172) (64,678) Effect of foreign currency rate fluctuations on cash ................................ (127) -- -- --------- -------- -------- Increase (decrease) in cash and cash equivalent ............................. (11,789) 4,688 (4,086) Cash and cash equivalents at beginning of year ................................... 11,789 7,101 11,187 --------- -------- -------- Cash and cash equivalents at end of year .... $ -- $ 11,789 $ 7,101 ========= ======== ========
See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES
Business Description and Basis of Presentation ---------------------------------------------- The financial statements as of and for the year ended June 30, 1996 are consolidated financial statements of Buckeye Cellulose Corporation and its subsidiaries (the Company). The financial statements as of and for the year ended June 30, 1995 and 1994 are combined consolidated financial statements of Buckeye Cellulose Corporation (BCC) and Buckeye Florida Corporation (BFC). All significant intercompany accounts and transactions have been eliminated in consolidation and combination.
Under an agreement dated March 16, 1993, Madison Dearborn Capital Partners (MDCP) and members of the Company's current management organized BCC and BFC to acquire the assets comprising the cotton linter and wood pulp businesses, and certain assets of the headquarters of the Cellulose & Specialties Division of The Procter & Gamble Cellulose Company (P&GCC). BFC served as the sole general partner of and held a 50% interest in Buckeye Florida, Limited Partnership (BFLP), which operated the wood pulp business located in Perry, Florida (the Foley Plant). P&GCC retained a limited partnership interest in the wood pulp business and granted BFC an option to purchase P&GCC's limited partnership interest (the P&G Call Option). On November 28, 1995, shareholders of BFC exchanged all of their outstanding common stock for common stock of BCC and BFC became a wholly-owned subsidiary of the Company. Concurrently, through the exercise of the P&G Call Option, the Company and its subsidiaries redeemed and/or acquired the limited partnership interest in BFLP for $62,078,000 in cash.
The Company manufactures and distributes a broad variety of wood and cotton linter-based specialty pulps used in numerous applications including disposable diapers, engine air and oil filters, food casings, rayon textile filament, tapes, thickeners, and papers.
Cash and Cash Equivalents ------------------------- The Company considers cash equivalents to be temporary cash investments with a maturity of three months or less when purchased.
Short-term Investments ---------------------- Short-term investments consist primarily of government backed securities and commercial paper of an investment grade. Included in short-term investments is a $2,900,000 certificate of deposit which the Company has pledged as collateral to secure loans obtained by certain officers of the Company.
Inventories ----------- Pulpwood, raw cotton lint inventories, the lint component of finished linter pulp, chemicals and storeroom supplies are stated at lower of cost (determined on the average cost method) or market. The remaining components of finished pulp, including other raw materials, labor and overhead are stated at lower of cost (determined on a first-in, first-out basis) or market.
Property, Plant and Equipment ----------------------------- Property, plant and equipment is stated at cost. The cost of maintenance, repairs, and minor renewals and improvements are expensed as incurred. The cost of major renewals and improvements are capitalized. Depreciation is computed by the straight-line method over the following estimated useful lives: buildings - 30 to 40 years; machinery and equipment - 5 to 13 years.
Intangible Assets ----------------- Goodwill is amortized by the straight-line method over thirty years. Deferred debt costs are amortized by the interest method over the life of the related debt. Goodwill is net of accumulated amortization of $1,854,000 and $1,430,000 and deferred debt costs are net of accumulated amortization of $531,000 and $1,191,000 at June 30, 1996 and 1995, respectively. Non-compete agreements are amortized over the agreement term using the straight-line method. Non-compete agreements are net of accumulated amortization of $123,000 at June 30, 1996 and are included in deferred debt costs and other on the consolidated balance sheet.
Income Taxes ------------ The Company has provided for income taxes under the provisions of Statement of Financial Accounting Standards No. 109. Accounting for Income Taxes. Accordingly, deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
Credit Risk ----------- The Company generally obtains credit insurance or requires the customer to provide a letter of credit for export sales. Credit limits have been established for each domestic customer and those foreign customers where credit insurance is not available. Credit limits are monitored routinely. It is not the Company's policy to require collateral or other security for domestic or foreign sales.
Environmental Costs ------------------- Liabilities are recorded when environmental assessments are probable, and the cost can be reasonably estimated. Generally, the timing of these accruals coincides with the earlier of completion of a feasibility study or the Company's commitment to a plan of action based on the then known facts.
Revenue Recognition ------------------- Revenues are recognized when title to the goods passes to the customer. Net sales is comprised of sales reduced by sales allowances and distribution costs.
Foreign Currency Translation ---------------------------- Company management has determined that the local currency of its German subsidiary is the functional currency, and accordingly Deutsche mark denominated balance sheet accounts are translated into United States dollars at the rate of exchange in effect at fiscal year end. 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 generally accepted accounting principles 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.
Earnings Per Share ------------------ Earnings per share have been computed based on the weighted average number of common shares and common stock equivalent shares outstanding during the period. Common stock equivalents represent the dilutive effect of the assumed exercise of outstanding stock options. Fully diluted earnings per share are not materially different from primary earnings per share, and accordingly are not presented.
