CLU Cellu Tissue Holdings USD0.01

ALPHARETTA, Ga., April 28 /PRNewswire-FirstCall/ -- Cellu Tissue Holdings, Inc. (NYSE: CLU), a North American producer of tissue products, today reported net sales of $124.4 million and a net loss of $3.3 million, or a loss of $0.18 per diluted share, for the fiscal 2010 fourth quarter ended February 28, 2010.  The fiscal 2010 fourth quarter results include after-tax, non-recurring expenses arising from the repurchase of debt and accelerated stock-based compensation totaling $3.4 million, or $0.19 per diluted share, incurred in connection with completing the Company's initial public offering on January 27, 2010.  Excluding non-recurring expenses, fiscal 2010 fourth quarter net income was $0.1 million, or $0.01 per diluted share.

Summarized consolidated fiscal 2010 fourth quarter results compared to fiscal 2009 fourth quarter results are as follows:

• Net sales for the fiscal 2010 fourth quarter were $124.4 million, down 3.1% compared to $128.4 million in the fiscal 2009 fourth quarter.
• Income from operations for the quarters ended February 28, 2010 and 2009 was $8.5 million in both periods.  The fiscal 2010 fourth quarter includes $1.1 million of accelerated stock-based compensation expense for certain equity grants whose performance measures were achieved as a result of successfully completing the January 27, 2010 initial public offering.
• Adjusted EBITDA was $16.8 million in the fiscal 2010 fourth quarter, up slightly compared to $16.7 million in the fiscal 2009 fourth quarter.
• Interest expense for the fiscal 2010 fourth quarter was $12.2 million compared to $6.8 million in the fourth quarter of fiscal 2009.  The fiscal 2010 fourth quarter includes $3.7 million of non-recurring costs as a result of using the net proceeds from the initial public offering to repurchase outstanding debt.  The remaining increase is attributable to higher interest rates.
• Net loss for the fiscal 2010 fourth quarter was $3.3 million, or a loss of $0.18 per diluted share.  Excluding after-tax non-recurring expenses incurred in connection with completing the Company's initial public offering totaling $3.4 million, or $0.19 per diluted share, fiscal 2010 fourth quarter net income was $0.1 million, or $0.01 per diluted share, compared to net income of $4.0 million, or earnings of $0.23 per diluted share for the fiscal 2009 fourth quarter.
• During the fourth quarter of fiscal 2010, net proceeds from the initial public offering were used to reduce long-term debt by $26.8 million.

"We are very pleased with our strong fiscal 2010 fourth quarter results, particularly given the ongoing headwind of escalating pulp prices in the second half of fiscal 2010," said Russell C. Taylor, President and Chief Executive Officer of Cellu Tissue Holdings.  "In addition, our full year fiscal 2010 adjusted EBITDA of $81.3 million exceeds the high end of our previously issued guidance of $75 million to $80 million.  In addition to these excellent financial results, we have invested significant time and capital to meet growing customer demand for our products by adding converting capacity in both our existing facilities and our new Oklahoma City facility, which is scheduled to open in the second half of fiscal 2011."

Fiscal 2010 Fourth Quarter Financial and Operating Results

Net sales for the quarter decreased $4.0 million, or 3.1% year-over-year, and tons sold decreased 2.8% primarily as a result of in-sourcing an additional 3,853 tons of hardrolls for the Company's converting operations, which were purchased on the external hardroll market in the prior year period.  As a result, Cellu Tissue 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 Company's strategy to increase the vertical integration of its acquired operations and to improve quality control and profitability.  

Net selling price per ton decreased 0.7% primarily due to lower hardroll prices compared to the fourth quarter of 2009, partially offset by the favorable impact of increasing the mix of converted tissue products relative to hardrolls. Prices in the hardroll market increased in the fourth quarter of fiscal 2010 but lagged price increases in the pulp market.

