Buckeye

INITIATION | COMMENT
125 WEEKS Rel. S&P 500

360.00 240.00 180.00 120.00 2009 2010 2011 M J J A S O N D J F M A M J J A S O N D J F M A M J J A S 25.00 20.00 15.00
08MAY09 - 20SEP11 HI-16SEP11 416.60 LO/HI DIFF 344.40% CLOSE 404.80
SEPTEMBER 21, 2011
Buckeye Technologies Inc.

Bull's-eye on Buckeye
Outperform Average Risk
Price: 26.54 40.1 0.24 33.00 14.62 16.5% 10% Shares O/S (MM): Dividend: NAVPS: BVPS: ROE: Debt to Cap:
(NYSE: BKI)
LO-26JUN09 93.74 HI-08JUL11 29.45 LO/HI DIFF 589.69%
CLOSE
10.00
26.55
5.00 6000 4500 3000 1500
LO-15MAY09
4.27
PEAK VOL. 6790.0 VOLUME 743.1
RBC Dominion Securities Inc. Paul C. Quinn, B.Sc.F. (Analyst) (604) 257-7048; [email protected] Hamir Patel (Associate) (604) 257-7145; [email protected]
FY Jun Adj EPS - FD P/AEPS Adj EBITDA (MM) EV/EBITDA Adj EPS - FD 2010 2011 2012 Adj EBITDA (MM) 2010 2011 2012 2010A 1.37 19.4x 144.0 7.9x Q1 0.28A 0.71A 0.77E 31.0A 57.0A 60.0E 2011E 2.76 9.6x 225.0 5.0x Q2 0.26A 0.68A 0.78E 32.0A 58.0A 60.0E 2012E 3.18 8.3x 243.0 4.6x Q3 0.34A 0.68E 0.80E 36.0A 55.0E 61.0E 2013E 3.70 7.2x 265.0 4.3x Q4 0.50A 0.69E 0.82E 45.0A 56.0E 62.0E
Price Target: Implied All-In Return: Market Cap (MM): Yield: P/NAVPS: P/BVPS: Enterprise Val. (MM):
33.00 25% 1,064 0.9% 0.8x 1.8x 1,131
Event
We are initiating coverage on Buckeye with a rating of Outperform, Average Risk and $33 price target.
Investment Opinion
With pricing trending higher across all its products and solid underlying supply/demand fundamentals, we believe Buckeye represents an attractive investment opportunity. We see significant upside in Buckeye's: High leverage to specialty dissolving pulp (DP) Buckeyes leading position in specialty DP positions it to benefit from very strong prices and an attractive growth profile over the longer term. The company implemented price increases across its specialty pulp grades in early 2011 that should support a step-change in cash flow. Contract negotiations for next year are underway and we believe specialty wood DP producers may lock in further pricing gains of $150/mt (+9%) in 2012. Buckeye has no exposure to the volatile commodity grade DP market. Nonwovens segment poised for steady growth Buckeyes nonwovens segment looks poised to grow at 4% over the medium term due to strong demand for wipes, feminine hygiene products, and adult incontinence products. Clean balance sheet reduces risk Buckeye has delevered its balance sheet with net debt declining from $380MM at the end of 2008 to $66MM in Q211. Net debt to cap is only 10% and we anticipate the company will have a net cash position by Q213. Buybacks have re-started with room for dividend growth The company continues to return cash to shareholders with room to buy back 4.9MM shares remaining under its share-repurchase program and a $0.24/share dividend. We believe Buckeye will continue to make small step-up increases to its dividend over the next 12 months that could increase it to $0.36/sh by Q312. Our target on Buckeye is $33 per share supported by NAV. Our F2013 EPS estimate is 9% higher than Consensus Buckeye trades at a discount to its DP peers on 2012E EBITDA multiples. At only 4.8x NTM EBITDA, BKI is also trading 13% below its historical forward multiple of 5.5x. Target sensitive to specialty wood DP prices A $100/mt change in specialty wood DP prices compared to our forecast impacts annual EPS by $0.13 and has a $1 impact on our price target.
Priced as of prior trading day's market close, EST (unless otherwise noted). For Required Non-U.S. Analyst and Conflicts Disclosures, see page 33.
Adj EBITDA (MM): All results shown on a calendar basis. Adj EPS: All results shown on a calendar basis. Buckeye's fiscal year end is June 30.
All values in USD unless otherwise noted.
[email protected] IZET ELMAZI 06/28/12 11:26:44 AM Goodman & Company Investment C
September 21, 2011
Buckeye is a global leader in specialty dissolving pulp

We rate Buckeye Technologies shares Outperform, Average Risk for the following reasons: High leverage to strong specialty dissolving pulp (DP) markets Buckeyes leading position in specialty dissolving pulp (DP) positions it to benefit from very strong prices and an attractive growth profile over the longer term. The company implemented price increases across its specialty pulp grades in early 2011 that should support a step-change in cash flow. Contract negotiations for next year are underway and we believe producers of specialty wood DP may lock in further pricing gains of $150/mt (+9%) in 2012. Buckeye has no exposure to the volatile commodity-grade DP market. Nonwovens segment poised for steady growth Buckeyes nonwovens segment looks poised to grow at 4% over the medium term due to strong demand in emerging markets for wipes and feminine hygiene products, as well as the future growth in demand in the developed world for adult incontinence products as populations age. Clean balance sheet reduces risk Buckeye has delevered its balance sheet, with net debt declining from $380 million at the end of 2008 to $66 million in the second quarter of 2011. Net debt to total capitalization is only 10% and net debt to LTM EBITDA stands at 0.3x. We anticipate the company will have a net cash position by the second quarter of 2013. Share buybacks have re-started, with room for dividend growth The company continues to return cash to shareholders, with room to buy back 4.9 million shares remaining under its share-repurchase program and a dividend of $0.24 per share. We believe Buckeye will continue small step-up increases to the dividend in the next 12 months that could increase it to $0.36 per share by the third quarter of 2012. Attractive valuation metrics Buckeye trades at a discount to its dissolving pulp peers on 2012E EBITDA multiples. On a free cash flow basis, it is trading at 10.7x 2012E FCFPS. On a fiscal-year basis, our F2012 and F2013 EPS estimates of $2.92 and $3.42, respectively, are 6% and 9% higher than consensus. At only 4.8x NTM EBITDA, Buckeye is also trading 13% below its historical forward multiple of 5.5x. Scenario analysis suggests limited downside risk and strong upside potential While we are comfortable with our base case assumptions, if we assume a realistic bear/bull case for pricing and volume assumptions, our price target would be as low as $30 per share (bear case) but as high as $37 per share (bull case). We note that the vast majority of the companys earnings are immunized against increases in raw material prices through various cost pass-throughs for specialty pulp and nonwovens. Price target is $33, representing a 25% implied return Our 12-month price target of $33 is based on a blended 5.5x valuation multiple on our trend EBITDA estimate of $255 million (85%) and our 2012 EBITDA estimate of $243 million (15%). This value is supported by our estimate of Buckeyes net asset value at $33. Our price target is most sensitive to changes in the price of specialty wood DP; a $100/mt change in trend specialty wood DP prices, compared to our forecast, would have a $1/sh impact on our price target. The pace of the economic recovery is the main risk With only ~32% of the companys sales from the U.S., a slower than expected global economic recovery would reduce demand for all products. Leading economic indicators (including the manufacturing and non-manufacturing PMIs in the U.S.) have shown improvement in 2011 but remain relatively tepid. Demand and prices for pulp are relatively strong despite the recent inventory builds for paper-grade pulp. Interest rates are being kept very low by central banks around the world to support economic activity.
Exhibit 1: Buckeye revenue breakdown by segment (LHS) and earnings forecast (RHS)
Revenues by segment Earnings growth profile
$1,200 $1,000
$4.00 $3.50
30% 25%
Gross sales ($MM)
$600 $400 $200 $0 2010 2011E 2012E 2013E Trend
$2.50 $2.00 $1.50 $1.00 $0.50 $0.00 2010 2011E 2012E 2013E Trend
15% 10% 5% 0%
Fluff Specialty wood DP
Specialty cotton DP Nonwovens
Adjusted EPS (FD)
EBITDA margin
Results presented on calendar rather than fiscal basis. Source: Company reports, RBC Capital Markets estimates
EBITDA Margin
$800
Adjusted EPS (FD)
$3.00 20%
2 [email protected] IZET ELMAZI 06/28/12 11:26:44 AM Goodman & Company Investment C
September 21, 2011
A top specialty DP producer, where high industry concentration leads to positive price momentum
Buckeye is the second-largest producer globally of specialty DP and a top-15 producer of nonwovens, with production capacity in the U.S., Germany, Canada, and Brazil. As the only producer with the ability to make specialty DP from both wood and cotton using wetlaid and airlaid technologies, Buckeye has a strong market position in a variety of key markets. The company has traded under the symbol BKI on the NYSE since 1995. Buckeyes fiscal year ends June 30. All figures in this report are presented on a calendar basis unless stated otherwise.
Exhibit 2: Buckeye at a glance
Spec ialty w ood dissolving pulp 2012E Sales Share of total sales 2012E EBITDA Margin $355 MM 33% $105 MM 29.6% Spec ialty c otton dissolving pulp 2012E Sales Share of total sales 2012E EBITDA Margin $223 MM 21% $56 MM 25.3% 2012E Sales
1
Fluff pulp $236 MM 19% $48 MM 20.5% 2012E Sales
Nonw ovens $291 MM 27% $39 MM 13.3%
Share of total sales 2012E EBITDA Margin
Share of total sales 2012E EBITDA Margin
Capacities
200k mt of capacity, considering

converting 30k mt of fluff over to DP
148k mt of capacity Operating ~53% due to limited

availability of cotton linters
265k mt of capacity, considering

converting 30k mt of fluff over to DP
96k mt of capacity, shutting

26k mt in Canada in Q412
Operating close to 100% of capacity
Operating close to 100% of capacity
Operating ~75% of capacity
Description
Florida facility one of only 2 specialty

wood DP mills of its kind globally
World's largest cotton DP mill

in Memphis
Approx. 14% sold internally to

nonwovens segment
World's largest airload nonwovens

machine in North Carolina
Production sold out

1 Includes internal sales
Brazilian plant competes with specialty

wood DP
Working to improve quality of fluff

to realize higher prices
Margin stability due to raw material

cost pass-throughs
End Markets
Source: Company reports, RBC Capital Markets estimates
September 21, 2011

