CLU Cellu Tissue Holdings USD0.01

ALPHARETTA, Ga., Oct. 6 /CNW/ -- Cellu Tissue Holdings, Inc. (NYSE: CLU), a North American producer of tissue products, today reported net sales of $136.6 million and a net loss of $3.8 million, or a loss of $0.19 per diluted share, for the fiscal 2011 second quarter ended August 27, 2010. As previously announced on September 16, 2010, we entered into a definitive merger agreement with Clearwater Paper Corporation ("Clearwater"), whereby Clearwater would acquire all of the outstanding common stock of the Company in an all-cash transaction, which values the company at approximately $502 million. Under the terms of the agreement, our stockholders will receive $12.00 per share in cash for each share of common stock they own. Summarized consolidated fiscal 2011 second quarter results compared to fiscal 2010 second quarter results are as follows: - Net sales for the fiscal 2011 second quarter were $136.6 million, down 0.8% compared to $137.8 million in the fiscal 2010 second quarter. - Income from operations for the fiscal 2011 second quarter was $2.2 million compared to $16.2 million in the fiscal 2010 second quarter. The fiscal 2011 second quarter includes $1.0 million of costs related to the previously discussed merger with Clearwater. - Adjusted EBITDA was $11.4 million in the fiscal 2011 second quarter compared to $23.1 million in the fiscal 2010 second quarter. - Interest expense for the fiscal 2011 second quarter was $7.8 million compared to $12.3 million in the second quarter of fiscal 2010. The second quarter of fiscal 2010 includes approximately $3.9 million of non-recurring debt refinancing costs. - Net loss for the fiscal 2011 second quarter was $3.8 million, or a loss of $0.19 per diluted share, compared to net income of $2.7 million, or earnings of $0.16 per diluted share for the fiscal 2010 second quarter. "Our fiscal 2011 second quarter results reflect strong and improving fundamentals within our business offset by the continued impact of high pulp prices and no retail market price increase in converted tissue products," said Russell C. Taylor, President and Chief Executive Officer of Cellu Tissue Holdings. "We made good progress in installing and starting up two new converting lines during the quarter, and made our first shipments out of our new converting facility in Oklahoma City." Fiscal 2011 Second Quarter Financial and Operating Results Quarter ended ------------- August 26, August 27, 2010 2009 Increase (Decrease) ----------- ----------- ------------------- Net sales $136.6 million $137.8 million $(1.2) million (0.8)% Gross Profit $8.8 million $22.6 million $(13.8) million (61.0)% Income from operations $2.2 million $16.2 million $(14.1) million (86.7)% Tons sold 82,204 89,328 (7,124) (8.0)% Net selling price per ton $1,647 $1,519 $128 8.4% Net sales for the quarter decreased $1.2 million, or 0.8% quarter-over-quarter, primarily as a result of an 8.0% decrease in tons sold, partially offset by hardroll and away-from-home price increases. The decrease in total tons sold primarily reflects a decrease in converted tons sold and in-sourcing of an additional 1,781 tons of hardrolls for our converting operations, which were purchased on the external hardroll market in the prior year period. As a result, we reduced external hardroll shipments by a similar amount and improved the overall sales mix due to higher selling prices for converted tissue products, consistent with the our strategy to increase the vertical integration of our acquired operations and to improve quality control and profitability. Additionally, during the comparable prior year period, we shipped 3,009 tons of converted tissue to support two new substantial product launches. Net selling price per ton increased 8.4% to $1,647 during the current period from $1,519 during the comparable prior year period. This increase in price primarily reflects increases in hardroll and away-from-home selling prices. Prices in the hardroll market increased in the second quarter of fiscal 2011 but lagged price increases in the pulp market. Gross profit as a percentage of net sales decreased to 6.5% in the fiscal 2011 second quarter from 16.4% in the fiscal 2010 second quarter. The decline was primarily driven by higher pulp costs, partially offset by increases in hardroll and away-from-home selling prices. Income from operations for the fiscal 2011 second quarter was $2.2 million compared with $16.2 million in the same period of the prior fiscal year. The decrease was primarily attributable to the decline in gross profit. Interest Expense Interest expense, net in the fiscal 2011 second quarter was $7.8 million compared to $12.3 million in the fiscal 2010 second quarter. The fiscal 2010 second quarter includes the effect of extinguishing