Historical Earnings Per Share ----------------------------- Earnings per share have not been presented for years prior to June 30, 1996, as they are not considered relevant.
Recently Issued Accounting Standards ------------------------------------ During 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS 123) effective for fiscal years beginning after December 15, 1995. SFAS 123 provides companies with the option of recognizing expense for stock-based awards based on their fair value on the date of grant or providing pro forma disclosures of net income and earnings per share, had the new fair value method been used. The Company anticipates that it will elect the pro forma disclosure option.
During 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of (SFAS 121) effective for fiscal years beginning after December 15, 1995. SFAS 121 addresses the accounting for the impairment of long-lived assets, such as property, plant and equipment, identifiable intangibles including patents and trademarks, and goodwill related to those assets. It specifies when assets should be reviewed for impairment, methods to determine if an asset is impaired, methods to measure an impairment loss, and necessary disclosures in the financial statements. SFAS 121 also requires that long-lived assets and identifiable intangibles (except for assets of a discontinued operation) held for disposal be accounted for at the lower of cost or fair value less cost to sell. The Company does not anticipate that the implementation of SFAS 121 will have a material impact on the financial position or results of operations of the Company.
Reclassifications ----------------- Certain amounts in the 1994 and 1995 financial statements have been reclassified to conform with the 1996 financial statement presentation.
2. BUSINESS COMBINATIONS
The acquisition of the P&GCC limited partnership interest has been recorded using the purchase method of accounting. The allocation of the purchase price is based on the respective fair value of assets and liabilities and resulted in an increase to property, plant and equipment of $4,098,000 and a reduction in goodwill of $9,951,000. The operations of BFLP are consolidated in the accompanying financial statements and the limited partnership interest is recorded as a minority interest prior to the date of acquisition/redemption.
Effective May 1, 1996, Buckeye Cellulose GmbH, a wholly owned subsidiary of the Company, purchased the property, plant, equipment and inventories of the specialty pulp business of Peter Temming AG (the Temming Business) in Gluckstadt, Germany for $27,114,000 in cash plus assumed liabilities of $2,994,000. The acquisition was accounted for using the purchase method of accounting. The allocation of the purchase price is based on the respective fair value of assets and liabilities at the date of acquisition.
Temming purchase price allocation (in thousands):
Inventory................................... $11,721 Property, plant and equipment............... 16,870 Non-compete agreement....................... 1,517 ------- $30,108 =======
The operating results of the Temming Business have been included in the consolidated statement of income from the date of acquisition. At June 30, 1996, the net assets of Buckeye Cellulose GmbH were $29,870,000.
The following unaudited pro forma results of operations assume the acquisition/redemption of P&GCC's limited partnership interest in BFLP, the related refinancing transactions, and the acquisition of the Temming Business occurred as of the beginning of the periods presented.
Pro forma results of operations: Year Ended June 30 ------------------------ 1996 1995 -------- -------- (In thousands, except per share data)
Net sales ........................... $521,681 $464,224 Income before extraordinary loss .... 54,824 34,807 Net income .......................... 50,875 30,858 Earnings per common share: Income before extraordinary loss.. 2.60 Net income ....................... 2.41
The pro forma information is presented for information purposes only and is not necessarily indicative of the operating results that would have occurred had the business combinations been consummated as of the above dates, nor is it necessarily indicative of future operating results.
3. INVENTORIES
Components of inventories (in thousands):
June 30 ----------------------- 1996 1995 ---------- --------- Raw materials..................... $ 20,340 $ 9,317 Finished goods.................... 65,276 36,887 Storeroom and other supplies...... 15,412 15,743 -------- ------- $101,028 $61,947 ======== =======
4. ACCRUED EXPENSES
Components of accrued expenses (in thousands):
June 30 ------------------------ 1996 1995 ---------- ---------- Retirement plans.................. $11,212 $12,731 Vacation pay...................... 3,287 3,003 Maintenance accrual............... 9,482 3,527 Sales program accrual............. 3,268 3,154 Other............................. 9,165 5,522 ------- ------- $36,414 $27,937 ======= =======
5. DEBT
Long-term debt (in thousands): June 30 ---------------------- 1996 1995 -------- -------- 8 1/2% Senior Subordinated Notes due December 15, 2005 ....................... $149,460 $ -- 10 1/4% Senior Notes due May 15, 2001 ......... 6,913 64,720 10% Class A Senior Secured Notes due March 16, 2000 .......................... -- 26,000 12% Subordinated Secured Notes due March 16, 2003 .......................... -- 75,000 Credit Facility ............................... 61,500 -- Other ......................................... -- 482 -------- -------- $217,873 $166,202 ======== ========
The Company completed a public offering of $150,000,000 principal amount of 8 1/2% Senior Subordinated Notes due December 15, 2005 (the Subordinated Notes) during November 1995, which were sold for 99.626% of their principal amount. The Subordinated Notes are unsecured senior subordinated obligations and are subordinated in right of payment to the prior payment in full of all senior indebtedness, including the indebtedness under the Credit Facility and the outstanding 10 1/4% Senior Notes due May 15, 2001 (the Senior Notes). A portion of the proceeds from the Subordinated Notes were used to retire $45,594,000 of the Senior Notes, resulting in an extraordinary loss of $3,228,000, net of tax benefit.