Gross profit as a percentage of net sales increased to 13.1% in the fiscal 2010 fourth quarter from 12.5% in the fiscal 2009 fourth quarter.  The improvement was primarily driven by improved sales mix and lower energy costs, partially offset by higher pulp costs.

Income from operations for the fiscal 2010 fourth quarter was even with the same period of the prior year at $8.5 million, despite the fact that the fiscal 2010 fourth quarter included $1.1 million of accelerated stock-based compensation expense related to previously issued equity awards that were accelerated in connection with the January 2010 initial public offering.  Excluding the accelerated stock-based compensation, income from operations improved 12.9% from the prior year quarter.

Equity Offering and Interest Expense

During the fourth quarter of fiscal 2010, the Company successfully completed an initial public offering and issued 2,675,000 shares of common stock, which generated net proceeds of $29.0 million.  These net proceeds were used to repay a $6.3 million long-term note payable and to repurchase a portion of Cellu Tissue's 11.5% Senior Secured Notes due in 2014.  In connection with the reduction in the Company's indebtedness, the Company incurred debt extinguishment costs of $3.7 million during the quarter, which were recorded as interest expense.  

Income Tax Benefit

Income tax benefit for the fiscal 2010 fourth quarter was $1.1 million compared to income tax benefit of $1.9 million for the fiscal 2009 fourth quarter.  The Company's overall effective tax rate for fiscal 2010 was 67.7%, caused by adjustments relating to increases in the Company's underlying annual effective tax rate and other discrete adjustments related to the calculation of foreign subsidiary deemed dividends and the utilization of alternative minimum tax credits.  Management estimates the overall tax rate for fiscal 2011 will be approximately 36%.

Segment Operating Results

Tissue

Net sales in Tissue decreased to $94.4 million from $100.3 million in the fiscal 2009 fourth quarter primarily due to in-sourcing an additional 3,853 tons of hardrolls into Cellu Tissue's converting operations.  This planned decrease was partially offset by the Company's October 2009 hardroll price increase and an improved mix with respect to converted tissue products sold. The 1.2% increase in net selling price per ton primarily reflects the continued mix shift to converted tissue products from tissue hardrolls. Income from operations was $8.7 million in both quarters.  Income from operations in the fiscal 2010 fourth quarter reflects mix improvements that were offset by rising pulp prices.  The fiscal 2010 fourth quarter includes incremental stock-based compensation of $0.8 million incurred in connection with the initial public offering.

Machine-Glazed Tissue

Net sales in Machine-Glazed Tissue increased to $27.9 million from $26.5 million in the fiscal 2009 fourth quarter. Operating income in Machine-Glazed Tissue was $0.3 million in the fiscal 2010 fourth quarter, down slightly compared to $0.4 million in the fiscal 2009 fourth quarter due to incremental stock-based compensation of $0.3 million incurred in connection with the initial public offering.

Foam

Net sales in Foam increased to $2.2 million compared to $1.7 million in the prior fiscal year period due to increased sales volumes and an improvement in selling prices.  Income from operations increased to $0.7 million from $0.3 million in the prior fiscal year period due to lower resin prices, which is the primary raw material used to manufacture the Company's foam products.

Adjusted EBITDA

Earnings before interest, taxes, depreciation, amortization and special items (Adjusted EBITDA) for the fourth quarter ended February 28, 2010 totaled $16.8 million, up slightly compared to $16.7 million for the comparable period in the prior fiscal year.  

Full Year Results

Fiscal 2010 sales of $511.3 million were down 1.5% from $519.0 million in the prior fiscal year as year-over-year pricing and volume were down $5.1 million and $2.6 million, respectively.  Lower finished product pricing during the middle of the year resulted from declines in pulp price during the first half of the year. During fiscal 2010, the Company in-sourced an additional 12,878 tons of hardrolls for its converting operations, which were previously purchased on the hardroll market, reducing external hardroll shipments by a similar amount.  

