Cellu Tissue Holdings, Inc. Announces Second Quarter Fiscal 2010 Results
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<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>
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<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>
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<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>
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Second Quarter 2010 Financial and Operating Results
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<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>
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<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>
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<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
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<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
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<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>
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<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
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<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>
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<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
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<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
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<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
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<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>
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<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>
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<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>
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<p>For more information, contact Cellu Tissue Holdings, Inc. at <a href="http://www.cellutissue.com">www.cellutissue.com</a>.</p>
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<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>
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CELLU TISSUE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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<p> </p>
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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
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<p> </p>
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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
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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
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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
========== =========== ============ ============
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CELLU TISSUE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
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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
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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
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Total Assets $506,448,490 $484,046,800
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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
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<p> </p>
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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
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<p> </p>
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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)
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Total Stockholders' Equity 78,870,955 67,736,663
------------ ------------
Total Liabilities and
Stockholders' Equity $506,448,490 $484,046,800
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CELLU TISSUE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
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<p> </p>
<p> (Unaudited)</p>
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Six Months Ended
August 27, August 28,
2009 2008
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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
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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)
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<p> </p>
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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
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Net cash (used in) provided by
financing activities (8,059,878) 63,873,653
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Effect of foreign currency 15,194 (228,359)
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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
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Cash and cash equivalents at end of
period $22,026,586 $2,603,631
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CELLU TISSUE HOLDINGS, INC.
CONSOLIDATED BUSINESS SEGMENT INFORMATION (Unaudited)
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BUSINESS SEGMENTS
Three Months Ended
August 27, August 28,
2009 2008
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NET SALES:
Tissue $107,781,026 $103,413,826
Machine-Glazed Tissue 27,925,877 28,718,124
Foam 2,089,747 880,906
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Consolidated $137,796,650 $133,012,856
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INCOME FROM OPERATIONS:
Tissue $15,356,475 $6,112,624
Machine-Glazed Tissue 1,326,574 253,267
Foam 603,382 178,657
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Segment income from operations 17,286,431 6,544,548
Amortization expense (1,079,268) (802,435)
------------ ------------
Consolidated $16,207,163 $5,742,113
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Six Months Ended
August 27, August 28,
2009 2008
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NET SALES:
Tissue $201,248,387 $189,210,876
Machine-Glazed Tissue 51,519,942 57,448,635
Foam 3,956,543 880,906
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Consolidated $256,724,872 $247,540,417
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INCOME FROM OPERATIONS:
Tissue $27,711,329 $12,167,787
Machine-Glazed Tissue 2,666,960 732,660
Foam 1,220,299 178,657
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Segment income from operations 31,598,588 13,079,104
Amortization expense (2,135,692) (802,435)
------------ ------------
Consolidated $29,462,896 $12,276,669
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CELLU TISSUE HOLDINGS, INC,
RECONCILIATION OF CONSOLIDATED NET INCOME TO EBITDA
(Unaudited)
($ in thousands)
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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)
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EBITDA $23,408 $12,276
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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
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EBITDA $43,308 $24,677
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CELLU TISSUE HOLDINGS, INC.
RECONCILIATION OF CONSOLIDATED EBITDA TO
CONSOLIDATED ADJUSTED EBITDA
(Unaudited)
($ in thousands)
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<p> </p>
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Three Months Three Months
Ended Ended
August 27, 2009 August 28, 2008
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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
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ADJUSTED EBITDA $23,273 $13,235
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Six Months Six Months
Ended Ended
August 27, 2009 August 28, 2008
--------------- ---------------
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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
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(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: Cellu Tissue Holdings, Inc. +1-678-393-2651 Web Site: http://www.cellutissue.com
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