Cellu Tissue Holdings, Inc. Announces Second Quarter Fiscal 2010 Results


    


    
</pre>
<p>ALPHARETTA, Ga., <chron>Oct. 7</chron> /CNW/ -- Cellu Tissue Holdings, Inc. (the "Company" or "Cellu Tissue"), a leading North American producer of consumer-oriented private label tissue with a growing presence in the value retail tissue market, today reported net income of <money>$2.7 million</money> for the quarter ended <chron>August 27, 2009</chron> compared to a loss of <money>$0.2 million</money> in the second quarter 2008.</p>
<p/>
<p>"The Company has continued to execute its strategy of leveraging our vertically integrated hardroll tissue manufacturing to grow our tissue converting operations," said Russell C. Taylor, President and Chief Executive Officer of Cellu Tissue Holdings.  "As a result of continued improvement in the business, we believe we will exceed the high end of our previously communicated Adjusted EBITDA guidance of <money>$75 million to $80 million</money> for the current fiscal year."</p>
<p/>
<p>As previously announced, in the second quarter of fiscal year 2009, the Company completed its acquisition of the Long Island, New York and Thomaston, <location>Georgia</location> tissue converting operations of Atlantic Paper & Foil ("APF").  Accordingly, the results for the three and six months ended <chron>August 27, 2009</chron> are impacted by the effects of APF's operating results, as highlighted below.</p>
<pre>
    

    Second Quarter 2010 Financial and Operating Results

    
</pre>
<p>Net sales for the Fiscal 2010 three month period increased <money>$4.8 million</money>, or 3.6%, to <money>$137.8 million</money> from <money>$133.0 million</money> for the comparable prior year period.  During the Fiscal 2010 three month period, we sold 89,328 tons of tissue hardrolls, machine-glazed tissue hardrolls and converted tissue products, an increase of 4,291 tons, or an increase of 5.0% over the comparable prior year period.  During the quarter, we in-sourced an additional 6,046 tons of hardrolls for our converting operations that were previously purchased on the hardroll market in the prior year.  This served to reduce external hardroll shipments by a similar amount and improved our overall sales mix due to higher selling prices for converted tissue products.  This is consistent with our strategy to increase the vertical integration of the acquired operations, supporting improved quality control and profitability.  Net selling price per ton decreased to <money>$1,519</money> during the current period from <money>$1,554</money> during the prior year period.  This decrease in price primarily reflects the downward pricing pressure brought on by lower pulp prices, which was partially offset by the impact of mix improvements.</p>
<p/>
<p>Gross profit was <money>$22.6 million</money> for the Fiscal 2010 three month period, or an increase of <money>$11.6 million</money> from <money>$11.0 million</money> in the comparable prior year period.  As a percentage of net sales, gross profit increased to 16.4% in the Fiscal 2010 three month period from 8.3% in the fiscal 2009 three month period.  The improvement was primarily driven by the overall volume, mix and selling price changes as discussed above, as well as favorable improvements in pulp pricing and lower energy costs.</p>
<p/>
<p>Income from operations for the second quarter ended <chron>August 27, 2009</chron> was <money>$16.2 million</money> compared to <money>$5.7 million</money> for the comparable period in the prior fiscal year.  The overall increase is the result of the increase in gross profit as noted above, offset partially by higher selling, general and administrative expense in connection with increased incentive compensation expense.</p>
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    Debt Refinancing

    
</pre>
<p>During the second quarter of Fiscal 2010 the Company refinanced its long-term debt, which resulted in higher overall interest rates and extended the overall maturity of the majority of long-term debt.  The new 11-1/2% Senior Secured Notes due in 2014 ("2014 Notes") generated cash proceeds of <money>$245.7 million</money>.  These proceeds were primarily used to retire all of the 9-3/4% Senior Secured Notes due in 2010 ("2010 Notes").  Interest expense for the current quarter was <money>$12.3 million</money>, compared to <money>$6.1 million</money> in the prior year period.  The current quarter includes the effects of extinguishing our 2010 Notes and the issuance of our 2014 Notes.  Non-recurring costs of the refinancing include both the write-off of deferred financing fees of <money>$2.2 million</money> and incremental interest expense of <money>$1.7 million</money> due to the period of time that elapsed between the issuance of the 2014 Notes and the extinguishment of the 2010 Notes.  The remaining increase is primarily attributable to the higher interest rates and debt issuance costs related to the 2014 Notes.</p>
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    Segment Operating Results