The Subordinated Notes are redeemable at the option of the Company, in whole or in part, at any time on or after December 15, 2000, at the redemption prices (expressed as percentages of principal amount) set forth below, if redeemed during the 12-month period beginning December 15 of the years indicated below, in each case together with accrued and unpaid interest to the date of redemption.
Subordinated Notes redemption: Price ----- 2000......................................... 104.25% 2001......................................... 102.83 2002......................................... 101.41 2003 and thereafter.......................... 100.00
The Company also entered into a new credit facility (the Credit Facility) concurrent with the issuance of the Subordinated Notes, providing for borrowings up to $135,000,000 less the outstanding principal amount of Senior Notes in excess of $5,000,000. The Credit Facility matures November 27, 2000, and beginning January 1, 1998, availability reduces by $3,750,000 per quarter. The interest rate applicable to borrowings under the Credit Facility is the agent's prime rate or a LIBOR based rate ranging from LIBOR plus 0.5% to 1.0%. Borrowings at June 30, 1996 were at an average rate of 6.02%. Letters of credit issued through the Credit Facility of $932,000 are outstanding at June 30, 1996. The amount available for borrowing under the Credit Facility is $70,655,000 at June 30, 1996.
The Senior Notes are unsecured obligations and are equal (pari passu) in the right of payment with all existing and future indebtedness of the Company which is not subordinated indebtedness. During the year ended June 30, 1996, the Company purchased and retired $57,807,000 of its Senior Notes.
The Senior Notes are redeemable at the option of the Company, in whole or in part, at any time on or after May 15, 1998, at the redemption prices (expressed as percentages of principal amount) set forth below, if redeemed during the 12-month period beginning May 15 of the years indicated below, in each case together with accrued and unpaid interest to the date of redemption.
Senior Notes redemption: Price ----- 1998......................................... 103.875% 1999......................................... 101.937 2000 and thereafter.......................... 100.000
Under the terms of the long-term debt agreements, the Company is required to comply with certain covenants including minimum net worth, interest coverage ratios, and limitations on restricted payments and levels of indebtedness. At June 30, 1996, the amount of retained earnings available for the payment of dividends was approximately $32,643,000 under the most restrictive of these agreements. The Company Stock Repurchase (see Note 16) reduced the amount available for the payment of dividends by $25,000,000.
The Company has a revolving credit line of approximately $8,900,000 with a financial institution at a rate of interest equal to the bank's prime discount rate (7.5% at June 30, 1996). The outstanding balance under this revolving line of credit was $1,620,000 at June 30, 1996 and is classified as notes payable in the consolidated balance sheet. Letters of credit issued through the revolving line of credit of $2,271,000 are outstanding at June 30, 1996. The revolving line of credit expires April 30, 1997.
Total interest paid by the Company for the years ended June 30, 1996, 1995, and 1994 was $17,460,000, $21,755,000, and $25,866,000, respectively.
6. STOCKHOLDERS' EQUITY
Immediately prior to the Company's initial public offering of its Common Stock, the previously outstanding Class A Common and Class B Common of BCC and BFC were converted into shares of Common Stock of the Company. The aggregate number of shares of Common Stock issued to the holders of Class A Common and Class B Common, respectively, was determined based on the accreted liquidation preference of the Class A Common at the time of conversion and the total equity valuation of the Company. The Company also effected an approximate 9.2:1.0 stock split. Share and per share amounts presented have been restated to reflect the conversion and stock split, with an offsetting adjustment to additional paid-in capital.
In November 1995, 8,222,500 shares of Common Stock were sold through an initial public offering of the Company's Common Stock. Of the 8,222,500 shares, 7,475,000 were shares sold by a selling stockholder and the remaining 747,500 shares were issued and sold by the Company. Net proceeds to the Company were $12,819,000, net of underwriting discounts and expenses associated with the offering. The proceeds were used to retire $12,213,000 (principal amount) of Senior Notes in January 1996, resulting in an extraordinary loss of 721,000, net of tax benefit. If the retirement of Senior Notes, using the net proceeds to the Company of the offering, were assumed to have taken place at the beginning of the current fiscal year, net income per share would have been reduced by $.01 per share.
The Company's Stock Option Plans (the Option Plans) provide for the granting of either qualified or nonqualified stock options. Options are subject to terms and conditions determined by the Compensation Committee of the Board of Directors, and generally are exercisable in increments of 20% per year beginning one year from date of grant and expire ten years from date of grant.