Exhibit 3: Production capacity and location
Gaston, North Carolina Nonw ovens Capacity: 40,000 mt Current op. rate: ~78% (86% Q412E) 2012E Production: 31,900 mt Lumberton, North Carolina Spec ialty c otton DP Capacity: 8,000 mt Current op. rate: ~100% 2012E Production: 8,000 mt Steinfurt, Germany Nonw ovens Capacity: 30,000 mt Current op. rate: ~92%
2012E Production: 27,600 mt
Delta, Canada Nonw ovens Capacity: 26,000 mt Current op. rate: ~53% 2012E Production: 12,800 mt (Will shut down permanently in Q412) NA 40% Memphis, Tennessee (HQ) Spec ialty c otton DP Capacity: 100,000 mt Current op. rate: ~60% 2012E Production: 60,000 mt SA 3% Other 6% 2012E Annual Produc tion Specialty cotton DP Specialty wood DP Fluff pulp Nonwovens KEY : Foley, Florida Spec ialty w ood DP & Fluff pulp Capacity: 465,000 mt Current op. rate: ~100% 2012E Production: 265,000 mt Fluff pulp 200,000 mt Specialty wood DP (Evaluating converting 30k mt from fluff to spec. wood DP) Americ ana, Brazil Spec ialty c otton DP Capacity: 40,000 mt Current op. rate: ~25% 2012E Production: 11,000 mt % Specialty Cotton DP Specialty Wood DP & Fluff pulp Nonwoven % of FY2011 sales 79,000 mt 200,000 mt 265,000 mt 72,000 mt Europe 32% Asia 19%
September 21, 2011
Specialty Fibers
Segment at a glance: 2012E Sales: $813MM Share of total sales: 73% 2012E EBITDA: $210MM EBITDA margin: 25.8% Buckeyes specialty fibers segment is comprised of its specialty wood DP, specialty cotton DP, and fluff pulp businesses. Specialty DP vs. Commodity DP Buckeyes focus is on specialty dissolving pulp Dissolving pulp fall into two categories: commodity and specialty, reflecting the degree to which the cellulose has been refined. Buckeyes focus is entirely on specialty DP. It does not sell any commodity DP given its existing commitments to specialty deliveries and limited excess tonnage. The specialty DP market is smaller (26% of the entire DP market), but demand and pricing are more stable with higher margins. We estimate demand for specialty DP is growing at 3% per year. The commodity DP market has cooled after reaching peak levels in early 2011 as high cotton prices drove textile demand for rayon (which uses commodity DP). What is specialty DP used for? Specialty DP has a wide variety of applications and is often used to enhance product performance by increasing strength, viscosity, stability, durability, absorbency, and color permanence. It can be found in almost any modern electronic device with an LCD screen (it helps make the screen clearer and more uniform); in household cleaning products, including toothpaste (it improves texture); high-performance tires; and in food casings (hot dogs) to name just a few of its many uses. In Buckeyes push to enhance its market position, the company has developed several unique product offerings, such as SoundLite (minimizes the noise of a car door closing) and UltraFiber 500 (improves crack resistance in concrete). While none of these products are material in their own right, they do signal the companys push to fortify its market position by developing niche higher-margin grades. Some products, such as casing and ether applications, can be made with either wood DP or cotton DP.
Exhibit 4: DP market is primarily commodity grade (2010)
Global dissolving pulp market - 5.2MM mt
Specialty 26%
Commodity, 74%
Source: Tembec Inc.
Why do we prefer specialty DP over commodity grade? Barriers to entry into the specialty DP market are prohibitive Barriers to entry into specialty markets are high, reflecting not only steep capital investment and access to technology and technical know-how, but also long-term, established relationships with customers. We estimate that capital costs of $100 million to $200 million would be required to transform an existing commodity DP mill to specialty DP, a significant barrier to entry. End uses for specialty DP are very specific and have narrow technical specifications. Expanding an existing customer relationship or introducing a new product takes years for incumbents, and would be extremely time consuming for new entrants. Even specialty DP market leader Rayonier will have to spend six to nine months to qualify its more demanding grades of specialty DP when its Jesup C-mill conversion (190,000 mt) ramps up production in the second half of 2013. While specialty DP producers could technically enter the commodity DP market if they wanted to, commodity DP producers are shut out of the specialty DP market due to their technical limitations and lack of a track record with very demanding customers. There are a few mills that have the technical ability to swing between the two grades, but for the most part, its a one-way door. Specialty markets less volatile than commodity Early in 2011, spot prices for commodity dissolving pulp in China (the primary market) topped out at $2,800/mt as demand ballooned and supply remained constrained. Demand for commodity dissolving pulp is driven by rayon production for use in textiles. When export restrictions (India) and poor harvests (Pakistan, China) reduced cotton supply, garment producers increased their focus on rayon. The 27% decline in cotton prices since March contributed to the sharp decline in commodity DP prices to $1,400/mt in the spot market in August before prices recovered somewhat to ~$1,575/mt in mid September. Our long-term commodity DP forecast is $1,250/mt as we expect upcoming commodity DP capacity additions will
September 21, 2011
reduce producer pricing power. The demand outlook for commodity DP remains very positive as we expect demand for rayon will remain higher given the long-term decline in cotton production and rising standards of living in Asia.
Exhibit 5: Surge in cotton prices drove demand for rayon in early 2011
"A" Index Cotton Price
250 200 150
C/lb
100 50 0
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Source: National Cotton Council of America
Most DP capacity additions have been for commodity grade Since 2008, we estimate the dissolving pulp market has grown by more than 1.2 million mt, with several further capacity conversions, such as the Gores Group resuscitation of the former Weyerhaeuser Cosmopolis mill in May 2011 (165,000 mt, 100,000 mt of which could eventually be specialty DP), Fortress Papers upcoming Thurso mill conversion, Rayoniers conversion at its Jesup mill, and Buckeyes likely fluff -to-DP conversion at Foley. The majority of growth has been in the commodity (rayon) markets. A rapidly increasing middle class in Asia is driving demand for textile fibres as they seek higher-quality clothing. Commodity DP is used to make rayon fabrics. Rayon demand is strong and growing There have been significant technological innovations in the manufacture of rayon clothing over the last five years. The cost of rayon is just over half that of cotton, making it a cheaper alternative. It is a natural, sustainable and breathable fibre that performs well in warm and humid climates. It is these climates that have seen a significant increase in GDP with growing expectations of a higher standard of living in places such as China, India and Brazil.
Exhibit 6: Growth in global consumption of textile fibers driving demand for commodity DP
140 120 100 101 80 60 40 20 0 2005 2010 2015E 2020E 2025E 2030E 66 73 87 113
124
Source: Sappi Saiccor, Lenzing AG, Asian Development Bank
MM mt
Jan-11
September 21, 2011
Specialty DP prices are higher and more stable than prices for commodity grade The vast majority of dissolving pulp is sold under long term private agreements, making it difficult to reliably track and forecast prices. Commodity DP prices are somewhat easier to track, while specialty DP is particularly opaque. Specialty wood DP has historically sold at an average premium of $230/mt relative to commodity grade wood DP, with the notable exception of the situation in early 2011 when commodity DP prices reached new peaks as high cotton prices drove demand for rayon and its commodity grade DP input. The historical spread is not reflective of any fundamental pricing relationship between the grades as their r-squared is only 0.41 and there are no arbitrage opportunities to upgrade commodity grade to specialty. That said, the run up in commodity DP prices in the second half of 2010 certainly did not hurt the specialty DP producers price negotiations. While commodity DP markets have cooled, we do not believe this will weigh on price negotiations for specialty DP. While producers of specialty DP could have threatened to divert tonnage to commodity end markets last year if they did not get sufficient price increases, there is no threat of commodity DP producers being able to enter the specialty DP market, with the exception of a few swing mills. Specialty DP prices are far more stable than commodity grade DP (Exhibit 7). While commodity grades collapsed in 2009, specialty-grade pricing was unaffected and continued to trend higher, albeit on lower volumes.
Exhibit 7: Specialty wood DP pricing more stable than commodity wood DP
2,250 2,000 1,750 1,500 1,480 1,4501,450 1,400 1,4001,4001,3671,442 1,3501,3501,350 1,150 1,320 1,100 900 820 850 625 900 950 1,050 1,300 1,450 1,900 2,000 1,700 1,550 1,517 1,8001,850 1,600
$/mt
1,500 1,250 1,000 750 500
Commodity wood DP CFR China

Source: RISI, Company reports, RBC Capital Markets estimates
Specialty wood DP global average
Q311E
Q407
Q108
Q208
Q308
Q408
Q109
Q209
Q309
Q409
Q110
Q210
Q310
Q410
Q111
Q211
September 21, 2011
Buckeye is a leader in the specialty DP market Buckeye is the second-largest producer of specialty DP The top three producers of specialty DP have more than 74% market share. In terms of the end markets that Buckeye targets, it competes primarily with Rayonier on the specialty wood DP side and with ADM for a few applications of specialty cotton DP. Other major competitors include Tembec, Sappi Saiccor, Sateri, Borregaard, and Cosmos Specialty Fibers.
Exhibit 8: Global specialty DP market share (2011E)
Other 26% Rayonier 34%
Tembec 18% Buckeye 22%

Source: Tembec Inc.
Buckeye is the leading producer in key end markets for specialty DP Compared to the overall specialty DP market, Buckeyes specialty DP end markets are more diversified. Buckeye has a No. 1 market position in several important specialty wood DP end markets, such as casings, tire cords, and automotive filtration. Buckeye is the No. 2 producer in the large acetate market, behind Rayonier.
Exhibit 9: End markets for specialty DP industry (LHS) quite different from Buckeyes specialty DP customer base (RHS)
Global Specialty DP market 1.4MM mt (2010) Casings, Other, Buckeye specialty DP end markets - 280k mt (F2011)
Industrial viscose, 5% Nitrocell, 7% MCC, 7%
4%
4%
Other, 19% Acetate (#2), 25% Airlaid,
Acetate, 48%
7% Casings (#1), 7% Cotton paper Automotive filtration (#1), 13% Tire cord (#1), 12%
Ethers, 24%
(#1), 8% Ether, 9%
Source: Company reports, Tembec Inc., RBC Capital Markets estimates
Buckeye is unique in that it makes DP from both wood and cotton linters In the world of specialty and commodity DP there are grades made using wood and grades made using cotton linters in their manufacturing process. Wood DP is made through kraft or sulphite pulping of wood (either softwoods or hardwoods). Cotton DP is made through the soda pulping of cotton linters. Cotton linters are fine (typically less than one-eighth in or 3 mm long), silky cellulose fibers that adhere to the seeds of the cotton plant after ginning (separation of the cotton boll from the seed). The difference between commodity and specialty DP is often discussed in reference to the percentage of alpha cellulose, with specialty DP having more than 92% alpha.
September 21, 2011
Specialty wood DP Approximately half of the wood DP market is commodity grade, and it is a market Buckeye has avoided given its focus on higher margin specialty grades.
Exhibit 10: Wood DP end markets
3.6MM mt (2009) Lyocell 4% Nitrate (#1) 4% Textile filament 7% Cellulose ethers 11% Viscose staple fibre 49% MCC 3% Other 6% Major Producers Rayonier Buckeye Tembec Borregaard Sateri Neucel Sappi
Cellulose acetate (#2) 16%

