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Appleton Posts 3Q Profit on Reduced Costs

Nov. 9, 2009 - Appleton reported net sales of $222.3 million for the third quarter ended October 4, 2009, compared to net sales of $255.7 million for third quarter 2008. Third quarter 2009 net sales decreased 13.1 percent compared to third quarter 2008. The decrease was largely due to volume shortfalls, price pressure and unfavorable product mix.

Appleton recorded operating income of $7.9 million for third quarter 2009 compared to an operating loss of $13.3 million in third quarter 2008. Despite lower shipment volumes, unfavorable pricing and $4.2 million of costs incurred as a result of a debt-for-debt exchange, operating income in the current period was positively impacted by manufacturing cost reductions, decreased distribution costs and a $5.0 million alternative fuels tax credit recorded as a reduction to cost of sales. Third quarter 2008 included a $17.7 million goodwill impairment charge recorded in the Performance Packaging segment and $5.2 million of start-up costs associated with the Ohio paper mill expansion. Appleton reported net income from continuing operations of $31.4 million for third quarter 2009 compared to net loss from continuing operations of $25.8 million for the same quarter of 2008. On September 30, 2009, Appleton completed a voluntary debt-for-debt exchange which resulted in net debt extinguishment income of $37.4 million.

Appleton's net sales for the first nine months of 2009 were $648.3 million. This was a decrease of 12.7 percent when compared to same period 2008 net sales of $742.4 million. Appleton reported income from continuing operations of $39.9 million for the nine months ended October 4, 2009, which included the $37.4 million net gain on debt extinguishment and $13.0 million of alternative fuels tax credit, compared to a loss of $4.2 million for the same period last year. During the first nine months of 2008, Appleton recorded a $22.3 million net litigation settlement gain; the result of prevailing in a lawsuit to recover previously incurred costs from an insurance carrier, which was partially offset by the $17.7 million goodwill impairment charge.

"We delivered a solid performance for the third consecutive quarter. We reduced spending and inventories, generated strong cash flow of $32 million, improved our balance sheet through $60 million of debt reduction and recorded $31 million of net income," said Mark Richards, Appleton's chairman, president and chief executive officer.

"Our strategy throughout this recession is to stay intensely focused on the fundamentals of our business and the needs of our customers. These results are a testament to the resolve of our employees to execute and deliver improved performance despite the extraordinary economic challenges," Richards stated.

Technical Papers

Technical Papers third quarter 2009 net sales of $195.7 million were 13.4 percent lower than third quarter 2008 net sales of $226.0 million. Coated solutions net sales decreased $23.6 million, or 17.0 percent, compared to third quarter 2008, primarily due to volume shortfalls in all market channels. Despite a slight year-on-year increase in shipment volumes, net sales of thermal papers decreased $7.7 million, or 9.7 percent, compared to the prior year quarter, while net sales of security papers increased $1.0 million, or 12.0 percent, compared to third quarter 2008.

Technical Papers third quarter 2009 operating income of $13.6 million increased $9.0 million over third quarter 2008 due to reduced manufacturing spending (+$6.2 million), the alternative fuels tax credit (+$5.0 million), lower distribution costs (+$4.8 million) and favorable selling, general and administrative spending (+$1.5 million) which were partially offset by overall lower shipment volumes (-$4.3 million), mill curtailments to match customer demand (-$2.5 million) and start-up costs of the thermal coater at the West Carrollton, Ohio paper mill (-$1.7 million).

Technical Papers net sales for the first nine months of 2009 were $573.8 million. This was 12.9 percent lower than net sales of $658.5 million for the first nine months of 2008. Year-to-date 2009 shipment volumes were 12.8 percent lower than the same period of 2008 with 2009 international volumes 26.3 percent lower than last year. Coated solutions net sales decreased $81.0 million, or 19.3 percent, compared to the first nine months of 2008 due to volume shortfalls in all market channels. Net sales of thermal papers decreased $5.9 million, or 2.8 percent, compared to the first nine months of 2008 due to pressure within the market to lower prices. However, on October 1, Appleton did implement a 5 percent price increase on its thermal point-of-sale grades sold in North America. Net sales of security papers increased $2.3 million, or 8.8 percent, from the first nine months of 2008, due to higher shipment volumes.

Technical Papers operating income for the first nine months of 2009 increased $12.8 million, or 44.0 percent, to $41.9 million due to reduced manufacturing spending (+$15.8 million), lower distribution costs (+$13.9 million), the alternative fuels tax credit (+$13.0 million) and favorable selling, general and administrative spending (+$8.8 million) which were partially offset by overall lower shipment volumes (-$20.3 million), mill curtailments to match customer demand (-$11.3 million) and start-up costs of the thermal coater at the West Carrollton, Ohio paper mill (-$7.1 million).

Performance Packaging

Performance Packaging third quarter 2009 net sales of $26.6 million were 10.3 percent lower than third quarter 2008 net sales of $29.6. Net sales for the first nine months of 2009 were $74.5 million, which was 11.3 percent lower than net sales of $83.9 million for the first nine months of 2008. The decrease in revenue was due to weaker demand and lower selling prices to the customer in response to lower resin prices.

Third quarter 2009 operating income of $0.9 million was $16.1 million more than third quarter 2008. Operating income of $2.1 million recorded during the first three quarters of 2009, was $14.0 million more than the $11.9 million operating loss for the first nine months of 2008. The operating loss for the three and nine months ended September 28, 2008 included a $17.7 million goodwill impairment charge.

During second quarter 2009, Appleton committed to a formal plan to sell C&H Packaging Company, Inc. ("C&H"). C&H, located in Merrill, Wis., was acquired in 2003 and prints and converts flexible plastic packaging materials for companies in the food processing, household and industrial products industries. The assets and liabilities of C&H are reported as held for sale for the periods ended October 4, 2009, and January 3, 2009. The sale is expected to be completed prior to the end of 2009.

Other (Unallocated)

Other (unallocated) includes revenues and costs associated with new business development activities and unallocated corporate expenses. Third quarter 2009 other (unallocated) operating loss increased by $3.9 million, when compared to third quarter 2008, due to $4.2 million of costs incurred as a result of the debt-for-debt exchange. Year-to-date other (unallocated) operating loss increased $0.7 million when compared to the same period of 2008. The increase was due to the previously mentioned costs associated with the debt-for-debt exchange which were offset by reduced selling, general and administrative expenses during the first three quarters of 2009.

Outlook

Richards said the Company currently expects to see a period of economic equilibrium where business conditions neither deteriorate nor improve significantly. Nonetheless, the Company expects its fourth quarter 2009 results will show significant improvement over the same period in 2008. Richards noted several reasons for that optimism. Appleton felt the greatest impact of the recession in the fourth quarter of 2008. Since then both the economy and the Company have shown improvements. Also, Appleton will continue to benefit from its already completed cost reductions, the strength of its market positions and ongoing growth of its international sales efforts.

"The past 12 months have made us more agile and flexible," said Richards. Richards added that he expects a general economic recovery will be gradual and that the Company is committed to executing successfully throughout that period. "Based on what we have accomplished so far this year, we remain cautiously optimistic about the prospects for continued business improvement in the fourth quarter and beyond," said Richards. "We will build on our many strengths and the confidence our customers have in our ability to serve them."

About Appleton

Appleton produces carbonless, thermal, security and performance packaging products. Appleton, headquartered in Appleton, Wisconsin, has manufacturing operations in Wisconsin, Ohio, Pennsylvania, and Massachusetts, employs approximately 2,200 people and is 100 percent employee-owned.

SOURCE: Appleton




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