Option Plan activity: Year Ended June 30 ---------------------------- 1996 1995 ----------- ----------- Outstanding at beginning of year ......... 978,265 1,245,491 Granted .................................. 1,070,000 -- Exercised ................................ 978,265 267,226 --------- --------- Outstanding at end of year ............... 1,070,000 978,265 ========= =========
Exercisable at end of year ............... -- 283,940 ========= ========= Shares reserved for future grants ........ 1,380,000 -- ========= =========
Options outstanding as of June 30, 1996 were at exercise prices ranging from $15.19 to $25.50 per share. Options exercised were at share prices ranging from $0.18 to $1.22 in both 1996 and 1995.
In connection with the grant of certain stock options to employees in 1996, the Company recorded deferred stock compensation of $2,478,000 for the difference between the fair value at the date of grant and the option price. Such amount is presented as a reduction of stockholders' equity and is amortized over the vesting period of the related stock options.
7. INCOME TAXES
Provision for income taxes (in thousands):
Year Ended June 30 -------------------------------- 1996 1995 1994 ------- ------- ------ Current: Federal.............. $15,701 $7,256 $4,366 State and other...... 1,034 1,035 144 ------- ------- ------- 16,735 8,291 4,510 Deferred: Federal.............. 8,414 3,652 2,499 State................ 383 527 244 ------- ------- ------- 8,797 4,179 2,743 ------- ------- ------- $25,532 $12,470 $7,253 ======= ======= =======
Significant components of the Company's deferred tax assets (liabilities) are as follows (in thousands):
Deferred tax assets (liabilities): June 30 ------------------------ 1996 1995 --------- --------- Deferred tax liabilities: Depreciation ........................ $(24,807) $(5,934) Investment in partnership ........... -- (7,454) Other ............................... (2,210) (456) -------- -------- (27,017) (13,844) Deferred tax assets: Postretirement benefits ............. 4,786 1,399 Inventory costs ..................... 843 359 State tax credit .................... 507 452 Alternative minimum tax credit ...... 1,902 4,984 Net operating loss .................. 1,598 -- Nondeductible reserves .............. 5,196 332 Other ............................... 434 1,011 -------- -------- 15,266 8,537 -------- -------- $(11,751) $(5,307) ======== ========
The provision for income taxes differs from the amount computed by applying the statutory federal income tax rate of 35% to income before income taxes and extraordinary loss due to the following (in thousands):
Rate analysis: Year Ended June 30 ----------------------------------- 1996 1995 1994 -------- -------- -------- Expected tax expense .............. $25,390 $11,964 $7,077 State taxes ....................... 857 693 426 Foreign sales corporation ......... (2,112) -- -- Nondeductible items ............... 681 -- -- Other ............................. 716 (187) (250) ------- ------- ------- $25,532 $12,470 $7,253 ======= ======= =======
The Company paid income taxes of $16,832,000, $6,884,000, and $7,040,000 during the years ended June 30, 1996, 1995 and 1994, respectively.
The Company's state tax credit carryforward expires at varying dates through 2011, and its alternative minimum tax credit carryforward has no expiration date. The Company has a foreign net operating loss carryforward of approximately $3,200,000 which has no expiration date.
The Company's extraordinary loss of $3,949,000 is net of an income tax benefit of $2,383,000.
8. EMPLOYEE BENEFIT PLANS
The Company has a defined contribution retirement plan covering U.S. employees. The Company contributes 1% of the employee's base compensation plus 1/2% for each year of service up to a maximum of 11% of the employee's base compensation. The plan also provides for additional contributions by the Company contingent upon the Company's results of operations. Contribution expense for the retirement plan for the years ended June 30, 1996, 1995 and 1994 was $7,424,000, $7,125,000, and $6,336,000, respectively.
In conjunction with the acquisition of the Temming Business, the Company assumed a pension obligation for a defined benefit pension plan which is available to employees of Buckeye Cellulose GmbH who have reached the age of 20. Benefits under the plan are primarily based on years of service, employees' compensation prior to retirement, and expected increases in benefit payments pursuant to German law. The Company has elected not to fund the pension liability as of June 30, 1996 as allowed by German law. The liability at June 30, 1996 was $551,000.
Also, the Company provides medical, dental, and life insurance postretirement plans covering U.S. employees who meet specified age and service requirements. Certain employees who met specified age and service requirements on March 15, 1993 are covered by the Procter & Gamble plans and are not covered by these plans. The Company has accounted for its obligation related to these plans in accordance with Statement of Financial Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions.
The Company's current policy is to fund the cost of these benefits as payments to participants are required.