    Tissue
    
</pre>
<p>Net sales for our tissue segment were <money>$107.8 million</money> during the Fiscal 2010 three month period, an increase of <money>$4.4 million</money>, or 4.2% from <money>$103.4 million</money> in the comparable prior year period.  The increase was due primarily to increased sale volumes, an improved mix with respect to converting tons sold, and moderate price improvement.  Net selling price per ton increased to <money>$1,625</money> for the Fiscal 2010 three month period from <money>$1,605</money> for the Fiscal 2009 three month period.  This increase in net selling price per ton was primarily the result of improvements in product mix as a result of higher converted tissue sales, and to a smaller extent, an increase in converted product selling prices, partially offset by downward pricing pressure brought on by lower pulp prices. The increase in converting tons sold reflects continued organic growth in our converting business and results from the APF Acquisition for the full three month period in Fiscal 2010, compared to only two months of ownership in the Fiscal 2009 three month period.  For the Fiscal 2010 three month period, we sold 66,312 tons of tissue compared to 64,416 tons in the Fiscal 2009 three month period.</p>
<p/>
<p>Operating income was <money>$15.4 million</money> compared to <money>$6.1 million</money>, driven by the factors discussed above, and was also due to reduced fiber and energy prices and increased sales of our converted tissue products, which leveraged our ability to incrementally use more internally manufactured hardrolls.</p>
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    Machine-Glazed Tissue
    
</pre>
<p>Net sales for our machine-glazed tissue segment for the Fiscal 2010 three month period were <money>$27.9 million</money>, a decrease of <money>$0.8 million</money> or 2.8%, compared to <money>$28.7 million</money> in the comparable prior year period.  Tons sold during the fiscal 2010 period increased 11.6%, but this increase was offset by a decline in selling prices associated with lower pulp prices.  Net selling price per ton was <money>$1,213</money> for the Fiscal 2010 three month period compared to <money>$1,393</money> per ton for the Fiscal 2009 three month period.  For the Fiscal 2010 three month period, we sold 23,016 tons of machine-glazed tissue compared to 20,621 tons in the Fiscal 2009 three month period.</p>
<p/>
<p>Operating income was <money>$1.3 million</money> in the current quarter compared to <money>$0.3 million</money> in the Fiscal 2009 period.  The improvement was primarily attributable to lower pulp and energy prices, along with favorable machine productivity.</p>
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    Foam
    
</pre>
<p>Net sales and operating income for our foam segment was <money>$2.1 million</money> and <money>$0.6 million</money> in the fiscal 2010 period, respectively, compared to <money>$0.9 million</money> and <money>$0.2 million</money> in the prior year period.   The increase was primarily due to the timing of the APF Acquisition and lower resin prices, the primary raw material used to manufacture our foam products.</p>
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    Adjusted EBITDA

    
</pre>
<p>Earnings before interest, taxes, depreciation, amortization and special items (Adjusted EBITDA) for the second quarter ended <chron>August 27, 2009</chron> totaled <money>$23.3 million</money>, compared to <money>$13.2 million</money> for the comparable period in the prior fiscal year.</p>
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    Notice Relating to the Use of Non-GAAP Measures
    
