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Buckeye Technologies Inc. (BKI)

F3Q10 (Qtr End 03/31/10) Earnings Call

April 29, 2010 11:00 a.m. ET

Executives

John Crowe - Chairman and CEO

Kris Matula - President and COO

Steve Dean - SVP and CFO

Doug Dowdell - SVP, Specialty Fibers

Analysts

Gail Glazerman - UBS

Chip Dillon - Credit Suisse

Bill Hoffman - RBC Capital Markets

Presentation

Operator

Good day, ladies and gentlemen. Welcome to the Buckeye Technologies Incorporated third quarter earnings results conference call. (Operator Instructions)

At this time for opening remarks and introductions I will turn the conference over to Mr. Daryn Abercrombie, Investor Relations Manager.

Daryn Abercrombie

Thank you, (Diane). Good morning and welcome to Buckeye's conference call commenting on our results for the January to March quarter of 2010, our fiscal 2010 third quarter. Today I'm joined on this call by John Crowe, Chairman and Chief Executive Officer; Kris Matula, President and Chief Operating Officer; Steve Dean, Senior Vice President and Chief Financial Officer; and Doug Dowdell, Senior Vice President, Specialty Fibers.

After John and Steve make some introductory remarks, we will respond to your questions. Before we get started, however, I'd like to read our Safe Harbor statement. The matters discussed in this call include forward-looking statements that involve risks and uncertainties that may cause the company's actual results to differ materially from those projected in such forward-looking statements.

For further information on factors that could impact the company and statements contained herein, please refer to the slides accompanying this presentation, as well as the company's most recent annual report on Form 10-K and quarterly report on Form 10-Q. John.

John Crowe

Thank you, Daryn. Good morning. Buckeye's third quarter results improved compared to the previous quarter, and significantly improved when compared to the same quarter last year. However, our results were good. The organization had to overcome cold weather issues and related downtime early during the quarter at several of our manufacturing locations.

As we reported yesterday, third quarter net income was $19.3 million or $0.49 per share including the benefits of the alternative fuel mixture credits and the investment tax credits, offset by restructuring cost and expenses associated with early extinguishment of debt.

Excluding the special one-time items, adjusted net income was $11 million or $0.28 per share. This was our strongest quarter, excluding one-time items since the October-December quarter in 2007. Excluding the special items this quarter and in comparison quarters, our earnings per share for the just completed quarter of $0.28 compares favorably to earnings per share of $0.22 in the previous quarter, and $0.11 for the January-March quarter last year.

We are encouraged with the continuous improvement and positive trends in our business, and the significant (changes) in year-over-year market conditions. Net sales for the just completed quarter of $191 million compares to $172 million for the same period last year. $0.17 earnings per share improvement year-over-year was mostly due to increased shipment volume.

Compared to the second quarter, we benefited from improved demand for all our products, rising specialty and fluff pulp prices, and lower interest expense.

We reduced debt during the third quarter by $17 million to $273 million, exceeding our fiscal year and target of $275 million. Our cash position also increased by $6 million to $27 million. We expect to generate strong cash flow in the current quarter and should be in a position to be at or below our new $250 million debt target by the end of this fiscal year ending June 30.

Operating income from alternative fuel mixture credits carry over for quarter totaled $4.8 million. The AFMC credit expired at midnight, December 31. You will note on our balance sheet an income tax receivable of $74.4 million; most of this is related to the AFMC tax credit. Steve will provide more information on income tax receivables during his comments.

In March, Standard & Poor's recognized our continual improvement in leverage and operating performance by raising our rating to BB with a positive outlook. We are encouraged with the work we have done to reduce cost and improve margins. The positive EBITDA and earnings growth were also helped by significant improvements in marketing conditions this year compared to this time last year.

We still have a ways to go. As a key milestone we are pushing hard to drive our return on investment above our 11% cost of capital.

Now, Steve will review the supplemental reconciliation charge that were provided with the webcast and on the company's websites. Steve.

Steven Dean

Good morning. First of all, I'd like to say that it's always nice to be able to talk about a good quarter like the one we just completed. I was particularly pleased that our cash flow generation was so strong during the quarter that it allowed us to meet our debt reduction goal one quarter early.

I'd like to provide you with some color behind the quarter's financial results and focus on just a few of the supplement charge, comparing our results with the just completed January through March quarter, our fiscal third quarter, to the October-December quarter, which was our fiscal second quarter. We've also included several slides with comparisons against the year-ago quarter in the appendix for your reference.

Starting with slide number four, you'll see a consolidated earnings summary comparing our earnings for the just completed third quarter to the second quarter. First, let me walk you through the special items that impacted our reported third quarter earnings mostly on the positive side.

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