Accrued postretirement benefits (in thousands): June 30 --------------------- 1996 1995 -------- -------- Accumulated postretirement benefits: Eligible active plan participants ..... $ 146 $ 115 Retirees .............................. 84 56 Other active plan participants ........ 8,022 6,476 ------- ------- 8,252 6,647 Unrecognized gain from plan amendments ..... 5,906 6,556 Unrecognized net loss ...................... (1,222) (803) ------- ------- $12,936 $12,400 ======= =======
Postretirement benefits (in thousands):
Year Ended June 30 ------------------------------------ 1996 1995 1994 --------- --------- -------- Service cost................ $ 598 $ 539 $ 720 Interest cost............... 578 487 891 Amortization................ (640) (650) -- ------- ------- ------ $ 536 $ 376 $1,611 ======= ======= ======
The Company amended its postretirement plans effective July 1, 1994. The amendments changed the plans' eligibility requirements and benefit schedules, created required retiree contributions, and implemented limits on the Company's postretirement benefit costs. The effect of the amendments was to reduce the accumulated postretirement benefit obligation by approximately $7,206,000 at July 1, 1994. The reduction in the accumulated postretirement benefit obligation is being recognized as a reduction to net periodic postretirement benefit cost over approximately eleven years, the average remaining service of active participants not yet eligible for benefits.
The weighted average annual assumed rate of increase in the per capita cost of covered benefits (i.e. health care cost trend rate) for the medical plans is 10.0% for 1997 and is assumed to decrease gradually to 5.5% in 2004 and remain level thereafter. Due to the benefit cost limitations in the plan, the health care cost trend rate assumption does not have a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rate by one percentage point would increase the accumulated postretirement benefit obligation as of June 30, 1996 by $79,000 and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year ended June 30, 1996 by $5,000.
The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7.5% and 8% at June 30, 1996 and 1995, respectively.
9. SIGNIFICANT CUSTOMER
The Company has entered into an agreement whereby Procter & Gamble will purchase a specified tonnage of fluff pulp from the Company each year. The agreement expires on December 31, 2002. Shipments of fluff pulp under the agreement are made to Procter & Gamble affiliates worldwide, as directed by Procter & Gamble. Net sales to Procter & Gamble for the years ended June 30, 1996, 1995 and 1994 were $171,819,000, $157,901,000, and $148,196,000, respectively.
10. EXPORT SALES
Gross export sales by U.S. operations as a percent of total gross sales are as follows:
U.S. Export Sales: Year Ended June 30 --------------------------------- 1996 1995 1994 -------- -------- -------- Europe....................... 32% 30% 35% Asia......................... 23 26 22 Other........................ 14 14 13 -- -- -- 69% 70% 70% == == ==
11. RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses of $3,471,000, $3,044,000, and $2,960,000 were charged to expense as incurred for the years ended June 30, 1996, 1995, and 1994, respectively.
12. PURCHASE COMMITMENTS
At June 30, 1996, under four separate agreements expiring at various dates through December 31, 2002, the Company is required to purchase certain timber from specified tracts of land that is available for harvest. At the option of the Company, certain of these timber purchase commitments may be extended through December 31, 2010. The contract price under the terms of these agreements is either at the then current market price or at fixed prices as stated in the contract. The fixed and determinable purchase obligations related to these contracts, based on contract prices as of June 30, 1996, are as follows (in thousands):
Timber purchase commitments: Amounts --------- 1997................................... $19,519 1998................................... 17,854 1999................................... 16,491 2000................................... 15,322 2001................................... 12,699 Thereafter............................. 15,617 ------- $97,502 =======
Purchases under these agreements for the years ended June 30, 1996, 1995 and 1994 were $25,443,000, $21,819,000, and $18,644,000, respectively.
13. CONTINGENCIES
Procter & Gamble has been named as a defendant in 21 lawsuits involving approximately 188 individual plaintiffs claiming unspecified compensatory and punitive damages, costs and legal fees for alleged diminished property value and fear of illness asserting that the Foley Plant discharged toxic pollutants into the nearby Fenholloway River and into treatment ponds from which the pollutants allegedly entered and contaminated the underground water. In November 1995, by order of the federal court, all but four individual cases were dismissed for lack of federal jurisdiction. This dismissal is not a decision on the merits of the individual cases, and the claims may be refiled in state court within applicable statutes of limitations. The Company assumed the obligation for any costs related to this matter on the date of the acquisition of the Foley Plant. The Company intends to vigorously defend these suits and contends that the discharge from the Foley Plant is in compliance with federal and state permits.
Additionally, the Company is subject to various state and federal environmental laws and regulations. The Company has reached an agreement (the Fenholloway Agreement) with the Florida Department of Environmental Regulation based upon the results of an environmental study of the Company's operations. Compliance with the Fenholloway Agreement will require the Company to invest approximately $39,000,000 through 1999 to modify its facilities. In addition to the cost of compliance with the Fenholloway Agreement, the cost of future compliance with other environmental regulations will depend on environmental regulations which are subject to change and the subsequent definition of the necessary technology to meet the changing regulations. Therefore, it is
difficult to determine the total amount of expenditures that may be required in the future. However, the Company estimates that capital spending for environmental compliance based on certain regulations expected to be promulgated in addition to compliance with the Fenholloway Agreement could be approximately $14,000,000 through the year 2000.
