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Appleton Posts Second Quarter Loss

Aug. 15, 2007 - Appleton today reported a net loss of $1.7 million for the second quarter of 2007 compared to net income of $1.2 million for the second quarter of 2006. Appleton's adjusted earnings(1), which excludes restructuring charges and certain non-recurring or infrequent and unusual income or expenses as applicable, decreased $1.0 million to $1.9 million for second quarter 2007 compared to $2.9 million adjusted earnings for second quarter 2006.

NOTE: (1) Adjusted earnings is a non-GAAP financial measure. Additional information about adjusted earnings, including a reconciliation of adjusted earnings to GAAP earnings, is provided at the end of this release.

Appleton's net sales for the second quarter ended July 1, 2007, decreased 1.4 percent to $265.3 million compared to net sales of $269.0 million for the same quarter of 2006. Second quarter 2007 net sales were impacted by overall lower domestic shipment volumes which offset improved pricing and volume gains in international markets. Appleton's gross profit decline of 12.8 percent in the second quarter was the result of lower volumes, unfavorable product mix and higher raw material costs which offset improved pricing and manufacturing productivity improvements compared to the prior year period. The reduction in selling, general and administrative expenses resulted from previously announced restructuring activities and other cost reductions.

Appleton's net loss for the first six months of 2007 was $1.8 million compared to $6.8 million of net income reported for the same period in 2006. Appleton's 2007 year to date adjusted earnings decreased $5.0 million to $3.7 million for 2007 compared to $8.7 million adjusted earnings for the 2006 year to date period.

For the first six months of 2007, net sales decreased 3.2 percent to $520.5 million, compared to $537.9 million in the first half of 2006. Results for the first six months of 2007 primarily reflected lower sales volumes, unfavorable mix and higher raw material costs which offset improved pricing, manufacturing productivity improvements and reduced selling, general and administrative expenses compared to the prior year period.

Technical Papers
Technical Papers second quarter net sales were slightly higher than second quarter 2006. Net sales of carbonless paper increased $1.9 million, or 1.3 percent, over that of second quarter 2006, primarily due to improved pricing. Second quarter 2007 carbonless shipment volumes were even with second quarter 2006 with strong growth recorded in international markets. Net sales of thermal papers decreased $4.0 million, or 5.8 percent, compared to second quarter 2006. Improved thermal product mix reduced the negative impact of lower shipment volumes which were 7.4 percent lower than second quarter 2006. Net sales of security papers rose $1.4 million, or 21.0 percent, compared to the same quarter of 2006 largely due to an increase in shipment volumes of 15.5 percent.

Technical Papers second quarter operating income declined $2.1 million or 13.8 percent to $13.3 million. For the current quarter, improved pricing, cost reductions and lower selling, general and administrative costs mitigated the negative impact of overall volume shortfalls, higher raw material costs and higher maintenance costs.

Performance Packaging
Performance Packaging second quarter 2007 net sales decreased $1.8 million, or 6.5 percent. Lower shipment volumes and unfavorable product mix contributed to lower second quarter 2007 net sales. Despite the unfavorable year over year comparison, net sales for second quarter 2007 improved 7.1 percent over first quarter 2007 net sales.

Second quarter operating income of $1.8 million was $0.6 million lower than second quarter 2006 operating income. Gains from manufacturing productivity mitigated the negative impact of lower volumes and unfavorable product mix.

Secure and Specialized Print Services
Secure and Specialized Print Services second quarter net sales decreased $2.0 million or 8.2 percent to $22.5 million. This business recorded an operating loss of $1.7 million during second quarter compared to operating income of $0.4 million for second quarter 2006. The operating loss was the result of lower volumes and unfavorable pricing offsetting savings realized from restructuring activities and gains from renegotiated purchase agreements. Also during second quarter 2007, restructuring expense was $0.4 million higher than during the prior year period.

Other (Unallocated)
Other (Unallocated) includes costs associated with new business development activities and unallocated corporate expenses. Other (Unallocated) costs decreased $1.9 million in the second quarter 2007 compared to the second quarter 2006. During the prior year period, Appleton recorded $1.3 million of expense for the bond consent solicitation and $0.9 million of expense for the travel and expense investigation.

Balance Sheet
In June 2007 Appleton entered into a new $375 million senior secured credit facility consisting of a seven-year, $225 million term loan and access to a six-year, $150 million revolving credit facility. The funds from the new term loan were used to repay the $190.7 million balance on the old term loan, plus interest of $1.9 million. As a result of this refinancing, Appleton recorded $1.1 million of debt extinguishment expenses and capitalized $1.1 million of related fees which will be amortized over the term of the new senior credit facility.

Also in June 2007, Appleton increased its reserve and corresponding indemnification receivable for environmental liability by $58.9 million pursuant to a revised estimate issued by the United States Environmental Protection Agency ("EPA") of remaining costs for the cleanup of PCBs from the Lower Fox River in Wisconsin. The EPA estimates the total remaining costs of this remedial work to be $390 million.

SOURCE: Appleton




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