#1, #2 indicate Buckeyes market position Source: Company reports
Buckeye has a leading market position in key end markets Buckeyes key specialty wood DP grades are used for ethers, highstrength viscose, and acetate. The largest market for specialty wood DP is acetate. Rayonier is the No. 1 producer in the ~700,000 mt acetate market, with ~385,000 mt dedicated to it, ahead of Buckeyes No. 2 market position. Approximately ~82% of acetate demand ends up in cigarette filters with the remaining 18% used to make coatings and film (7%), LCD screen film (7%), and textiles (4%). Rayonier estimates that 48,000 mt of industry specialty wood DP acetate finds its way into LCD film end uses. Buckeye services LCD demand for specialty DP from its specialty cotton DP production. Sappi estimates the acetate market is growing at a rate of 2% to 3% per year. The second largest end market for specialty wood DP is ethers (575,000 mt). Ethers are used to make pharmaceuticals, coatings, food, and industrial products. They are basically used to make products and chemicals thicker and are found in a variety of everyday products such as pancake syrup, Advil, and toothpaste. Tembec is the No. 1 producer for ethers. Buckeye is the No. 1 producer serving nitrate demand, approximately 60% of which ends up in rayon tire cord with the balance used to make casings. Rayonier (and likely) Buckeye adding capacity to serve strong demand Rayonier is converting its entire fluff pulp production to 190,000 mt of specialty wood DP in 2013. Buckeye is evaluating a partial conversion project that could potentially increase specialty wood DP production by 30,000 mt by the end of 2012 (with a one-for-one reduction in fluff production). If the project goes ahead, Buckeyes production mix at Foley will be 5 0% fluff, 50% specialty wood DP. Given that Buckeye would suffer overall tonnage reduction if it tried to convert more fluff to specialty wood DP beyond the 30,000 mt it has identified, we do not believe management is planning on converting additional tonnage. With Buckeye currently sold out of its specialty wood DP production, we are glad to see management working to increase capacity. While the board is not expected to grant final approval until late October, we believe the 30,000 mt fluff-to-DP conversion project will be approved and expect related capex of $1,579/mt (~$47 million), in-line with the per-tonne costs of Rayoniers upcoming Jesup fluff-to-DP conversion. Some specialty wood DP capacity has been removed in 2011 because the change in ownership of the Neucel and Domsjo Fabriker mills resulted in their owners re-focusing production towards commodity DP.
September 21, 2011

Exhibit 11: Global dissolving wood pulp demand and supply
Demand (000 mt) Commodity DP Viscose Staple Fibre Growth Rate Specialty DP A cetates, Ethers, Nitrates etc. Growth Rate Total 5,200 1,400 1,442 3% 4,672 1,485 3% 5,200 3,800 3,230 -15% 3,715 15% 2010 2011E 2012E
2013E 4,272 15% 1,530 3% 5,801
2014E 4,912 15% 1,576 3% 6,488
Supply (000 mt) Existing Industry (Creep 2%) Commodity DP Specialty DP Sub-total Additions 2011 Cosmopolis, WA Sun Paper, China Fortress Paper, QC Various Mills, China 2012 Sodra, Sweden Shandong,Chenming Paper, China Fujian Nanping Paper, China Prince Albert, Sask Sun Paper, China Lenzing, Czech Republic Rayonier, Jesup, GA (specialty DP) Sateri, Brazil (specialty DP) Buckeye, Foley, FL (specialty DP) Commodity DP Specialty DP Total Supply Commodity DP op. rate Specialty DP op. rate
2010 3,800 1,400 5,200
2011E 3,876 1,428 5,304
2012E 3,954 1,457 5,410
2013E 4,033 1,486 5,518
2014E 4,113 1,515 5,629
90 40 40 50
165 200 200 500 150 400 120 100
168 204 204 510 153 550 150 250 180 90 30
172 208 208 520 156 600 153 255 200 240 190 65 35 6,825 1,805 8,631 72% 87%
3,800 1,400 5,200 100% 100%
4,096 1,428 5,524 79% 101%
5,789 1,457 7,245 64% 102%
6,402 1,606 8,008 67% 95%
Source: Terrachoice Market Services, RISI, Forestweb, Fortress Paper, RBC Capital Markets estimates
Limited spot tonnage reduces pricing volatility Buckeye usually strikes contracts ranging from one to five years with its customers, committing to provide a set amount of annual tonnage at a fixed annual price. Contract prices are set at the beginning of the year. Buckeye forward sells slightly less than it expects it will produce (to account for unplanned downtime), and these excess tonnes are sold at premium prices to customers who find themselves in need of additional volumes. Buckeye has some cost passthroughs for its specialty wood DP contracts related to certain variable costs. The pass-throughs are assessed on a quarterly basis. Reliable pricing data difficult to come by Besides No. 1 producer Rayonier, which provides its realized specialty wood DP prices, Tembec and Buckeye are both reticent to discuss their specialty DP pricing. Our estimates in the table below may not necessarily reflect the exact pricing of each company but we believe the trend shown is reflective of market conditions. Note that Buckeyes pricing is directionally consistent with Tembec and Rayoniers specialty DP pricing but the spread differs depending on the period due to mix.
September 21, 2011

Exhibit 12: Estimated realized specialty wood DP prices by major producer
1,900 1,800 1,700 forecast
$/mt
1,600 1,500 1,400 1,300 1,200
Q311E
Q411E
Q112E
Q212E
Q312E
Buckeye
Rayonier
Tembec
Source: Company reports, Rayonier, Tembec, RBC Capital Markets estimates
Forecasting a $150/mt price increase in January We are anticipating Buckeye will realize a $150/mt price increase for specialty wood DP in 2012. While hesitant to provide any numbers around their pricing guidance, several producers have stated that prices are likely heading higher in 2012. We believe pricing gains will be somewhat range-bound as Rayonier will likely seek to secure contractual demand for its ~190,000 mt of new capacity coming online with the Jesup conversion in 2013. Our trend volume forecast assumes Buckeye goes ahead with its 30,000 mt fluff-to-specialty wood DP conversion at the end of 2012 and allows for some additional volumes through debottlenecking over time.
Exhibit 13: Specialty wood DP forecast
Spec ialty w ood DP Realized price ($/mt) Volumes (000 mt) Operating rate Q311E $1,625 50 100% Q411E $1,625 50 100% 2011E $1,617 200 100% Q112E $1,775 50 100% Q212E $1,775 50 100% Q312E $1,775 50 100% Q412E $1,775 50 100% 2012E $1,775 200 100% Trend $1,800 235 100%
Source: RBC Capital Markets estimates
Q412E
Q109
Q209
Q309
Q409
Q110
Q210
Q310
Q410
Q111
Q211
September 21, 2011
Security of wood supply The major raw material input in specialty wood DP is slash pine. Given the abundance of slash pine around the Foley plant, and Buckeyes use of annual ti mber-purchase agreements, we do not anticipate Buckeye will have any difficulty finding timber at reasonable prices. Buckeyes timber contracts are fixed annually based on market prices. While Buckeye does not disclose its wood costs, we estimate its wood costs approximate a lagged price series of Southern softwood prices. We estimate current wood costs in the $34/mt range. On a trend basis, we anticipate higher wood costs in the $43/mt range.
Exhibit 14: Buckeyes wood costs appear to have been relatively stable
37 35 33
$/mt
31 29 27 25
Jul-07
Jul-08
Jul-09
Jul-10
Nov-07
Mar-08
Nov-08
Mar-09
Nov-09
Mar-10
Nov-10
Source: Timber Mart-South, Industry Intel, RBC Capital Markets estimates
Exhibit 15: Production process of a typical wood DP mill
Source: Sappi Saiccor
Mar-11
Jul-11
September 21, 2011
Specialty cotton DP Buckeye is the No. 1 producer of specialty cotton DP While the market for cotton linter pulp is >1.1 million mt, 90% of this is commodity grade used to make viscose staple fiber in China. Buckeyes specialty cotton DP sits at the apex of the pulp pyramid. Buckeye (60,000 mt) and ADM (55,000 mt) are the major producers in the ~120,000 mt specialty cotton DP market. While Buckeye targets the high end of the specialty cotton DP market, ADMs cotton products are targeted towards the lower end of the spectrum in applications such as ethers.
Exhibit 16: Dissolving pulp much harder to produce than paper grade
% Alpha cellulose MM mt
3.6 5.1
99%
1.1
92%-98% 88%
Cotton DP 290.0 Specialty wood DP Fluff pulp Paper pulp
84%-88%
Complexity to produce
Source: Company reports
Almost 60% of demand is tied to LCD screens The majority of specialty cotton DP finds its way into LCD screens. We estimate the LCD market for specialty cotton DP has grown from ~10,000 mt in 2005 to 60,000 mt in 2011. Buckeye is the No. 1 producer in the market for thin films for LCDs and food casings. (Buckeyes fibers are used in up to six layers in multi-layered LCD screens.) Buckeye is working to improve its ability to produce cotton acetate for the LCD market Due to differences in grades between Buckeye and Rayonier, Rayonier serves LCD end-market demand using a specialty wood DP while Buckeye uses specialty cotton DP. Approximately 60% of the specialty cotton DP Buckeye produces in Memphis is dedicated towards LCDrelated end markets. LCD TV market expected to grow at ~11% in the medium term While the chart below shows the strong growth in demand that iSuppli expects in the LCD TV market, specialty DP is used to make the polarizing film for all types of LCD screens, including flat-screen monitors and tablets. According to DisplaySearch, global LCD shipments growth rate has slowed this year from 9% year-over-year in the first quarter to 6% year-over-year in the second quarter. Despite the recent slowdown, Buckeye has stated that it has not seen any declines in its LCD-related specialty cotton DP shipments.
Exhibit 17: Global LCD TV shipments (MM units)
350 298 300 250 2010-2015 CAGR of 10.6%
MM units
200 150 103 100 50 0 2008 2009 143
180
2010
2011E
2012E
2013E
2014E
2015E
Source: iSuppli
September 21, 2011
The No. 1 issue with specialty cotton DP is cotton linter supply Buckeye purchases a variety of cotton linters ranging from first cut (highest grade with longer fibers) to second cut (short fibers) depending on the quality of specialty cotton DP it is producing. Cotton linters are collected by cutting the fuzz off cotton seeds before they are made into cottonseed oil. Cotton specialty DP operating rates constrained by availability of cotton linters While Buckeye is running at capacity in wood specialty fibers, its cotton specialty fiber plants have been operating at ~53% of capacity due to limited availability of cotton linters. The supply of cotton linters depends on the harvesting schedule of the cotton crop, as this determines production rates of oil crushing mills, and hence the production of the cottonseed-crushing byproduct, cotton linters. If cottonseed oil prices increase, then crushing mill operating rates are higher, and linter byproduct production increases. A larger cotton crop is good for Buckeye in the sense that it increases the amount of cottonseed, but the relationship does not always extend to cotton linters as half of the cottonseed ends up in animal feed. USDA is forecasting global cottonseed crush to be 5.7% higher year-over-year in 2011/2012 but expects the U.S. cottonseed crush to decline 5.9% year-over-year. Buckeye is scouring the planet for linters Buckeye sources its linters from a variety of countries including the U.S., India, Turkey, Uzbekistan, Turkmenistan, Benin, Pakistan, and Brazil. Buckeye notes that its cotton linter supply has improved markedly since the first quarter of 2011 and expects linter availability to remain at current levels through 2012. Buckeye does not find it economic to import linters to its Brazilian plant as the specialty cotton DP produced at the Americana facility competes with local specialty wood DP, which makes margins uneconomic given the additional freight charges incurred with imported linters. Chinese demand has driven up cotton linter prices Since the third quarter of 2010, Buckeye has had to contend with an increase in cotton linter prices as supplies were short due to demand from the viscose stable fibre industry. Chinese commodity DP producers can use cotton linters (instead of wood) as the raw material for viscose staple fiber. Chinese buyers bid up global prices of cotton linters in early 2011 as they purchased it for use in their viscose staple fiber production because the specialty wood DP market was tight. Buckeye estimates approximately 20% of North American cotton linter production is exported. While costs are passed on in the specialty cotton DP market, this happens on a lagged basis, and Buckeye faces short term margin compression in periods of rapid price increases. The more important issue is that at a certain price, customers are unwilling to buy. Mitigating these concerns is the fact that approximately 90% of Buckeyes Memphis specialty cotton DP production is under long-term take-or-pay agreements, allowing it to try to lock in a greater portion of its cotton linter requirements as it has the confidence it will be able to place those volumes once they are produced, regardless of the eventual selling price.
September 21, 2011
Exhibit 18 shows Mid-South cottonseed linter prices. Buckeye sources the majority of its cotton linter requirements from within the U.S. for the Memphis plant and within Brazil for the Americana plant.
Exhibit 18: Cotton linter price forecast
50
Cottonseed Linters 1st and 2nd cut (/Lb.)
45 40 35 30 25 20 15 10 5 0
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Source: Informa, RBC Capital Markets estimates
We expect specialty cotton DP price gains in 2012 Cotton linter prices have risen 33% since early 2011 to $0.45/lb ($0.55/lb for some cuts). Buckeyes sales contracts have provisions to pass on changes in input costs related to cotton linter prices. Based on our $0.45/lb average cotton linter price forecast for 2012, and the 0.94 r-squared between linter prices and specialty cotton DP prices, we expect specialty cotton DP prices of $2,825/mt in 2012. Management also expects specialty cotton DP prices to be higher year-over-year in 2012.
Exhibit 19: Specialty cotton DP prices aligned with underlying cotton linter prices
50 45 40 r-squared of cotton linter prices and specialty cotton DP prices = 0.94 3,000
Cotton linter price (c/lb)
35 30 25 20 15 10 5 0
2,500 2,250 2,000 1,750 1,500 1,250 1,000
Q311E
Q411E
Q112E
Q212E
Q312E
Cotton linter price (c/lb)
BKI specialty cotton DP
Source: Informa, Company reports, RBC Capital Markets estimates
Operating rates in Memphis have improved, but are still below pre-2008 levels Buckeye management appears confident that it will be able to maintain 60% operating rates at its Memphis specialty cotton DP facility based on its assessment of the current supply/demand factors for cotton linters. In terms of how high specialty cotton DP operating rates at Memphis could be, we note that Buckeye was running the facility at ~80% before the 2008/2009 financial crisis. While we assume Memphis runs at 60% in our model, we note that an 80% trend operating rate would boost our price target by $1.75.
Q412E
Q109
Q209
Q309
Q409
Q110
Q210
Q310
Q410
Q111
Q211
BKI specialty cotton DP ($/mt)
2,750
Jan-12
September 21, 2011