our Senior Secured Notes due 2010 (the "2010 Notes") and the issuance of our Senior Secured Notes due 2014 (the "2014 Notes"). Non-recurring costs of extinguishing our 2010 Notes includes both the write-off of deferred financing fees of $2.2 million as well as incremental interest expense of $1.7 million due to the period of time that elapsed between the issuance of the 2014 Notes and the extinguishment of the 2010 Notes. Income Tax Benefit Income tax benefit for the fiscal 2011 second quarter was $1.8 million compared to income tax expense of $1.2 million for the fiscal 2010 second quarter. Our effective tax rate for the second quarter of fiscal 2011 was 32%, which includes the beneficial impacts of reductions in applicable foreign tax rates as well as the full phase-in of the tax benefits from the domestic production activities deduction. Management estimates the overall tax rate for fiscal 2011 will be approximately 32%. Segment Operating Results Tissue Quarter ended ------------- August 26, August 27, 2010 2009 Increase (Decrease) ----------- ----------- ------------------- Net sales $105.9 million $107.8 million $(1.8) million (1.7)% Income from operations $4.4 million $15.4 million $(11.0) million (71.5)% Tons sold: Converted tissue products 26,773 29,516 (2,743) (9.3)% Hardrolls 34,939 36,795 (1,856) (5.0)% ------ ------ ------ Total 61,712 66,311 (4,599) (6.9)% Overall net selling price per ton $1,717 $1,625 $91 5.6% Net sales for Tissue during the quarter decreased to $105.9 million, or 1.7% quarter-over-quarter, primarily as a result of a 6.9% decrease in tons sold, partially offset by hardroll and away-from-home price increases. The decrease in total tons sold is primarily attributable to 3,009 tons of converted tissue shipments to support two new substantial product launches in the comparable prior year period and in-sourcing of an additional 1,781 tons of hardrolls for our converting operations, which were purchased on the external hardroll market in the prior year period. The 5.6% increase in net selling price per ton primarily reflects the increases in hardroll and away-from-home selling prices. Income from operations was $4.4 million in the fiscal 2011 second quarter compared to $15.4 million in the fiscal 2010 second quarter. Income from operations in the fiscal 2011 second quarter reflects rising pulp prices that were partially offset by hardroll price increases. Machine-Glazed Tissue Quarter ended ------------- August 26, August 27, Increase 2010 2009 (Decrease) ----------- ----------- ---------- Net sales $29.5 million $27.9 million $1.5 million 5.5% Income (loss) from operations $(1.4) million $1.3 million $(2.7) million (205.4)% Tons sold: Hardrolls 17,782 19,893 (2,111) (10.6)% Converted tissue products 2,710 3,124 (414) (13.3)% ----- ----- ---- Total 20,492 23,017 (2,525) (11.0)% Overall net selling price per ton $1,438 $1,213 $225 18.5% Net sales in Machine-Glazed Tissue increased to $29.5 million from $27.9 million in the fiscal 2010 second quarter as a result of higher net selling prices, partially offset by lower sales volume. The operating loss for Machine-Glazed Tissue was $1.4 million in the fiscal 2011 second quarter, down compared to operating income of $1.3 million in the fiscal 2010 second quarter primarily attributable to higher fiber costs and lower production volumes, partially offset by higher selling prices. Foam Quarter ended ------------- August 26, August 27, 2010 2009 Increase (Decrease) ----------- ----------- ------------------- Net sales $1.2 million $2.1 million $(0.9) million (40.8)% Income from operations $0.3 million $0.6 million $(0.3) million (56.9)% Net sales in Foam were $1.2 million compared to $2.1 million in the prior fiscal year period due to reduced sales volumes. Adjusted EBITDA Earnings before interest, taxes, depreciation, amortization and special items (Adjusted EBITDA) for the second quarter ended August 26, 2010 totaled $11.4 million, compared to $23.1 million for the comparable period in the prior fiscal year. Pending Merger; Discontinuing Financial Guidance On September 15, 2010, we entered into an agreement and plan of merger with Clearwater Paper Corporation, pursuant to which a subsidiary of Clearwater will be merged with and into Cellu Tissue, with Cellu Tissue being the surviving corporation and continuing as a wholly-owned subsidiary of Clearwater. In light of the pending merger, we are discontinuing financial guidance for fiscal 2011. Notice Relating to the Use of Non-GAAP Measures Attached to this press release are tables setting forth our second quarter consolidated statements of operations, financial position and selected consolidated financial data, including information concerning our 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 do not reflect our cash expenditures, or future requirements for capital expenditures or contractual - commitments; EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital - needs; EBITDA and Adjusted EBITDA do not reflect the significant interest expense, or the cash requirements necessary to service interest or - principal payments, on our debt; although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements; and other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do, limiting their usefulness as comparative - measures. Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using EBITDA and Adjusted EBITDA only supplementally. We further believe that our presentation of these U.S. GAAP and non-GAAP financial measurements provide information that is useful to analysts and investors because they are important indicators of the strength of our operations and the performance of our core business. Management uses EBITDA and Adjusted EBITDA: as measurements of operating performance because they assist us in comparing our operating performance on a consistent basis, as both remove the impact of items not directly - resulting from our core operations; for planning purposes, including the preparation of our internal annual - operating budget; to allocate resources to enhance the financial performance of our - business; to evaluate the performance and effectiveness of our operational - strategies; to evaluate our capacity to fund capital expenditures and expand our - business; and to calculate incentive compensation - for our employees. In addition, these measurements are used by investors as supplemental measures to evaluate the overall operating performance of companies in our industry. Management believes that investors' understanding of our performance is enhanced by including these non-GAAP financial measures as a reasonable basis for comparing our ongoing results of operations. Many investors are interested in understanding the performance of our business by comparing our results from ongoing operations from one period to the next and would ordinarily add back events that are not part of normal day-to-day operations of our business. By providing these non-GAAP financial measures, together with reconciliations, we believe we are enhancing investors' understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing strategic initiatives. Cellu Tissue's management invites you to listen to its conference call on October 7, 2010 at 9:00 a.m. ET regarding fiscal 2011 second quarter consolidated financial results. To participate in the conference call, you may either dial (800) 288-8967 or International (612) 332-0430, or join in listen-only mode to an audio webcast, accessible through the Investor Relations section at www.cellutissue.com. A taped replay of the conference call will be available after 11:00 a.m. on October 7, 2010 until October 21, 2010. The number to all for the taped replay is (800) 475-6701 or International (320) 365-3844, access code 173022. The taped replay information to access the call will also be available in the Investor Relations section of the Company's website at www.cellutissue.com. About Cellu Tissue Holdings, Inc. Cellu Tissue Holdings, Inc. is a North American producer of tissue products, with a focus on consumer-oriented private label products and a growing presence in the value retail tissue market. For more information, contact Cellu Tissue Holdings, Inc. at www.cellutissue.com. The statements contained in this release that are not purely historical, including information regarding our fiscal 2011 estimated tax rate, are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. 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 pulp costs, the growth of our converted tissue business, changes in retail pricing levels and any other risks described in our Annual Report on Form 10-K for the fiscal year ended February 28, 2010 and Form 10-Q for the quarter ended May 27, 2010 and subsequent filings with the SEC. CELLU TISSUE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) For the three months ended -------------------------- August 26, 2010 August 27, 2009 --------------- --------------- Net sales $136,632,083 $137,796,650 Cost of goods sold 127,802,664 115,154,471 ----------- ----------- Gross profit 8,829,419 22,642,179 Selling, general and administrative expenses 5,594,748 5,355,748 Amortization expense 1,080,163 1,079,268 --------- --------- Income from operations 2,154,508 16,207,163 Interest expense, net 7,838,455 12,331,443 Foreign currency loss (gain) (142,308) 356,287 Other expense (income) 92,075 (355,871) ------ -------- Income (loss) before income tax expense (5,633,714) 3,875,304 Income tax (benefit) expense (1,804,045) 1,157,830 Net (loss) income $(3,829,669) $2,717,474 ------------ ------------ ------------ ------------ Basic and diluted (loss) earnings per share $(0.19) $0.16 Basic shares outstanding 20,184,054 17,477,971 Diluted shares outstanding 20,184,054 17,477,971 For the six months ended ------------------------ August 26, 2010 August 27, 2009 --------------- --------------- Net sales $268,736,228 $256,724,872 Cost of goods sold 247,755,896 214,269,375 ----------- ----------- Gross profit 20,980,332 42,455,497 Selling, general and administrative expenses 10,987,101 10,856,909 Amortization expense 2,124,717 2,135,692 --------- --------- Income from operations 7,868,514 29,462,896 Interest expense, net 15,319,149 18,837,994 Foreign currency loss 73,189 713,226 Other expense (income) 89,056 (372,445) ------ -------- Income (loss) before income tax expense (7,612,880) 10,284,121 Income tax (benefit) expense (2,435,852) 5,255,782 Net (loss) income $(5,177,028) $5,028,339 ------------ ------------ ------------ ------------ Basic and diluted (loss) earnings per share $(0.26) $0.29 Basic shares outstanding 20,176,732 17,477,971 Diluted shares outstanding 20,176,732 17,477,971 CELLU TISSUE HOLDINGS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) August 26, February 28, 2010 2010 ---- ---- ASSETS Current Assets: Cash and cash equivalents $2,229,594 $3,299,033 Receivables, net 55,508,902 49,659,464 Inventories 55,881,584 56,586,982 Prepaid expenses and other current assets 3,033,423 3,810,934 Income tax receivable 3,162,572 2,788,118 Deferred income taxes 1,368,255 1,180,866 --------- --------- Total Current Assets 121,184,330 117,325,397 Property, plant and equipment, net 314,433,569 307,635,021 Goodwill 41,020,138 41,020,138 Other intangibles 25,215,236 27,339,953 Other assets 8,622,698 9,385,877 --------- --------- Total Assets $510,475,971 $502,706,386 ------------ ------------ ------------ ------------ LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Revolving line of credit $23,000,000 $1,000,750 Accounts payable 27,143,324 34,275,598 Accrued expenses 27,630,519 27,820,255 Accrued interest 6,502,332 6,721,143 Other current liabilities 1,514,095 623,653 Current portion of long- term debt 760,000 760,000 ------- ------- Total Current Liabilities 86,550,270 71,201,399 Long-term debt, less current portion 242,854,431 242,538,125 Deferred income taxes 75,210,816 77,178,393 Other liabilities 821,809 956,444 Stockholders' Equity: Common stock, $.01 par value, 23,715,470 201,869 201,452 shares authorized, 20,186,892 and 20,145,176 issued respectively Capital in excess of par value 103,643,310 103,076,890 Accumulated earnings 2,283,664 7,460,692 Accumulated other comprehensive income (loss) (1,090,198) 92,991 ---------- ------ Total Stockholders' Equity 105,038,645 110,832,025 ----------- ----------- Total Liabilities and Stockholders' Equity $510,475,971 $502,706,386 ------------ ------------ ------------ ------------ CELLU TISSUE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended August 26, August 27, 2010 2009 ----------- ----------- Cash flows from operating activities Net (loss) income $(5,177,028) $5,028,339 Adjustments to reconcile net (loss) income to net cash provided by operating activities: Depreciation 12,940,999 12,050,067 Amortization of intangibles 2,124,717 2,135,692 Amortization and write-off of debt issue costs 769,290 779,510 Accretion and write-off of debt discount 696,306 2,887,919 Stock-based compensation 513,000 422,480 Deferred income taxes (2,154,966) 2,393,930 Loss on disposal of fixed assets 220,601 147,241 Changes in operating assets and liabilities: Receivables (5,874,026) 4,287,654 Inventories 623,423 8,699,026 Prepaid expenses, other current assets and income tax receivable 263,424 (757,153) Other assets and liabilities 17,703 368,092 Accounts payable, accrued expenses and accrued interest (7,670,619) 2,429,452 ---------- --------- Total adjustments 2,469,852 35,843,910 --------- ---------- Net cash (used in) provided by operating activities (2,707,176) 40,872,249 Cash flows from investing activities Capital expenditures (20,031,606) (11,162,014) ----------- ----------- Net cash used in investing activities (20,031,606) (11,162,014) Cash flows from financing activities Bank overdrafts - (3,285,420) Borrowings on revolving line of credit, net 36,245,609 22,350,147 Payments on revolving line of credit, net (14,246,359) (40,880,971) 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) Net proceeds from bond offering - 245,738,400 Expenses from initial public offering (171,042) - Proceeds from stock options exercised 224,880 - ------- --- Net cash provided by (used in) financing activities 21,673,088 (8,059,878) Effect of foreign currency (3,745) 15,194 ------ ------ Net (decrease) increase in cash and cash equivalents (1,069,439) 21,665,551 Cash and cash equivalents at beginning