</pre>
<p>Attached to this press release are tables setting forth the Company's fiscal second quarter consolidated statements of operations, financial position and selected consolidated financial data, including information concerning the Company's cash flow position, selected consolidated segment data, reconciliations of consolidated net income to consolidated EBITDA and reconciliations of consolidated EBITDA to consolidated Adjusted EBITDA.  EBITDA and Adjusted EBITDA are not  measures of performance under U.S. generally accepted accounting principles and should not be considered in isolation or used as a substitute for income from operations, net income, net cash provided by operating activities or other operating or cash flow data prepared in accordance with generally accepted accounting principles.  The Company believes EBITDA and Adjusted EBITDA are useful to investors because they are used by management to evaluate the Company's financial performance.  Adjusted EBITDA is defined as EBITDA adjusted for items which are expenses that are considered outside the normal operations of the business.</p>
<p/>
<p>Cellu Tissue's management invites you to listen to its conference call on <chron>October 8, 2009</chron> at <chron>10:00 a.m. EST</chron> regarding fiscal second quarter 2010 consolidated financial results.  The dial-in number is (800) 230-1074 or International (612) 288-0337; participant code 118371.   A taped replay of the conference call will be available after <chron>12:30 p.m.</chron> <chron>October 8, 2009</chron> until <chron>October 22, 2009</chron>.  The number to call for the taped replay is (800) 475-6701 or International (320) 365-3844, access code 118371.</p>
<p/>
<p>Cellu Tissue Holdings, Inc. is a leading North American producer of consumer-oriented private label tissue products with a growing presence in the value retail tissue market.</p>
<p/>
<p>For more information, contact Cellu Tissue Holdings, Inc. at <a href="http://www.cellutissue.com">www.cellutissue.com</a>.</p>
<p/>
<p>The statements contained in this release that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including but not limited to statements regarding the Company's future financial performance.  Readers are cautioned not to place undue reliance on these forward-looking statements and any such forward-looking statements are qualified in their entirety by reference to the following cautionary statements. All forward-looking statements included in this document are based upon information available to Cellu Tissue as of the date hereof, and Cellu Tissue assumes no obligation to update any such forward-looking statements. Such statements and any other forward-looking statements are subject to risks, assumptions and uncertainties that may cause the statements to be inaccurate and readers are cautioned not to place undue reliance on such statements, including risks related to energy and fiber costs, the growth of our converted tissue business and synergies relating to the APF Acquisition and any other risks described in our Annual Report on Form 10-K for the fiscal year ended <chron>February 28, 2009</chron> and subsequent filings with the SEC.</p>
<p/>
<p> </p>
<p> </p>
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                  CELLU TISSUE HOLDINGS, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (Unaudited)
    
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<p> </p>
<pre>
    
                              For the three               For the six
                               months ended               months ended
                         -------------------------  --------------------------
                         August 27,    August 28,    August 27,    August 28,
                            2009          2008          2009          2008
                         ----------    -----------  ------------  ------------
    Net sales          $137,796,650  $133,012,856  $256,724,872  $247,540,417
    Cost of goods sold  115,154,471   122,012,927   214,269,375   224,752,584
                        -----------   -----------  ------------  ------------
    Gross profit         22,642,179    10,999,929    42,455,497    22,787,833
    
</pre>
<p> </p>
<pre>
    
    Selling, general
     and administrative
     expenses             5,164,488     4,163,350    10,434,429     9,123,192
    Terminated
     acquisition-
     related
     transaction costs          -          65,044           -         140,044
    Stock compensation
     expense                191,260       226,987       422,480       445,493
    Amortization
     expense              1,079,268       802,435     2,135,692       802,435
                         ----------    ----------   -----------  ------------
    Income from
     operations          16,207,163     5,742,113    29,462,896    12,276,669
    
</pre>
<p> </p>
<pre>
    
    Interest expense,
     net                 12,331,443     6,061,057    18,837,994    11,040,745
    Foreign currency
     loss                   356,287       127,700       713,226        84,620
    Other expense
     (income)              (355,871)        8,910      (372,445)       38,418
                         ----------   -----------  ------------  ------------
    Income before
     income tax
     (benefit) expense    3,875,304      (455,554)   10,284,121     1,112,886
    
</pre>
<p> </p>
<pre>
    
    Income tax
     (benefit) expense    1,157,830      (208,471)    5,255,782       367,499
                         ----------   -----------  ------------  ------------
    Net income (loss)    $2,717,474     $(247,083)   $5,028,339      $745,387
                         ==========   ===========  ============  ============
    