Exhibit 20: Specialty cotton DP forecast
Spec ialty c otton DP Realized price ($/mt) Volumes (000 mt) Operating rate Q311E $2,625 20 53% Q411E $2,625 20 53% 2011E $2,619 77 52% Q112E $2,825 20 53% Q212E $2,825 20 53% Q312E $2,825 20 53%
Q412E $2,825 20 53%
2012E $2,825 79 53%
Trend $2,825 79 53%
Fluff pulp Buckeye is a relatively minor player in the global fluff market Buckeye produces about 265,000 mt of fluff pulp at its Foley mill in Florida. Approximately 35,000 to 40,000 mt is used internally in nonwovens production, representing ~50% of the nonwovens segment fluff requirements. Growing demand in the developing world The primary use of fluff pulp is to increase absorbency in diapers, feminine hygiene products, adult incontinence products, and airlaid nonwoven products. Demand is relatively flat in North America and Europe but is growing at much higher rates in China, India, and the rest of the developing world.
Exhibit 21: Usage of hygiene products in Eastern Europe, South America, & Asia likely to grow with rising income levels (2011E)
Incontinence care Baby diapers
25
2,000
units per capita per yr
units per child per yr
20 15 10 5 0
Penetration in NA and W.Europe only 35%

1,500 1,000 500 0
America
S. America
W. Europe
Feminine care
400
units per woman per yr
300 200 100 0
America
Source: SCA
Fluff pulp fundamentals are strong, with demand growing at 4% per annum Benchmark fluff pulp prices peaked in July 2010 and have declined slightly since December of last year. Current benchmark prices of $1,008/mt are still relatively high despite the additional capacity from the Domtar Plymouth conversion. We expect growth in global demand of about 4% per year as demand increases for hygiene products. Latin America and the Middle East are the fastest growing regions. Trade reports suggest penetration of diapers in China is only ~12% (vs. ~99% in North America) and sanitary napkins penetration in China is only ~20%, suggesting significant room for growth as more consumers embrace these products.
S. America
W. Europe
E. Europe
N.
Asia
S. America
E. Europe
W. Europe
E. Europe
America
Asia
N.
N.
Asia
September 21, 2011
Fluff market controlled by U.S. producers 90%+ of global demand is served by U.S. production. Only the Southeast and Gulf Coast regions of the U.S. have the slash pine timber most desired to make fluff pulp (slash pines unusually thick -walled fibers help create superior absorbency and integrity). GPs renovations at its Alabama mill will increase global fluff capacity by 500,000 mt. IP is re-starting its idled Franklin mill to produce 270,000 mt of fluff pulp in 2012. Completion of Domtars Plymouth conversion in 2012 will have added 250,000 mt to the market. Rayoniers upcoming fluff-to-DP conversion at Jesup will remove an equal amount of production (270,000 mt) by the third quarter of 2013. Buckeye is evaluating plans to convert 30,000 mt of fluff capacity to specialty wood DP by the end of 2012 (reflected in our forecast).
Exhibit 22: Buckeye will have only 4% market share in the fluff pulp market by the end of 2012
5.8MM mt (Q412E) Other 14% Buckeye 4% Stora-Enso 4% AbitibiBowater 5% Domtar 8% Weyerhaeuser IP 15%
Source: Company reports, RISI, RBC Capital Markets estimates
GP 29%
21%
Fluff prices have historically been ~$40/mt higher than NBSK While short-term factors can cause this spread to differ materially, we feel comfortable forecasting fluff on a spread basis. After taking into account customer discounts, we expect Buckeye to realize fluff pulp prices of $890/mt in 2012. Most of Buckeyes fluff contracts have an annual volume agreement with prices indexed to prices reported by RISI. Buckeye also plans to increase the quality of its fluff product, which should improve realized prices over the longer term.
Exhibit 23: Fluff pulp forecast
Fluff pulp Realized price ($/mt) Production (000 mt) Operating rate Q311E $875 67 100% Q411E $875 67 100% 2011E $877 265 100% Q112E $890 66 100% Q212E $890 66 100% Q312E $890 67 100% Q412E $890 67 100% 2012E $890 265 100% Trend $920 235 100%
September 21, 2011

Exhibit 24: Fluff prices track NBSK prices
1,100 10yr r-squared of fluff pulp 900 and NBSK prices = 0.93
$/mt
700
500
Fluff has historically traded ~$40/mt above NBSK
300
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Q212E Q312E
NBSK
Source: Pulp & Paper Week, RBC Capital Markets estimates
Fluff pulp
Exhibit 25: Buckeyes realized fluff prices track the benchmark

1,100 1,000 900 ~18% avg. discount to benchmark forecast
$/mt
800 700 600 500
Q311E
Q411E
Q112E
BKI Realized fluff price
Benchmark list fluff price
Source: Company reports, Pulp & Paper Week, RBC Capital Markets estimates
Q412E
Q109
Q209
Q309
Q409
Q110
Q210
Q310
Q410
Q111
Q211
Jan-11
September 21, 2011
Nonwoven Materials
Segment at a glance: 2012E Sales: $291MM Share of total sales: 27% 2012E EBITDA: $38.7MM EBITDA margin: 13.3% Buckeye is a top-15 producer of nonwovens and one of the worlds largest producers of airlaid nonwovens. Nonwoven materials are used to enhance absorbency, wet strength, and fluid management for wipes, napkins, tablecloths, feminine hygiene products, and incontinence products. Buckeyes major competitors include Glatfelter, Ahlstrom Oyi, Fiberweb, Duni, GP, Kimberly-Clark, and Polymer Group.
Exhibit 26: Nonwovens revenue by major producer (2010)
1,600 1,400 1,200 1,000 Tier I Top 40 producers represent ~57% of the market
$MM
800 600 400 200 0
Avgol
Colbond
Japan Vilene
Hollingsworth
Freudenberg
#15
Source: Nonwovens industry, PGI, Company reports, RBC Capital Markets estimates
Buckeye entered the airlaid nonwovens market in 1997 when it acquired Merfin International. In 1999 Buckeye acquired UPMKymmenes airlaid nonwovens business and with it, the manufacturing facilities still used today in Germany and North Carolina. After spending $100 million to build the worlds largest airlaid nonwovens machine at its facility in North Carolina in 2001 , Buckeye was confronted with industry overcapacity for airlaid production and responded by permanently shutting capacity in Ireland in 2002. Industry capacity growth of 30% that year had eclipsed airlaid demand growth of 8%, sending prices down ~40% in 2002. In mid2011 Buckeye announced plans to close its nonwoven facility in Delta, British Columbia by the end of 2012 due to low operating rates and the high C$. Global nonwovens market worth ~$25 billion The market is approximately two-thirds industrial, one-third hygiene (diapers/incontinence/feminine hygiene/consumer care/medical products). Buckeye is a not a participant in the nonwovens for industrials market. Global demand expected to grow by more than 6% per year over the medium term Polymer Group estimates that global nonwovens demand grew at a CAGR of 7.4% over the period 2004-2008. Despite the global financial crisis, global nonwovens volumes were unchanged year over year in 2009. ADL Consulting forecasts global nonwoven sales volumes to grow at a 6.3% CAGR from 2009 to 2014. ADL expects the strongest growth rates from wipes (8.7%), industrial (6.0%), medical (5.9%), and hygiene (5.4%). Polymer Group expects demand in certain developing countries to grow at a 10%+ CAGR through 2015 while demand in developed countries is anticipated to grow 1% to 3%. While the majority of sales in the nonwoven market come from disposable items, durable nonwovens are experiencing much higher growth, driven by demand for geotextiles in the automotive/construction market. INDA, the North American nonwovens trade body, estimates durable nonwovens market growth of 4.5% a year in North America versus flat growth for disposable nonwovens.
First Quality
Jacob Holm
Companhia
Polymer
Ahlstrom
Sandler
KC
Johns
Dupont
Glatfelter
Fiberweb
Asahi Kasei
Pegas
Toyobo
TWE Group
Buckeye
Fibertex
Propex
Mitsui
Toray
September 21, 2011