As of June 30, 1996, the Company has established reserves of $4,200,000 for certain environmental matters. Based on current information and requirements, the Company believes that such reserves are adequate. Because an environmental reserve is not established until a liability is determined to be probable and reasonably estimable, not all potential future environmental liabilities are covered by the Company's reserves. Accordingly, there can be no assurance that the Company's environmental reserves will be sufficient to meet the Company's obligations, and additional earnings charges are possible.
The Foley Plant is on the EPA CERCLIS list of potential hazardous substance release sites prepared pursuant to CERCLA. The EPA conducted a site investigation in early 1995. Although the Company considers it unlikely that the Foley Plant will be listed on the CERCLA National Priorities List and hence require remedial action, the possibility of such listing cannot be ruled out. If the site were to be placed on the National Priorities List, the costs associated with conducting a CERCLA remedial action could be material.
The Company is involved in certain legal actions and claims arising in the ordinary course of business. It is the opinion of management that such litigation and claims will be resolved without material adverse effect on the Company's financial position or results of operation.
14. FAIR VALUES OF FINANCIAL INSTRUMENTS
For certain of the Company's financial instruments, including cash and cash equivalents, short-term investments, accounts receivable, accounts payable, other accrued liabilities and notes payable, the carrying amounts approximate fair value due to their short maturities. The fair value of the Company's long-term debt is based on an average of the bid and offer prices at year-end. The carrying value and fair value of long-term debt at June 30, 1996 were $217,873,000 and $209,924,000, respectively, and at June 30, 1995 were $166,202,000 and $176,076,000, respectively.
15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data) First Second Third Fourth Quarter Quarter Quarter Quarter -------- ------- ------- ------- Year Ended June 30, 1996: Net sales ......................... $ 108,566 $ 117,013 $113,246 $132,154 Gross margin ...................... 33,495 33,801 34,380 33,927 Operating income .................. 27,303 27,872 28,004 25,388 Income before extraordinary loss .. 7,737 9,902 15,513 13,858 Net income ........................ 7,737 6,674 14,792 13,858 Earnings per share: Income before extraordinary loss 0.37 0.47 0.72 0.65 Extraordinary loss ............. (0.15) (0.03) -- Net income ..................... 0.37 0.32 0.69 0.65
Year Ended June 30, 1995: Net sales ......................... $ 93,934 $ 103,153 $104,231 $107,269 Gross margin ...................... 20,697 24,560 25,814 32,366 Operating income .................. 14,974 19,104 20,547 24,547 Net income ........................ 3,967 4,905 5,592 7,248
16. SUBSEQUENT EVENTS
On July 2, 1996, BKI Investment Corp., a newly formed, wholly-owned subsidiary of the Company, purchased 2,259,887 shares of Common Stock from MDCP for $22.125 per share (the Company Stock Repurchase) for an aggregate purchase price of $50,000,000. Additionally, on July 2, 1996, MDCP sold to certain individuals employed by the Company and their related trusts, in an exempt transaction under the Securities Act of 1933, as amended, an aggregate of 1,385,269 shares of Common Stock for $22.125 per share (the Individuals' Stock Purchase). The purchase price for the Company Stock Repurchase and the Individuals' Stock Purchase reflected the prevailing market price when the parties decided to pursue definitive agreements and sought board approval.
Concurrently with the completion of the Company Stock Repurchase and the Individuals' Stock Purchase, MDCP sold 2,887,935 shares of Common Stock in a public offering and the Company issued and sold $100,000,000 principal amount of 9 1/4% Senior Subordinated Notes due 2008. Upon completion of the equity offering, the Company Stock Repurchase and the Individuals' Stock Purchase, the Company had 19,147,336 shares of Common Stock outstanding, and MDCP's ownership percentage was less than five percent. The proceeds of the 9 1/4% Senior Subordinated Notes were used to fund the Company Stock Repurchase and together with borrowings under the Credit Facility, to acquire the stock of Alpha Cellulose Holdings, Inc. (Alpha) on September 1, 1996, for an aggregate purchase price of approximately $63,000,000 in cash plus assumed liabilities. Alpha is a specialty pulp manufacturer in Lumberton, North Carolina with net sales in the year ended December 31, 1995 of approximately $50,000,000.
In August 1996, the Company's Board of Directors authorized the repurchase of up to one million shares of its common stock from time to time on the open market or in privately negotiated purchases.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
The Company has had no changes in or disagreements with its independent auditors to report under this item.
PART III
ITEM 10.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to Directors and Executive Officers is set forth on pages 4 through 5 in the Company's 1996 Annual Proxy Statement and is incorporated herein by reference.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
Information relating to Executive Compensation is set forth under the caption "Executive Compensation" on pages 7 through 8 and under the caption "Report of the Compensation Committee" on page 6 in the Company's 1996 Annual Proxy Statement and is incorporated herein by reference.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information relating to Security Ownership of Certain Beneficial Owners and Management is set forth under the caption "Security Ownership of Certain Beneficial Owners" on pages 2 through 3 in the Company's Annual Proxy Statement and is incorporated herein by reference.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to Certain Relationships and Related Transactions is set forth under the caption "Certain Relationships and Related Transactions" in the Company's 1996 Annual Proxy Statement on page 10 and is incorporated herein by reference.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements - See Item 8 of Part II herein.