</pre>
<p> </p>
<p> </p>
<p> </p>
<pre>
    
                  CELLU TISSUE HOLDINGS, INC. AND SUBSIDIARIES
                     CONSOLIDATED BALANCE SHEETS (UNAUDITED)
    
</pre>
<p> </p>
<pre>
    
                                                August 27,       February 28,
                                                   2009              2009
                                               ------------      ------------
    ASSETS
    Current Assets:
      Cash and cash equivalents                $22,026,586          $361,035
      Receivables, net                          50,608,827        54,065,899
      Inventories                               39,240,582        47,216,049
      Prepaid expenses and other current
       assets                                    2,762,231         2,085,774
      Income tax receivable                        114,076           174,084
      Deferred income taxes                      6,076,578         3,515,295
                                              ------------      ------------
        Total Current Assets                   120,828,880       107,418,136
    
</pre>
<p> </p>
<pre>
    
    Property, Plant and Equipment, net         304,560,737       301,987,941
    Goodwill                                    41,020,138        41,020,138
    Other intangibles                           29,536,785        31,672,477
    Other assets                                10,501,950         1,948,108
                                              ------------      ------------
        Total Assets                          $506,448,490      $484,046,800
                                              ============      ============
    
</pre>
<p> </p>
<p> </p>
<pre>
    
    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current Liabilities:
      Bank overdrafts                                 $-          $3,285,420
      Revolving line of credit                         -          18,530,824
      Accounts payable                          22,200,416        16,726,143
      Accrued expenses                          26,334,867        26,548,639
      Accrued interest                           7,042,583        10,160,124
      Other current liabilities                 16,730,056        17,448,707
      Current portion of long-term debt            760,000           760,000
                                               ------------      ------------
        Total Current Liabilities               73,067,922        93,459,857
    
</pre>
<p> </p>
<pre>
    
    Long-term debt, less current portion       268,352,692       242,361,944
    Deferred income taxes                       80,065,490        75,110,277
    Other liabilities                            6,091,431         5,378,059
    
</pre>
<p> </p>
<pre>
    
    Stockholders' Equity:
      Common stock, Class A, $.01 par
       value, 1,000 shares authorized,
       100 shares issued and outstanding                 1                 1
      Capital in excess of par value            71,371,341        70,948,860
      Accumulated earnings                       8,726,410         3,698,071
      Accumulated other comprehensive loss      (1,226,797)       (6,910,269)
                                              ------------      ------------
        Total Stockholders' Equity              78,870,955        67,736,663
                                              ------------      ------------
        Total Liabilities and
         Stockholders' Equity                 $506,448,490      $484,046,800
                                              ============      ============
    
</pre>
<p> </p>
<p> </p>
<p> </p>
<pre>
    
                  CELLU TISSUE HOLDINGS, INC. AND SUBSIDIARIES
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
    
</pre>
<p> </p>
<p>                                                    (Unaudited)</p>
<p> </p>
<pre>
    
                                                      Six Months Ended
                                                 August 27,       August 28,
                                                   2009              2008
                                               ------------      ------------
    
</pre>
<p> </p>
<pre>
    
    Cash flows from operating activities
      Net income                                 $5,028,339          $745,387
      Adjustments to reconcile net income
       to net cash provided by
       operating activities:
           Depreciation                          12,050,067        11,722,167
           Amortization of intangibles            2,135,692           802,435
           Amortization of deferred
            financing fees                          479,707            70,197
           Accretion of debt discount               976,448           600,929
           Loss from write-off of
            discount on notes                     1,911,471               -
           Write-off of deferred
            financing fees                          299,803               -
           Stock-based compensation                 422,480           445,493
           Deferred income taxes                  2,393,930           183,283
           Loss on disposal of fixed asset          147,241               -
           Loss from natural gas swaps                  -             835,484
      Changes in operating assets and
       liabilities, net of effects of
       acquisitions:
           Receivables                            4,287,654       (10,094,518)
           Inventories                            8,699,026          (611,272)
           Prepaid expenses, other current
            assets and income tax receivable       (757,153)          254,655
           Other                                    368,092          (665,725)
           Accounts payable, accrued expenses
            and accrued interest                  2,429,452         2,436,384
                                               ------------      ------------
           Total adjustments                     35,843,910         5,979,512
                                               ------------      ------------
             Net cash provided by operating
              activities                         40,872,249         6,724,899
    