Full year fiscal 2010 operating income was up 73% to $52.2 million compared to $30.2 million in the prior year, reflecting the benefit of improved product mix resulting from increased sales of converted tissue products.  For fiscal 2010, net income was $3.8 million, or $0.21 per diluted share, compared with $6.6 million or $0.38 per diluted share in fiscal 2009.  The fiscal 2010 results include non-recurring costs of $8.9 million, net of tax, or $0.51 per diluted share comprised of the following components:

• Interest costs of $7.7 million, or $4.8 million net of tax, related to debt refinancing and debt repurchase costs and the aforementioned stock-based compensation charges of $1.1 million that are not tax deductible, which together totaled $0.34 per diluted share; and
• Unfavorable tax adjustments of $3.0 million due to increasing the Company's federal tax rate from 34% to 35% based on projected taxable income, and discrete adjustments that primarily arose from changes in management estimates relating to the calculation of foreign subsidiary deemed dividends and the generation and utilization of alternative minimum tax credits, which together totaled $0.17 per diluted share.  

Cash Flow and Debt

Cellu Tissue continued to generate strong cash flow during the fiscal year ended February 28, 2010, including $55.2 million of cash flow from operations, up from $24.1 million in the prior year.

"We reduced long-term debt by $26.8 million during the fiscal 2010 fourth quarter, using the net proceeds from our initial public offering, while generating $55.2 million in cash from operations during the current year," said David Morris, Chief Financial Officer of Cellu Tissue Holdings.  "Furthermore, our overall liquidity and cash flow outlook remain strong, affording us the flexibility to make strategic investments and meet our operating needs."

Fiscal 2011 Outlook

The Company's key planning and guidance estimates for fiscal 2011 are as follows:

• Average pulp price of $880 per metric ton for northern bleached softwood kraft and no retail price increase.
• Converting capacity additions are scheduled to come on-line during the second half of fiscal 2011.
• Tissue and machine-glazed hardroll pricing will lag market pulp price by approximately ninety days.  
• Full year tax rate is estimated to be approximately 36%.
• Capital investments are expected to range from $36 million to $40 million.
• Depreciation and intangibles amortization are expected to be approximately $31 million.
• Interest expense is expected to be approximately $31 million.
• EBITDA for fiscal 2011 is expected to be $77 to $85 million.  

Commenting on the outlook, Mr. Taylor said, "We expect our business performance to continue improving as we remain focused on executing our strategy of increasing our tissue business product sales, while also reducing our manufacturing costs across all of our business segments.  However, in the first half of fiscal 2011, finished product prices will lag an escalating pulp market, and our organic converting growth will be limited until our new converting capacity comes on-line in the second half of fiscal 2011.  We will continue to invest in our facilities to offer an expanded line of products, while maintaining our focus on maximizing cash flow and maintaining a strong balance sheet."

Notice Relating to the Use of Non-GAAP Measures

Attached to this press release are tables setting forth the Company's fiscal year-to-date and fourth 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 represents earnings before interest expense, income taxes and depreciation and amortization. Adjusted EBITDA represents EBITDA adjusted to reflect the additions and eliminations described in the table below. EBITDA and Adjusted EBITDA are supplemental measures of operating performance that do not represent and should not be considered as alternatives to net income or cash flow from operations, as determined by U.S. generally accepted accounting principles, or U.S. GAAP, and our calculation thereof may not be comparable to that reported by other companies. EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation, or as substitutes for analysis of our results as reported under U.S. GAAP. Some of the limitations are:

• 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 April 29, 2010 at 8:30 a.m. ET regarding fiscal 2010 fourth quarter consolidated financial results. To participate in the conference call, you may either dial (800) 230-1951 or International (612) 288-0340, 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 April 29, 2010 until May 13, 2010.  The number to call for the taped replay is (800) 475-6701 or International (320) 365-3844, access code 155042. 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 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 included under the heading "Fiscal 2011 Outlook".  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 February 28, 2009 and subsequent filings with the SEC.

SOURCE Cellu Tissue Holdings, Inc.