(2) Financial Statement Schedule
- Schedule II - Valuation and Qualifying Accounts. See page 39 of this document.
- All other financial statement schedules are omitted as the information is not required or because the required information is presented in the financial statements or the notes thereto.
(3) Listing of Exhibits
3.1 Amended and Restated Certificate of Incorporation of the Registrant, as amended through November 20, 1995 *
3.2 Amended and Restated By-laws of the Registrant *
10.1 Asset Purchase Agreement dated March 16, 1993 by and between the Registrant and The Procter & Gamble Cellulose Company. **
10.2 Management Stock Subscription Agreement and the Addendum thereto dated March 22, 1994 by and between the Registrant and Robert E. Cannon. ***
10.3 Management Stock Subscription Agreement and the Addendum thereto dated March 22, 1994 by and between the Registrant and David B. Ferraro. ***
10.4 Management Stock Subscription Agreement and the Addendum thereto dated March 22, 1994 by and between the Registrant and Herman P. van Eck. ***
10.5 Management Stock Subscription Agreement and the Addendum thereto dated March 22, 1994 by and between the Registrant and George B. Ellis. ***
10.6 1994 Incentive Stock Option Plan for Management Employees of The Buckeye Cellulose Corporation dated March 22,1994.***
10.7 Incentive Stock Option Subscription Agreement dated March 22, 1994 by and between the Registrant and Robert E. Cannon. ***
10.8 Incentive Stock Option Subscription Agreement dated March 22, 1994 by and between the Registrant and David B. Ferraro. ***
10.9 Incentive Stock Option Subscription Agreement dated March 22, 1994 by and between the Registrant and Herman P. van Eck. ***
10.10 Incentive Stock Option Subscription Agreement dated March 22, 1994 by and between the Registrant and George B. Ellis. ***
10.11 Stockholder Agreement dated March 22, 1994 by and between the Registrant, Madison Dearborn Capital Partners L.P. and each of the named "Executives". ***
10.12 Registration Agreement and the Addendum thereto, dated March 22, 1994 by and between the Registrant, Madison Dearborn Capital Partners L.P. and the named "Executives". ***
10.13 Pulp Supply Agreement dated as of March 16, 1993 by and between Buckeye Florida, Limited Partnership and The Procter & Gamble Company. Certain portions of the Agreement have been omitted and filed separately with the Commission pursuant to an Application for Confidential Treatment dated October 30, 1995, as supplemented on November 14, 1995 and November 21, 1995. *
10.14 Timberlands Agreement dated as of March 16, 1993 by and between Buckeye Florida, Limited Partnership and The Procter & Gamble Company. Certain portions of the Agreement have been omitted and filed separately with the Commission pursuant to an Application for Confidential Treatment dated October 30, 1995, as supplemented on November 14, 1995 and November 21, 1995. *
10.15 Timber Purchase Agreement dated as of March 16, 1993 by and between Buckeye Florida, Limited Partnership and The Procter & Gamble Company. Certain portions of the Agreement have been omitted and filed separately with the Commission pursuant to an Application for Confidential Treatment dated October 30, 1995, as supplemented on November 14, 1995 and November 21, 1995. *
10.16 1994 Incentive Stock Option Plan for Management Employees of Buckeye Florida Corporation. *
10.17 Amended and Restated Registration Agreement by and among the Registrant, Madison Dearborn Capital Partners, L.P. and the named "Executives". *
10.18 Umbrella Agreement dated January 18, 1996 by and among Peter Temming AG--Specialty Pulp Business, Peter Temming AG, Steinbeis Temming Papier GmbH and Steinbeis Temming Papier GmbH & Co. ****
10.19 Asset Purchase Agreement dated as of March 16, 1993 between Buckeye Florida, Limited Partnership and The Procter & Gamble Cellulose Company. The Registrant agrees to furnish supplementally to the Commission a copy of any omitted schedule or exhibit to the Agreement upon request by the Commission. *
10.20 Agreement of Limited Partnership of Buckeye Florida, Limited Partnership dated as of March 16, 1993 between Buckeye Acquisition Corporation and The Procter & Gamble Cellulose Company. *
10.21 1996 Management Stock Option Plan of the Registrant. *
10.22 1995 Incentive and Nonqualified Stock Option Plan for Management Employees of the Registrant. *
10.23 Formof Management Stock Option Subscription Agreement. *
10.24 Form of Stock Option Subscription Agreement. *
10.25 Indenture dated as of May 27, 1993 between the Registrant and Bankers Trust Company. **
10.26 First Supplemental Indenture, dated as of November 21, 1995 between the Registrant and Bankers Trust Company to Indenture dated as of May 27, 1993. *****
10.27 Indenture dated as of November 28, 1995 between the Registrant and Union Planters National Bank. *****