Exhibit 27: Strong growth in demand in key end markets
Source: Polymer Group, ADL Consulting
Buckeyes technology is not the lowest-cost method of production Nonwovens are made from polymers and/or natural fibers that have been bonded together by entangling fiber/filaments through mechanical/thermal/chemical processes. There are four main technologies being used in the manufacture of nonwovens today: Spunmelt Using thermoplastic polymers that are melt-spun to produce continuous-filament fabrics. Carded chemical/thermal/spunlace Using fibers on a conveyor belt that are teased apart and then webbed together and bonded with chemical adhesive and heat/high pressure water. Airlaid Using high-velocity air to condense the fibers. Wetlaid Using a wire-screen to drain fibers. According to Polymer Group, spunmelt is the fastest-growing technology for disposable applications as it provides the lowest-cost way to produce nonwovens that still meet the quality standards required by customers. Spunmelt is used in ~43% of global nonwovens production.
Exhibit 28: Nonwovens industry technology capacity share (2010)
Wetlaid, Other, 2% 4% Airlaid, 9%
Spunmelt, 43%
Carded, 42%
Source: Polymer Group
The airlaid nonwovens market is regional due to the bulky nature of the product and high transportation costs. The North American airlaid nonwovens market has excess supply while the European market is more balanced. Buckeye sells some airlaid nonwovens product into Asia from its Delta facility but most Asian airlaid nonwovens demand is served by local producers.
September 21, 2011

Exhibit 29: Global nonwovens production by region
7,052k mt (2010) Other 8%
Europe 25%
Asia 41%
MENA 4% North America 22%

Source: Edana, Inda, Miti Japan, CNTA, ANFA, RBC Capital Markets
Buckeye is the No. 1 producer in airlaid wipes Buckeye has the No. 1 market position in airlaid wipes, which accounts for almost 50% of its nonwovens shipments. Buckeye is working to expand the capabilities of its nonwoven plants to capture growth in the wet wipes market. Concert Industries, the No. 2 producer in airlaid nonwovens, was acquired by Glatfelter in 2010 for $231 million. Buckeye is the No. 2 producer of airlaid nonwovens for feminine hygiene products Glatfelter (Concert) is the No. 1 producer in airlaid feminine hygiene nonwovens, with ~30% market share, followed by Buckeye, Duni, and Fiberweb. We estimate the size of the airlaid feminine hygiene nonwovens market to be ~$600 million. Pulp & Paper Week estimates these top four producers serve ~70% of the market. Glatfelter estimates the feminine hygiene market is growing at 6% a year. While the femcare end market represents 35% of the airlaid market, Buckeye focus on airlaid wipes (47% of its volumes) results in femcare representing only ~20% of its volumes. Adult incontinence is the main growth end market in the developed world Glatfelter has the No. 1 market position for adult incontinence products, with ~$40 million of revenues.
Exhibit 30: Airlaid market
406,000 mt (2007) Other Medical dressings 5% Training pants 5% Adult incontinence 6% Oshibori 8% Tabletop 9% Wipes 24%
8% Major Airlaid Produc ers Femcare 35% Buc keye (#1) Glatfelter (#2) GP Duni Fiberw eb KCC
September 21, 2011

Exhibit 31: Buckeye nonwovens segment end markets (F2011)
Other, 4% Towel & tissue, 8%
Femcare, 18%
Airlaid wipes (#1), 49%
Table top, 21%

Buckeye realized higher prices than Glatfelter in 2010 Buckeyes average nonwovens selling price of $3,700/mt in 2010 compares favorably to Glatfelters airlaid nonwovens segments average price of $2,929/mt. The difference is due primarily to mix, as ~80% of Glatfelters nonwovens business is feminine hygiene products, a higher-volume but lower-margin business. Blue chip customer base While Buckeye does not disclose its major customers, we note that Glatfelters nonwovens business customers include P&G, Kimberly-Clark, and Johnson & Johnson. Trade reports suggest Kimberly-Clark is considering cutting back some of its nonwovens production in favor of purchasing a greater proportion of its nonwoven raw material requirements from other producers. While it remains unclear the magnitude this potential shift may have on demand for other producers products, and while any shift is likely to benefit spunmelt producers more, we view it as incrementally positive for Buckeye. Based on our discussions with KC we believe it is committed to its nonwovens business. Airlaid nonwovens capacity additions have been gradual in recent years Glatfelter added 20,000 mt in Europe in 2009, Lycell added 8,000 mt in Europe in 2010, Fiberweb added 10,000 mt in China in 2010, and Sambo added 10,000 mt in South Korea in 2009. Expect the nonwovens industry to grow at 4% We assume a medium term industry growth rate of ~4%, driven by emerging markets, which could see growth of ~7% as disposable diapers and feminine hygiene products become more affordable and gain greater acceptance. As shown in Exhibit 32, penetration of diapers in China is only ~12% (vs. ~99% in North America). Ageing populations in developed countries should drive growth for adult incontinence products.
Exhibit 32: Global disposable diaper penetration vs. GDP per capita
Source: Polymer Group
September 21, 2011
Margin stability as Buckeye has the ability to pass on most of the increases in raw material costs to customers We estimate Buckeye has the ability to pass on most of the increases in raw material costs to customers as Glatfelter discloses that it has raw material cost pass-throughs for 80% of its nonwoven business. Buckeyes nonwovens contracts are typically 12 to 24 months long with pass-through arrangements assessed on a quarterly basis on the contracted volumes. Security of raw material supply Buckeye sources approximately 50% of its nonwoven fluff pulp requirements (~72,000 mt) internally from Foley. We estimate fluff pulp represents ~28% of nonwovens cash costs. Other raw materials for nonwovens production include synthetic fibers, latex polymers, absorbent powders, and carrier tissue. Expecting pricing improvement in 2012 We are forecasting a $150/mt (+3.9%) improvement in realized nonwovens pricing in 2012. As Buckeyes Delta facility shuts down at the end of 2012, we expect nonwoven operating rates to improve measurably. Kimberly-Clarks moves to increase North American selling prices for diapers and wipes by 3% to 7% in the second half of 2011 should provide support for nonwoven producers to raise prices.
Exhibit 33: Nonwovens forecast
Nonw ovens Realized price ($/mt) Volumes (000 mt) Operating rate Q311E $3,875 18 75% Q411E $3,875 18 75% 2011E $3,864 73 75% Q112E $4,025 18 75% Q212E $4,025 18 75% Q312E $4,025 18 75% Q412E $4,025 18 75% 2012E $4,025 72 75% Trend $4,025 68 97%
Exhibit 34: Nonwovens segment EBITDA and prices have increased substantially since the end of 2010
12 10 8 3,800 6 3,600 4 2 0 3,400 3,200 4,200 4,000
Q311E
Q411E
Q112E
Q212E
Q312E
Nonwovens EBITDA
BKI nonwovens price
Q412E
Q109
Q209
Q309
Q409
Q110
Q210
Q310
Q410
Q111
Q211
BKI nonwovens price ($/mt)
Nonwovens EBITDA ($MM)
September 21, 2011
Capital investment, future liabilities