</pre>
<p> </p>
<pre>
    
    Cash flows from investing activities
           Cash paid for acquisition, net of
            cash acquired                               -         (63,829,401)
           Capital expenditures                 (11,162,014)       (4,820,549)
                                               ------------      ------------
           Net cash used in investing
            activities                          (11,162,014)      (68,649,950)
    
</pre>
<p> </p>
<pre>
    
    Cash flows from financing activities
           Equity investment by shareholders            -          15,001,466
           Bank overdrafts                       (3,285,420)              -
           Borrowings on revolving line of
            credit, net                          22,350,147        51,000,000
           Payments on revolving line of
            credit, net                         (40,880,971)      (37,800,000)
           Payments on long-term debt              (380,000)         (380,000)
           Retirement of long-term debt        (222,255,572)              -
           Payment of deferred financing
            fees                                 (9,346,462)         (847,813)
           Net proceeds from bond offering      245,738,400        36,900,000
                                               ------------      ------------
             Net cash (used in) provided by
              financing activities               (8,059,878)       63,873,653
    
</pre>
<p> </p>
<pre>
    
    Effect of foreign currency                       15,194          (228,359)
                                               ------------      ------------
    Net increase in cash and cash
     equivalents                                 21,665,551         1,720,243
    Cash and cash equivalents at
     beginning of period                            361,035           883,388
                                               ------------      ------------
    Cash and cash equivalents at end of
     period                                     $22,026,586        $2,603,631
                                               ============      ============
    
</pre>
<p> </p>
<p> </p>
<p> </p>
<pre>
    
                                    CELLU TISSUE HOLDINGS, INC.
                       CONSOLIDATED BUSINESS SEGMENT INFORMATION (Unaudited)
    
</pre>
<p> </p>
<p> </p>
<p> </p>
<pre>
    
    BUSINESS SEGMENTS
                                                    Three Months Ended
                                               August 27,         August 28,
                                                  2009               2008
                                               ------------      ------------
    NET SALES:
      Tissue                                  $107,781,026       $103,413,826
      Machine-Glazed Tissue                     27,925,877         28,718,124
      Foam                                       2,089,747            880,906
                                              ------------       ------------
      Consolidated                            $137,796,650       $133,012,856
                                              ============       ============
    INCOME FROM OPERATIONS:
      Tissue                                   $15,356,475         $6,112,624
      Machine-Glazed Tissue                      1,326,574            253,267
      Foam                                         603,382            178,657
                                              ------------       ------------
      Segment income from operations            17,286,431          6,544,548
      Amortization expense                      (1,079,268)          (802,435)
                                              ------------       ------------
      Consolidated                             $16,207,163         $5,742,113
                                              ============       ============
    
</pre>
<p> </p>
<p> </p>
<p> </p>
<pre>
    
                                                     Six Months Ended
                                               August 27,         August 28,
                                                  2009               2008
                                               ------------      ------------
    
</pre>
<p> </p>
<pre>
    
    NET SALES:
      Tissue                                  $201,248,387       $189,210,876
      Machine-Glazed Tissue                     51,519,942         57,448,635
      Foam                                       3,956,543            880,906
                                              ------------       ------------
      Consolidated                            $256,724,872       $247,540,417
                                              ============       ============
    
</pre>
<p> </p>
<pre>
    
    INCOME FROM OPERATIONS:
      Tissue                                   $27,711,329        $12,167,787
      Machine-Glazed Tissue                      2,666,960            732,660
      Foam                                       1,220,299            178,657
                                              ------------       ------------
      Segment income from operations            31,598,588         13,079,104
      Amortization expense                      (2,135,692)          (802,435)
                                              ------------       ------------
      Consolidated                             $29,462,896        $12,276,669
                                              ============       ============
    