of period 3,299,033 361,035 --------- ------- Cash and cash equivalents at end of period $2,229,594 $22,026,586 ---------- ----------- ---------- ----------- CELLU TISSUE HOLDINGS, INC. CONSOLIDATED BUSINESS SEGMENT INFORMATION (Unaudited) BUSINESS SEGMENTS Three Months Ended August 26, August 27, 2010 2009 ---- ---- NET SALES: Tissue $105,931,753 $107,781,026 Machine-Glazed Tissue 29,462,776 27,925,877 Foam 1,237,555 2,089,747 --------- --------- Consolidated $136,632,084 $137,796,650 ------------ ------------ ------------ ------------ INCOME (LOSS) FROM OPERATIONS: Tissue $4,373,041 $15,356,477 Machine-Glazed Tissue (1,398,169) 1,326,573 Foam 259,802 603,381 ------- ------- Segment income from operations 3,234,674 17,286,431 Amortization expense (1,080,163) (1,079,268) Consolidated $2,154,511 $16,207,163 ------------ ------------ ------------ ------------ Six Months Ended August 26, August 27, 2010 2009 ---- ---- NET SALES: Tissue $208,907,911 $201,248,387 Machine-Glazed Tissue 56,795,589 51,519,942 Foam 3,032,728 3,956,543 --------- --------- Consolidated $268,736,228 $256,724,872 ------------ ------------ ------------ ------------ INCOME (LOSS) FROM OPERATIONS: Tissue $10,828,681 $27,711,329 Machine-Glazed Tissue (1,058,812) 2,666,960 Foam 223,362 1,220,299 ------- --------- Segment income from operations 9,993,231 31,598,588 Amortization expense (2,124,717) (2,135,692) Consolidated $7,868,514 $29,462,896 ---------- ----------- ---------- ----------- CELLU TISSUE HOLDINGS, INC. RECONCILIATION OF CONSOLIDATED NET INCOME (LOSS) TO EBITDA (Unaudited) Three Months Ended August 26, August 27, 2010 2009 ---- ---- NET (LOSS) INCOME $(3,829,669) $2,717,474 Add back: Depreciation 6,551,931 6,122,062 Amortization 1,080,163 1,079,268 Interest expense, net 7,838,455 12,331,443 Income tax (benefit) expense (1,804,045) 1,157,830 ---------- --------- EBITDA $9,836,835 $23,408,077 ---------- --------- ---------- --------- Six Months Ended August 26, August 27, 2010 2009 ---- ---- NET (LOSS) INCOME $(5,177,028) $5,028,339 Add back: Depreciation 12,940,999 12,050,067 Amortization 2,124,717 2,135,692 Interest expense, net 15,319,149 18,837,994 Income tax (benefit) expense (2,435,852) 5,255,782 ---------- --------- EBITDA $22,771,985 $43,307,874 ---------- --------- ---------- --------- CELLU TISSUE HOLDINGS, INC. RECONCILIATION OF CONSOLIDATED EBITDA TO CONSOLIDATED ADJUSTED EBITDA (Unaudited) $in thousands Three months ended August 26, August 27, 2010 2009 ---- ---- EBITDA (1) $9,836 $23,408 Adjustments: APF transition and related costs (3) - 20 Insurance claim for wrapper damage (4) - (346) Clearwater transaction costs (5) 953 - Oklahoma City start- up costs (6) 629 - ADJUSTED EBITDA $11,418 $23,082 ------- ------- ------- ------- Six months ended August 26, August 27, 2010 2009 ---- ---- EBITDA (1) $22,772 $43,308 Adjustments: Natural Dam fire (2) - 250 APF transition and related costs (3) - 373 Insurance claim for wrapper damage (4) - (346) Clearwater transaction costs (5) 953 - Oklahoma City start- up costs (6) 629 - ADJUSTED EBITDA $24,354 $43,585 ------- ------- ------- ------- (1) EBITDA includes stock-based compensation expense related to equity awards of $0.2 million and $0.2 million, for the three months ended August 26, 2010 and August 27, 2009, respectively and $0.5 million and $0.4 million for the six months ended August 26, 2010 and August 27, 2010, respectively. (2) Insurance deductible costs related to a fire at our Natural Dam mill at our Gouverneur, New York facility. (3) In fiscal year 2009, we acquired APF, which was a significant acquisition because of its size and complexity of operations. In connection with the APF acquisition, we determined that several initiatives, to be completed over a twelve-month period, would help achieve identified synergies. These initiatives included eliminating certain overhead functions and aligning those activities with our existing infrastructure as well as consolidating production and inventory storage facilities. Our consolidation of facilities included centralizing the acquired APF production facility and two APF inventory storage facilities located in Hauppauge, New York into one consolidated facility in Long Island, New York and moving machinery for a napkin line from our Neenah, Wisconsin location to the acquired APF Thomaston, Georgia facility. (4) Reflects insurance proceeds exceeding the book value for damaged packaging equipment (damaged in transit). (5) Represents legal, accounting and related costs incurred in connection with the announced acquisition of the Company by Clearwater Paper Corporation. (6) Represents start-up costs for the Company's new facility in Oklahoma City, Oklahoma. Cellu Tissue Holdings, Inc., +1-678-393-2651, Web Site: http://www.cellutissue.com

Copyright