Capital investment Buckeye invested $57 million in capital projects in fiscal 2011, up from $48 million in fiscal 2010. Management estimates annual Capex of approximately $30 million is required to adequately maintain current facilities. Management is guiding for F2012 capex of $62 million to $65 million. We expect Buckeye will proceed with its plans to possibly convert 30,000 mt of fluff capacity to specialty wood DP. We estimate related capex of $1,579/mt (~$47 million) beginning in the fourth quarter of 2012, in-line with the per tonne costs of Rayoniers upcoming Jesup fluff-to-DP conversion. Energy savings next year Management expects the $31 million net investment in a 25MW steam-condensing turbine in Florida will yield $8 million in savings in 2012, which should grow to $15 million worth of annual savings from 2013. This project has the potential to yield additional revenue from possible energy sales back to the grid. Buckeye is also working on a pilot bio-refinery in partnership with the University of Florida to convert biomass into ethanol and other chemicals. The bio-refinery is expected to be operational by the end of 2011. This project could also provide another potential revenue stream. Energy sales and/or bio-refinery product sales would represent additional upside to our forecast as we have not assumed any benefit from either given the early nature of both projects. Buckeye has environmental liabilities of $40 million to $60 million ($1.02/share-$1.53/share) Buckeyes environmental liabilities at its Foley plant for wastewater treatment are expected to lead to additional annual capex of $8 million to $12 million beginning as early as the third quarter of 2012. Due to uncertainty regarding the timing and extent of the environmental liabilities we have not reflected them in our forecast.
Capital structure
The capital structure is uncomplicated Buckeyes debt consists entirely of borrowings under its credit facility. Net debt was 10% at the end of the second quarter of 2011. We expect Buckeye to increase its dividend over time, both to reflect improving cash flows, as well as to maintain the annual cash distribution as share buybacks that we expect to happen would otherwise reduce the total payout. Managements goal is to keep debt/EBITDA at less than 2.5x, suggesting there is room to lever up the balance sheet. Buckeye has $197 million remaining under its $300 million credit facility coming due in the fourth quarter of 2015. With cash of $31 million and the ability to increase its credit facility by $100 million, total liquidity is ~$328 million. Share count shrinking as buybacks ramp up As of September 12, Buckeye had repurchased 6.1 million shares under its 11.0 million share repurchase program. After not buying back any stock in 2010 the company has become more active, buying back 400,000 shares in the first half of 2011. Based on Buckeyes 10-K disclosure that its share count had dipped to 39.2 million on August 26, it looks like the company is on track to buy back at least 350,000 shares in the third quarter of 2011. Of the 4.9 million shares that could be repurchased under the existing program we expect the company to buy back 1.7 million shares by the end of 2012. Managements philosophy about buybacks is to conduct them at times when it believes the share price is low enough to generate a return to shareholders greater than what it considers to be Buckeyes cost of capital, 11%.
Valuation
We value Buckeye Technologies using EBITDA multiples within a range defined by its peer group We believe a valuation based on a combination of trend earnings and 2012E EBITDA is most appropriate. Our valuation is intended to reflect earnings potential through the business cycle, with less emphasis on current conditions.
Exhibit 35: Valuation by different metrics
Methodology Parameter Selec ted Multiple Range EV/NTM EBITDA Comparables EV/2011 EBITDA P/E (NTM) Bear Case Bull Case $231MM $225MM $2.92 Lower pulp prices and spec. cotton DP op. rate of 50% Higher prices and slightly higher spec. cotton DP and nonwovens volumes Overall V aluation Range $15 $20 $25 $30 $35 $40 $45 $50 $55 3.9x 5.0x 10.0x 7.1x 9.7x 14.0x V aluation Range Summary ($/Share) V alue Range ($/Share) $21 - $39 $26 - $53 $29 - $41 $30 - $33 $33 - $37
85% Trend 15% 2012E EBITDA 85% Trend 15% 2012E EBITDA
$30 - $37
RBCCM Target: $33/sh
September 21, 2011
Our trend EBITDA estimate is $255 million; Target $33.00 Using mid-cycle pricing and cost assumptions, we arrive at a trend EBITDA estimate of $255 million Buckeyes current financial performance is close to this level (2011E EBITDA is 88% of trend), and with higher pricing expected for all its products next year, we estimate 2012E EBITDA of $243 million (95% of trend). Our 2013 EBITDA forecast of $265 million is higher than trend as we anticipate Buckeye will experience some margin compression in specialty wood DP over the long term with higher fibre costs. We have applied a blended 5.5x multiple of our trend EBITDA estimate of $255 million (85%) and our 2012 EBITDA estimate of $243 million (15%), which is at the low end of the range for U.S. paper & forest product companies (5.5x to 7.0x), to arrive at our target price of $33.00 per share. This target price implies a 6.2x multiple of our 2011E EBITDA and a 5.7x multiple of our 2012E EBITDA. Buckeye is currently trading at 5.0x our 2011 estimate and 4.6x our 2012 estimate. These metrics above average paper (4.5x and 4.0x), in line with paper-grade pulp (5.0x and 4.7x), but lower than fluff/nonwoven (6.4x and 6.0x), below dissolving pulp (8.5x and 5.6x), and well under Rayonier at 10.7x and 9.9x (Exhibit 40).
Exhibit 36: Range of valuation multiples for Buckeye on 2011E EBITDA
Company Net debt-to-cap Dividend yield Valuation multiple Implied Buckeye EV Less net debt Implied equity Implied BKI per share Tembec 36% 0.0% 3.5x $788 $66 $722 $18.00 W asau 33% 1.8% 5.0x $1,126 $66 $1,060 $26.42 Glatfelter 30% 2.7% 5.2x $1,171 $66 $1,105 $27.54 Canfor Pulp 14% 9.1% 5.3x $1,194 $66 $1,127 $28.10 Clearw ater 46% 0.0% 5.5x $1,239 $66 $1,172 $29.23 Rayonier 25% 3.9% 10.7x $2,410 $66 $2,344 $58.42 Fortress 8% 0.0% 17.7x $3,987 $66 $3,921 $97.73
Source: Company reports, Bloomberg, RBC Capital Markets estimates
In looking at an appropriate valuation multiple for Buckeye, we reviewed the current valuations for a number of similar forest products companies In North America, Fortress Paper, Tembec, and Rayonier are the closest comparables based on product mix. We note that both Tembec and Fortress are traded on the Toronto Stock Exchange, where liquidity is significantly lower than on the NYSE where Buckeye trades. We note that over the last 20 months, Tembec has traded shares equal to 1.4x its outstanding shares, Fortress has traded 2.1x outstanding, while Buckeye has traded 4.0x its outstanding. We note that there is a strong positive correlation between liquidity and valuation multiples. Rayonier, trading on the NYSE, has traded 3.5x its outstanding over the same period. Tembec and Rayonier are specialty DP producers, while Fortress will soon produce commodity DP Tembecs DP mix is more than 85% specialty and less than 15% commodity, while Rayonier produces 100% specialty DP. In fact, Rayoniers mill in Jesup, Georgia is almost identical to Buckeyes facility in Foley, Florida. Fortress is in the process of converting hardwood (NBHK) pulp production to 100% commodity DP, with the transition expected to be complete by early November. All three comparable companies have additional business segments, which muddies the comparability. We believe that specialty DP should trade at a premium to commodity grade given the lower volatility in specialty DP pricing and current inverse pricing momentum between the two. With a relatively high yield of 3.9%, Rayonier trades at 10.7x 2011E EBITDA vs. 3.5x for Tembec. While Fortress Papers implied valuation multiple is high based on 2011 estimates, we note that its EV/EBITDA multiple drops to 4.3x our 2012 estimate.
September 21, 2011
Exhibit 37: Valuation range on forward-12-month EBITDA have averaged 5.5x over the last six years
9x 8x 7x 6x 5x 4x 3x 2x 5.5x 7.1x
3.9x
Jun-05
Sep-05
Jun-06
Sep-06
Jun-07
Sep-07
Jun-08
Sep-08
Jun-09
Sep-09
Jun-10
Sep-10
Jun-11
Dec-05
Mar-06
Dec-06
Mar-07
Dec-07
Mar-08
Dec-08
Mar-09
Dec-09
Mar-10
Dec-10
EV / Forward 12 Month EBITDA
Std Dev +1
Std Dev -1
Mar-11
Mean
At the average forward EBITDA multiple, Buckeye shares are valued at $30.50 Over the last six years, Buckeye shares have traded at an average forward multiple of 5.5x. This implies a value of $30.50, representing 15% upside from the current share price. Share buybacks and future dividend increases should be well received Buckeye has increased its dividend twice since it was first instituted at $0.04 per share in August 2010. We anticipate the current dividend of $0.24 per share will be increased to $0.36 per share by the end of the third quarter of 2012. The company also continues to return cash to shareholders through share repurchases, with room to buy back 4.9 million shares remaining under its existing program. Scenario analysis suggests limited downside risk and strong upside potential While we are comfortable with our base case assumptions, if we assume a realistic bear/bull case for pricing and volume assumptions our price target would be as low as $30 per share in our bear case but as high as $37 per share in our bull case. Relative to our base case assumptions, our upside/downside scenarios assume the following changes relative to our base deck:
Bull Case (+$3.50/sh)
Prices (+$3.00/sh) Specialty wood DP +$100/mt, specialty cotton DP +$100/mt, fluff + $50/mt, nonwovens +5%. Volumes (+$0.50/sh) Specialty cotton operating rate at 65% (5% above base case), nonwovens +5%.
Bear Case (-$3.00/sh)
Prices (-$2.00/sh) Specialty wood DP -$100/mt, specialty cotton DP -$200/mt, fluff -$100/mt. Volumes (-$1.00/sh) Specialty cotton operating rate at 50% (10% below base case).
Sep-11
September 21, 2011

Exhibit 38: Net asset value for Buckeye is $33/share
Buckeye NAV - Based on Comparable Transaction Basis Max. op. capacity Dissolving & Fluff Pulp (000 mt) Foley, FL Memphis, TN Americana, Brazil Lumberton, NC Wood Spec DP Fluff Pulp Cotton Spec DP Cotton Spec DP Cotton Spec DP Sub-total: 238 238 60 11 8 554
Unit Value $2,700 $1,100 $2,700 $1,800 $1,800 $1,983
Asset Value ($MM) $641 $261 $162 $19 $14 $1,098
Nonwovens (000 mt) Gaston, NC Steinfurt, Germany Delta, BC (Undiscounted closure value) Nonwovens Nonwovens Nonwovens Sub-total: Asset Value Net debt (LTD+current debt-cash equivalents) Working capital (less cash equivalents) Capex for 30k mt fluff-to-specialty wood DP conversion Net Asset Value Shares O/S FD (MM) NAV/share
40 30 26 96
$2,500 $2,800 $1,154 $2,229
$100 $84 $30 $214 $1,312 ($66) $131 ($47) $1,329
40.1 $33.10
Our net asset value of $33 per share is based on comparable transactions We note, however, that a number of these transactions are quite dated and of limited value given changing market conditions. On the specialty DP side, we believe Buckeyes asset s should trade at a premium to the average transaction price of $1,619/mt due to the significant barriers to entry for specialty DP. On the specialty pulp side, we understand that the recent sale of Neucel Pulp was done at $300 million or $1,785/mt. If Buckeye goes ahead with the 30,000 mt fluff-to-specialty wood DP conversion it is considering, it expects Capex per tonne in line with Rayoniers conversion project ($1,579/mt). This is in-line with the NAV/tonne valuation premium we attribute to specialty wood DP over fluff pulp. Using our ascribed asset values, we are effectively valuing specialty fibres at 5.2x 2012E and 4.9x our estimate of trend EBITDA. We believe our value of the Foley facility (~$900 million) might be conservative as Buckeye has previously stated that it is insured for more than $1 billion and the company believes it would cost well over $1 billion to build a similar facility today. Our nonwoven value represents the average implied capacity value for Glatfelters purchase of Concert Indu stries in 2010 adjusted for Buckeyes manufacturing platform. Using our ascribed asset values, we are effectively valuing Buckeyes nonwoven materials business at 5.5x 2012E and 6.0x our estimate of trend EBITDA. Blackstone Group acquired Polymer Group (PGI) in October 2010 at 5.7x trailing EV/EBITDA.
September 21, 2011

Exhibit 39: Transaction-based asset values
Pric e Date Apr-11 Feb-11 Sep-10 Buyer Aditya-Birla Fulida Group Holdings Gores Group Asset Domsjo-Fabriker, Commodity DP, Sweden Port Alice, CB Specialty DP Cosmopolis, WA, Specialty DP ($MM) 415 300 160 Dissolving pulp 215 168 140 Capac ity (000 mt)
Pric e ($/mt) 1,930 1,785 1,143 1,619
Airlaid nonw ovens Jan-10 Q4 09 Glatfelter Concert Industries Concert Industries Falkenhagen line 231 80 84 19 2,749 4,218
Exhibit 40: Comparative valuations