</pre>
<p> </p>
<p> </p>
<p> </p>
<pre>
    
                                    CELLU TISSUE HOLDINGS, INC,
                        RECONCILIATION OF CONSOLIDATED NET INCOME TO EBITDA
                                            (Unaudited)
                                         ($ in thousands)
    
</pre>
<p> </p>
<p> </p>
<pre>
    
                                                     Three Months Ended
                                                August 27,         August 28,
                                                   2009               2008
                                              ------------       ------------
    NET INCOME (LOSS)                               $2,717              $(247)
      Add back:
        Depreciation                                 6,122              5,868
        Amortization                                 1,079                802
        Interest expense                            12,331              6,061
        Income tax expense (benefit)                 1,159               (208)
                                              ------------       ------------
    EBITDA                                         $23,408            $12,276
                                              ============       ============
    
</pre>
<p> </p>
<pre>
    
                                                      Six Months Ended
                                                August 27,         August 28,
                                                   2009               2008
                                              ------------       ------------
    NET INCOME                                      $5,028               $745
      Add back:
        Depreciation                                12,050             11,722
        Amortization                                 2,136                802
        Interest expense, net                       18,838             11,041
        Income tax expense                           5,256                367
                                              ------------       ------------
    EBITDA                                         $43,308            $24,677
                                              ============       ============
    
</pre>
<p> </p>
<p> </p>
<p> </p>
<pre>
    
                         CELLU TISSUE HOLDINGS, INC.
                    RECONCILIATION OF CONSOLIDATED EBITDA TO
                         CONSOLIDATED ADJUSTED EBITDA
                                 (Unaudited)
                              ($ in thousands)
    
</pre>
<p> </p>
<pre>
    
                                              Three Months      Three Months
                                                 Ended             Ended
                                            August 27, 2009   August 28, 2008
                                            ---------------   ---------------
    EBITDA                                       $23,408            $12,276
      Add back (a) :
      Equipment/facility moves (2)                    20                  -
      Insurance recovery (3)                        (346)                 -
      Stock compensation (4)                         191                227
      Inventory step-up adjustment (5)                 -                283
      APF Transition Costs (6)                                          334
      Terminated Acquisition Costs (7)                                  115
                                            ---------------   ---------------
    ADJUSTED EBITDA                              $23,273            $13,235
                                            ===============   ===============
    
</pre>
<p> </p>
<pre>
    
                                              Six Months         Six Months
                                                 Ended             Ended
                                            August 27, 2009   August 28, 2008
                                            ---------------   ---------------
    
</pre>
<p> </p>
<pre>
    
    EBITDA                                        $43,308             $24,677
      Add back (a) :
      Mill Fire (1)                                   250                   -
      Equipment/facility moves (2)                    373                   -
      Insurance recovery (3)                         (346)                  -
      Stock compensation (4)                          422                 445
      Inventory step-up adjustment (5)                  -                 284
      APF Transition Costs (6)                          -                 334
      Terminated Acquisition Costs (7)                  -                 233
      Mississippi Sales & Use Tax (8)                                     258
                                            ---------------   ---------------
    ADJUSTED EBITDA                               $44,007             $26,231
                                            ===============   ===============
    
</pre>
<p> </p>
<pre>
    
    (a)  Add backs represent adjustments to EBITDA for items which are either
         noncash in nature or expenses that are considered outside the normal
         operations of the business as more fully explained below:
    (1)  Costs incurred with respect to fire damage at one of our mills.
    (2)  Costs incurred to move Hauppauge operations to Central Islip which
         was completed during the three months ended August 27, 2009.
    (3)  Insurance recovery as a result of equipment that was damaged in
         transit.
    (4)  Non cash compensation expense related to the vesting of restricted
         stock awards and stock option awards.
    (5)  Inventory step up adjustment related to purchase accounting for APF
         acquisition.
    (6)  Transition costs related to the APF acquisition.
    (7)  Deal costs for acquisitions that were ultimately not completed.
    (8)  Sales and use tax assessment based on audit of prior periods.




    

For further information: For further information: Cellu Tissue Holdings, Inc. +1-678-393-2651 Web Site: http://www.cellutissue.com

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