10.28 Credit Agreement dated as of November 28, 1995 among the Registrant, certain subsidiaries of the Registrant, Fleet Bank of Massachusetts, N.A., SunTrust Bank, Central Florida, N.A. and the other lenders party thereto. *****
10.29 Stock Purchase Agreement dated April 26, 1996 among the Registrant, Stonebridge Partners Equity Fund, L.P., Alpha Cellulose Associates I, L.P., Alpha Cellulose Associates II, L.P., Stonebridge Partners Management, L.P., as nominee for P&C Venture Corp. and Dawkes Corporation, John P. Flanagan, Michael M. Brown, Janice S. Valenta, John F. Manning, Ken L. Wilcox, Albert A. Bounds, Jr., Ralph Bolin, Charles P. Oxendine and James R. Israelson. *****
10.30 The Formula Plan for Non-Employee Directors. *****
10.31 Amendment No. 1 to Credit Agreement dated as of April 25, 1996 among the Registrant, certain subsidiaries of the Registrant, Fleet Bank of Massachusetts, N.A., SunTrust Bank, Central Florida, N.A. and the other lenders party thereto. *****
10.32 Company Stock Repurchase Agreement dated as of June 3, 1996 between BKI Investment Corp. and Madison Dearborn Capital Partners, L.P. *****
10.33 Amendment No. 2 to Credit Agreement dated as of June 6, 1996, among the Registrant, certain subsidiaries of the Registrant, Fleet Bank of Massachusetts, N.A., SunTrust Bank, Central Florida N.A. and the other lenders party thereto. *****
10.34 Amendment No. 3 to Credit Agreement dated as of June 24, 1996, among the Registrant, certain subsidiaries of the Registrant, Fleet Bank of Massachusetts, N.A., SunTrust Bank, Central Florida N.A. and the other lenders party thereto. *****
21.1 Subsidiaries of the Registrant. *****
23.0 Consent of Ernst & Young LLP.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
During the quarter ended June 30, 1996, the following current reports were filed on Form 8-K
- Report dated May 2, 1996, pursuant to Item 2 and Item 7 of that form. No financial statements were filed as part of that report.
- Report dated May 10, 1996, pursuant to Item 7 of that form. Financial statements filed were: - Audited Financial Statements of Peter Temming Aktiengesellschaft--Specialty Pulp Business for the year ended December 31, 1995 - Pro Forma Financial Information
- - --------- * Incorporated by reference to the Registrant's Registration Statement on Form S-1, File No. 33-97836, as filed with the Securities and Exchange Commission on October 6, 1995 and as amended on October 30, 1995 and November 21, 1995.
** Incorporated by reference to the Registrant's Registration Statement on Form S-1, File No. 33-60032, as filed with the Securities and Exchange Commission on March 25, 1993 and as amended on April 7, 1993, May 4, 1993 and May 17, 1993.
*** Incorporated by reference to the Registrant's Annual Report on Form 10-K for the year ended June 30, 1994.
**** Incorporated by reference to the Registrant's Current Report on Form 8-K dated May 2, 1996.
*****Incorporated by reference to the Registrant's Registration Statement on Form S-3, File No. 333-05139, as filed with the Securities and Exchange Commission on June 4, 1996 and as amended on June 11, 1996 and June 27, 1996.
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 Cellulose Corporation
By: /s/ ROBERT E. CANNON Date: September 25, 1996 ---------------------- Robert E. Cannon Director, Chairman of the Board, Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: /s/ ROBERT E. CANNON Date: September 25, 1996 ---------------------- Robert E. Cannon Director, Chairman of the Board, Chief Executive Officer
By: /s/ DAVID B. FERRARO Date: September 25, 1996 ---------------------- David B. Ferraro Director, President, Chief Operating Officer
By: /s/ SAMUEL M. MENCOFF Date: September 25, 1996 ---------------------- Samuel M. Mencoff Director
By: /s/ HARRY J. PHILLIPS, SR. Date: September 25, 1996 ---------------------- Harry J. Phillips, Sr. Director
By: /s/ DAVID H. WHITCOMB Date: September 25, 1996 ---------------------- David H. Whitcomb Vice President, Comptroller
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
Column B Column C Column D Column E --------- -------------------- --------- -------- Additions -------------------- Balance Charged Charged Balance at to to at Beginning Costs Other (a) End of and Accounts- Deductions of Description Period Expenses Describe -Describe Period - - --------------------------------------------------------------------------------
YEAR ENDED JUNE 30, 1996: Deducted from asset accounts: Allowance for doubtful accounts................... $1,152 $-- $-- $172 $980 ====== ===== ====== ======= ======
YEAR ENDED JUNE 30, 1995 Deducted from asset accounts: Allowance for doubtful accounts .................. $2,494 $500 $-- $(1,842) $1,152 ====== ====== ====== ======= ======
YEAR ENDED JUNE 30, 1994 Deducted from asset accounts: Allowance for doubtful accounts .................. $1,291 $1,237 $-- $(34) $2,494 ====== ====== ====== ======= ======
- - ----------------------------------- (a) Uncollectible accounts written off, net of recoveries.