Share 1 Dividend Net Debt Company North Americ an Paper Domtar AbitibiBowater Clearwater Paper Boise Glatfelter Wausau Paper A verage for Comparables Fluff/nonw ovens Kimberly-Clark Svenska Cellulosa Kimberly-Clark de Mexico A verage for Comparables Pulp Empresas CMPC Fibria Suzano Canfor Pulp (C$) Ence Mercer (US$/) Moorim P&P Altri SGPS Tembec (C$) Fibrek Rottneros A verage for Comparables Dissolving pulp Rayonier Grasim Industries Lenzing Sateri Fortress Paper (C$) A verage for Comparables Buc key e Tec hnologies $26.54 $40.25 $48.27 $112.26 $0.34 C$33.90 3.9% 0.9% 0.0% 0.0% 0.0% 1% 0.9% 25% 0% 33% 16% 8% 16% 10% $1,064 $1,131 $2.23 $2.76 $3.18 $4,903 $4,427 $3,095 $1,149 C$513 $5,322 $4,368 $3,574 $1,429 C$537 $1.78 $5.46 $11.92 $0.11 (C$0.27) $1.98 $5.03 $13.27 $0.09 C$0.20 $2.15 $5.25 $12.46 $0.07 C$5.05 22.6x 8.8x 9.4x 3.1x nm 11.0x 11.9x 20.4x 9.6x 8.5x 4.0x nm 10.6x 9.6x 18.7x 9.2x 9.0x 4.6x 6.7x 9.6x 8.4x $195 $225 $243 $442 $1,058 $719 $377 C$22 $499 $1,045 $655 $411 C$30 $539 $1,077 $668 $400 C$124 12.0x 5.1x 5.0x 3.9x 24.9x 10.2x 5.8x 10.7x 5.1x 5.5x 3.6x 17.7x 8.5x 5.0x 9.9x 5.0x 5.4x 3.7x 4.3x 5.6x 4.6x $3.78 $9.39 $5.65 C$15.31 $2.80 $8.34 $5.33 $1.51 C$2.54 $0.88 $0.46 0.0% 0.0% 0.0% 9.1% 0.0% 0.0% 3.2% 0.0% 0.0% 0.0% 0.0% 1% 22% 36% 28% 14% 18% 67% 27% 62% 36% 31% 0% 31% $8,322 $4,394 $1,507 C$1,091 $722 $475 $332 $309 C$254 $114 $70 $10,575 $9,520 $3,568 C$1,171 $953 $1,299 $510 $564 C$467 $294 $53 $0.34 nm $1.16 C$2.97 $0.36 1.77 $0.81 $0.30 C$0.18 ($0.01) $0.10 $0.26 $0.44 $0.64 C$2.34 $0.37 1.20 $0.82 $0.27 C$0.36 $0.04 $0.05 $0.29 $0.16 $0.46 C$1.98 $0.37 1.44 $1.18 $0.26 C$0.94 $0.07 $0.03 11.2x na 4.9x 5.2x 7.9x 3.4x 6.6x 5.0x 14.5x nm 4.5x 7.0x 14.3x 21.4x 8.8x 6.5x 7.5x 5.1x 6.5x 5.5x 7.2x 19.9x 8.6x 10.1x 13.0x 57.3x 12.3x 7.7x 7.6x 4.2x 4.5x 5.9x 2.7x 13.1x 14.7x 13.0x $1,187 $1,484 nm C$253 $211 230 $56 $197 C$82 $58 $37 $1,212 $1,336 $824 C$220 $236 203 $78 $187 C$133 $54 $22 $1,278 $1,397 $930 C$221 $236 210 $107 $187 C$202 $57 $17 9.0x 6.4x nm 4.6x 4.5x 4.1x 9.1x 2.9x 5.7x 5.1x 1.4x 5.3x 8.9x 7.1x 4.3x 5.3x 4.0x 4.7x 6.6x 3.0x 3.5x 5.5x 2.4x 5.0x 8.4x 6.8x 3.8x 5.3x 4.0x 4.5x 4.8x 3.0x 2.3x 5.2x 3.1x 4.7x $70.45 $12.61 $5.39 3.9% 0.0% 0.0% 1% 43% 34% 38% 38% $27,603 $7,667 $2,956 $32,697 $12,818 $3,362 $4.61 $1.23 $0.32 $4.85 $1.26 $0.33 $5.27 $1.45 $0.36 15.3x 10.3x 17.0x 14.2x 14.5x 10.0x 16.3x 13.6x 13.4x 8.7x 14.9x 12.3x $3,507 $2,526 $607 $3,829 $2,277 $668 $4,024 $2,532 $721 9.4x 5.1x 5.5x 6.7x 8.6x 5.7x 5.0x 6.4x 8.2x 5.1x 4.7x 6.0x $78.25 $15.76 $35.80 $6.53 $13.10 $6.50 1.8% 0.0% 0.0% 12.3% 2.7% 1.8% 3% 3% 10% 46% 48% 30% 33% 28% $3,216 $1,530 $825 $793 $599 $320 $3,325 $1,946 $1,219 $1,397 $836 $445 $12.28 ($14.99) $2.43 $1.07 $1.08 $0.44 $10.82 $1.70 $2.75 $0.78 $1.05 $0.34 $9.85 $1.63 $3.68 $0.77 $1.45 $0.40 6.4x nm 14.8x 6.1x 12.1x 14.8x 10.8x 7.2x 9.3x 13.0x 8.4x 12.5x 19.3x 11.6x 7.9x 9.7x 9.7x 8.4x 9.0x 16.1x 10.2x $1,156 $417 $170 $361 $150 nm $1,109 $488 $221 $344 $162 $88 $1,021 $524 $257 $364 $186 $107 2.9x 4.7x 7.2x 3.9x 5.6x nm 4.8x 3.0x 4.0x 5.5x 4.1x 5.2x 5.0x 4.5x 3.3x 3.7x 4.7x 3.8x 4.5x 4.1x 4.0x Pric e Y ield Market Enterprise Earnings per share LTM 2011E
2
P/E LTM 2011E 2012E LTM
EBITDA
($MM) 2012E LTM
EV /EBITDA 2011E 2012E
to Cap Cap. ($MM) V alue ($MM)
2012E
2011E
(1) Unless otherwise stated converted to U.S. dollars (2) RBC Capital Markets estimates for ABH,BKI,CFX,FTP,MERC,TMB,UFS; All other estimates are per Bloomberg.
September 21, 2011
Potential Upside to our $33 Price Target

+$1.75/share If Buckeye secures enough linters to increase its specialty cotton DP operating rates at Memphis back to ~80% from
before the 2008/2009 financial crisis. We are assuming 60% operating rates at Memphis, but we believe we are being conservative.
+$1.00/share Impact of a $100/mt increase in trend specialty wood DP prices (over and above our forecast). +$1.00/share Impact of a 2% increase in specialty wood DP gross margins (over and above our forecast). +$0.75/share Impact of a 2% increase in nonwovens gross margins (over and above our forecast).
Sensitivities
Earnings are most sensitive to changes in specialty wood DP prices and volumes A $100/mt change in the price of specialty wood DP would impact 2012E EPS by $0.13. A 5% change in specialty wood DP volumes would have a $0.08 impact.
Exhibit 41: Sensitivities
PRICES +/(-) price change Specialty wood DP Fluff pulp Specialty cotton DP Nonwovens $100/mt $100/mt $200/mt $200/mt 2012 EPS Impact ($/Share) $0.13 $0.08 $0.07 $0.03 Implied Op. Rate 102% / (98%) 103% / (97%) 56% / (51%) 79% / (72%) V OLUMES +/(-) 5% change in volumes 2012 EPS Impact ($/Share) $0.08 $0.04 $0.05 $0.03
Senior management team and institutional ownership

John B. Crowe, Chairman and Chief Executive Officer Mr. Crowe has been Buckeyes chairman and CEO since July 2006. Prior to joining the company in 1998, he worked for Parsons and Whittemore, Weyerhaeuser, and Procter & Gamble. Kristopher J. Matula, President, Chief Operating Officer and Director Mr. Matula transitioned from the CFO role to become COO in July 2006. He was elected to the board in April 2007. Prior to joining the company in 1994, he worked for Procter & Gamble and General Electric. Steven G. Dean, SVP, Chief Financial Officer Steven Dean became CFO in July 2006. Prior to joining the company in 1999, he held financial management roles at Thomas & Betts and Hewlett-Packard. Douglas L. Dowdell, SVP, Specialty Fibers Paul N. Horne, SVP, Product and Market Development Marko M. Rajamaa, SVP, Nonwovens Charles S. Aiken, SVP, Energy and Sustainability Sheila J. Cunningham, SVP, General Counsel and Secretary Senior management and the board of directors hold a combined 4.5% of Buckeye stock. The top four institutional investors hold a combined 29% of shares outstanding The largest institutional owner holds an 8% share.
September 21, 2011

Exhibit 42: Financial Summary ($MM except per unit amounts or otherwise stated)
Buc key e Tec hnologies Inc . Calendar Fiscal ASSUMPTIONS Spec ialty c otton DP Shipments Realized price Gross margin (incl. D&A) Spec ialty w ood DP Shipments Realized price Gross margin (incl. D&A) Fluff pulp Production Realized price Gross margin (incl. D&A) Nonw ovens Shipments Realized price Gross margin (incl. D&A) Specialty fibers op. rate Specialty cotton op. rate Nonwovens op. rate 000 mt $/mt % % % % 74 $3,695 11% 86% 48% 75% 18 $3,834 10% 88% 51% 74% 18 $3,872 13% 88% 52% 75% 18 $3,875 14% 89% 53% 75% 18 $3,875 14% 89% 53% 75% 73 $3,864 13% 88% 52% 75% 18 $4,025 14% 89% 53% 75% 18 $4,025 14% 89% 53% 75% 000 mt $/mt % 250 $795 20% 65 $882 20% 66 $874 20% 67 $875 20% 67 $875 20% 265 $877 20% 66 $890 20% 66 $890 20% 000 mt $/mt % 207 $1,339 27% 49 $1,593 27% 50 $1,625 27% 50 $1,625 27% 50 $1,625 27% 200 $1,617 27% 50 $1,775 29% 50 $1,775 29% 000 mt $/mt % 71 $2,052 25% 19 $2,599 25% 19 $2,625 25% 20 $2,625 25% 20 $2,625 25% 77 $2,619 25% 20 $2,825 25% 20 $2,825 25% 2010 Q111 FQ311 Q211 FQ411 Q311E FQ112 Q411E FQ212 2011E Q112E FQ312 Q212E FQ412
Q312E FQ113
Q412E FQ213
2012E
Trend
20 $2,825 25%
20 $2,825 25%
79 $2,825 25%
79 $2,825 25%
50 $1,775 29%
50 $1,775 29%
200 $1,775 29%
235 $1,800 29%
67 $890 20%
67 $890 21%
265 $890 20%
235 $920 21%
18 $4,025 14% 89% 53% 75%
18 $4,025 14% 89% 53% 75%
72 $4,025 14% 89% 53% 75%
68 $4,025 14% 89% 53% 97%
INCOME STATEMENT Revenues Cost of goods sold (excl. D&A) SG&A Specialty fibers EBITDA Nonwovens EBITDA Adjusted EBITDA Depreciation EBIT Interest EBT Tax rate Adjusted net income Shares outstanding (FD) Adjusted EPS (FD) Dividend $MM $MM $MM $MM $MM $MM $MM $MM $MM $MM % $MM MM $/sh $/sh $807 (611) (49) $127 $27 144 (49) 98 (13) 78 nm $56 39.8 $1.37 $0.08 $238 (167) (13) $52 $7 57 (13) 44 (2) 41 31% $29 40.2 $0.71 $0.05 $256 (183) (15) $51 $9 58 (14) 31 (2) 29 52% $28 40.1 $0.68 $0.05 $254 (186) (13) $47 $9 55 (13) 41 (1) 40 35% $27 39.8 $0.68 $0.06 $255 (186) (13) $47 $9 56 (13) 42 (1) 41 35% $27 39.6 $0.69 $0.06 $1,003 (722) (54) $198 $35 225 (53) 157 (5) 152 36% $111 39.9 $2.76 $0.22 $266 (193) (13) $52 $10 60 (13) 46 (1) 46 35% $30 39.4 $0.77 $0.07 $266 (193) (13) $52 $10 60 (13) 46 (0) 46 35% $31 39.0 $0.78 $0.07 $269 (195) (13) $52 $10 61 (13) 47 (0) 47 35% $31 38.6 $0.80 $0.09 $269 (194) (13) $53 $10 62 (13) 47 (0) 47 35% $31 38.2 $0.82 $0.09 $1,071 (775) (51) $210 $39 243 (53) 187 (2) 185 34% $123 38.8 $3.18 $0.32 $1,100 (787) (56) $225 $35 255 (55) 200 1 201 35% $130 36.4 $3.58 $0.36
CASH FLOW STATEMENT CF from ops b/f w/c CFFO Investing cash flow Financing cash flow Capex Free cash flow b/f w/c Free cash flow b/f w/c $MM $MM $MM $MM $MM $MM $/sh 159 186 (61) (128) 60 98 $2.47 28 38 (10) (28) 10 18 $0.45 40 67 (16) (49) 16 24 $0.59 41 13 (15) (13) 15 26 $0.66 42 35 (15) (2) 15 27 $0.68 151 153 (56) (92) 56 95 $2.38 45 41 (15) (14) 15 30 $0.76 45 44 (15) (25) 15 30 $0.77 46 43 (15) (26) 15 31 $0.79 46 49 (10) (16) 40 6 $0.17 182 177 (55) (81) 85 97 $2.49 195 195 (58) (43) 58 137 $3.76
BALANCE SHEET Cash Gross debt Net debt Net debt-to-cap Shareholders equity Book value $MM $MM $MM % $MM $/sh 25 164 139 21% $533 $13.59 28 137 109 16% $570 $14.38 30 97 66 10% $579 $14.62 16 97 81 12% $594 $15.11 34 97 63 9% $619 $15.83 34 97 63 9% $619 $15.70 45 97 52 7% $636 $16.34 49 87 38 5% $652 $16.93 51 77 26 4% $667 $17.50 74 77 3 0% $682 $18.09 74 77 3 0% $682 $17.80 210 47 (163) 0% $877 $24.43
September 21, 2011
Key Risks
Primary risks to our forecast include: The pace of the economic recovery With only ~32% of the companys sales from the U.S., a slower than expected global economic recovery would reduce demand for all products. Leading economic indicators (including the manufacturing and nonmanufacturing PMIs in the U.S.) have shown improvement in 2011 but remain relatively tepid. Demand and prices for pulp are relatively strong despite the recent inventory builds for paper-grade pulp. Interest rates are being kept very low by central banks around the world to support economic activity. Pulp demand and prices A decline in demand for pulp products or a sustained increase in supply would increase pressure on prices and lower forecast EBITDA. This risk is mitigated by the companys long-term supply contracts covering a large portion of specialty dissolving pulp production. New technologies to convert papergrade pulp into DP Neo Industrials Viscose Fiber business (Avilon) disclosed in May that it has developed, and brought into production, new technology that allows for the conversion of paper-grade pulp into commodity DP. Avilon has sought patents for its technology and is negotiating licenses for the system with other producers. While we know very little about the quality and scalability of Avilons technology, it has the potential to seriously disrupt the commodity grade DP market. If this were to occur we would likely see lower commodity DP prices, which may encourage the deep-pocketed commodity DP mills to upgrade to be able to produce specialty DP. We are skeptical of the economics of Avilons system given the drop in commodity DP prices. Conversion costs including yield loss, energy, and chemicals are likely in the $500/mt range. Availability of raw materials Buckeye depends on cotton linters to produce specialty cotton DP. Shortages of cotton linters have resulted in reduced production rates at the Brazil and Memphis plants. To produce specialty wood DP, Buckeye depends on the availability of slash pine timber. Based on the current availability of fibre near Foley, we do not anticipate Buckeye will face a shortage of wood supply. Increased transportations costs Buckeye depends on reliable access to rail, truck, and international shipping channels to deliver product to its global customer base. An increase in transportation costs could impact margins. However, we note that in the late 1990s, Rayonier and Buckeye successfully instituted a surcharge to cover rapidly escalating transportation costs. New industry capacity While our supply/demand analysis suggests excess supply is unlikely for specialty DP over the next three years, there is the possibility that mills that used to produce higher alpha grades and now produce commodity DP could be regraded to produce specialty DP again. Based on the existing swing-mills that we are aware of, we view this risk as quite small. We also note that it would likely take at least six to nine months for a mill to qualify new specialty DP production with customers. Labor disruption While Buckeye has not experienced a work stoppage caused by labor dispute at either its Foley or Memphis plants in 30+ years, the concentration of its production at a handful of facilities means an extended labor-related disruption could have a material short-term impact. Approximately 54% of U.S. employees are unionized. Buckeyes non-management workers in Brazil are unionized and its employees in Germany have a works council. Given Buckeyes track record, and the fact that the labor agreements at the Foley and Memphis plants are in effect until April 2012 and March 2013, respectively, we view the risk of a labor disruption to be small at this time. Increased environmental regulation The EPAs Boiler Maximum Achievable Control Technology (MACT) rules published in March 2011 could negatively impact all pulp mills in the United States as they would face higher costs to comply with the increased regulations. Buckeye estimates that if the Boiler MACT rules were fully implemented it may have to spend $40 million to comply. The American Forest & Paper Association (AF&PA) has commissioned a study suggesting industry compliance would cost $7 billion, lead to the potential closure of 36 U.S. mills, and place 20,000 jobs at risk. On September 13, 2011 a resolution freezing implementation of the Boiler MACT rules for 15 months while the EPA sets new achievable standards was approved by a bi-partisan vote of the House Energy and Power Subcommittee after extensive lobbying by the AF&PA. While we anticipate the industry will face additional environmental compliance costs when new Boiler MACT rules are finalized, we expect the resulting cost to be considerably lower than that suggested by the original Boiler MACT rules.
September 21, 2011
Valuation
Our price target is based on the blended 5.5x EV/EBITDA multiple of our trend EBITDA estimate of $255 million (85%) and our 2012 EBITDA estimate of $243 million (15%). We believe Buckeye should trade within the typical range for U.S. paper & forest product companies (5.5x to 7.0x), reflecting the company's positive commodity pricing momentum and above average earnings visibility provided by having a large proportion of future contracted production shielded from most raw material increases through cost pass-throughs.
Price Target Impediment

The most significant risk to achieving our price target is weaker-than-expected pricing for specialty dissolving pulp. New capacity additions in specialty wood dissolving pulp, fluff pulp, and airlaid nonwovens may have a negative impact on prices. While Buckeye is generally able to pass on the majority of increases in raw material costs, substantially higher prices, particularly for specialty cotton dissolving pulp, could result in lower-than-expected demand. Difficulty in procuring cotton linters may result in reduced specialty cotton dissolving pulp operating rates, which would materially affect financial performance. In general, lower than expected global economic growth would result in weaker-than-expected growth for all of Buckeyes products.
Company Description
Buckeye is the second-largest producer globally of specialty dissolving pulp, with a 22% market share and a top-15 producer of nonwovens with production capacity in the U.S., Germany, Canada, and Brazil. As the only producer with the ability to make specialty DP from both wood and cotton using wetlaid and airlaid technologies Buckeye has a strong market position in a variety of key markets. Buckeye also produces approximately 265,000 mt of fluff pulp.
September 21, 2011
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September 21, 2011
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INITIATION | COMMENT

125 WEEKS Rel. S&P 500

08MAY09 - 20SEP11 HI-16SEP11 416.60 LO/HI DIFF 344.40% CLOSE 404.80

SEPTEMBER 21, 2011

Buckeye Technologies Inc.

LO-26JUN09 93.74 HI-08JUL11 29.45 LO/HI DIFF 589.69%

5.00 6000 4500 3000 1500

PEAK VOL. 6790.0 VOLUME 743.1

33.00 25% 1,064 0.9% 0.8x 1.8x 1,131

All values in USD unless otherwise noted.

[email protected] IZET ELMAZI 06/28/12 11:26:44 AM Goodman & Company Investment C

September 21, 2011

Buckeye Technologies Inc.

Buckeye is a global leader in specialty dissolving pulp

Gross sales ($MM)

$600 $400 $200 $0 2010 2011E 2012E 2013E Trend

Fluff Specialty wood DP

Specialty cotton DP Nonwovens

Adjusted EPS (FD)

Adjusted EPS (FD)

2 [email protected] IZET ELMAZI 06/28/12 11:26:44 AM Goodman & Company Investment C

September 21, 2011

Buckeye Technologies Inc.

Fluff pulp $236 MM 19% $48 MM 20.5% 2012E Sales

Nonw ovens $291 MM 27% $39 MM 13.3%

Share of total sales 2012E EBITDA Margin

Share of total sales 2012E EBITDA Margin

200k mt of capacity, considering

148k mt of capacity Operating ~53% due to limited

265k mt of capacity, considering

96k mt of capacity, shutting

Operating close to 100% of capacity

Operating close to 100% of capacity

Operating ~75% of capacity

Florida facility one of only 2 specialty

World's largest cotton DP mill

Approx. 14% sold internally to

World's largest airload nonwovens

Production sold out

Brazilian plant competes with specialty

Working to improve quality of fluff

Margin stability due to raw material

Source: Company reports, RBC Capital Markets estimates

3 [email protected] IZET ELMAZI 06/28/12 11:26:44 AM Goodman & Company Investment C

September 21, 2011

Buckeye Technologies Inc.

2012E Production: 27,600 mt

Source: Company reports, RBC Capital Markets estimates

4 [email protected] IZET ELMAZI 06/28/12 11:26:44 AM Goodman & Company Investment C

September 21, 2011

Buckeye Technologies Inc.

Global dissolving pulp market - 5.2MM mt

Source: Tembec Inc.

5 [email protected] IZET ELMAZI 06/28/12 11:26:44 AM Goodman & Company Investment C

September 21, 2011

Buckeye Technologies Inc.

Source: National Cotton Council of America

Source: Sappi Saiccor, Lenzing AG, Asian Development Bank

6 [email protected] IZET ELMAZI 06/28/12 11:26:44 AM Goodman & Company Investment C

September 21, 2011