Cellu Tissue Reports Loss for Fiscal 2nd Quarter

Oct. 7, 2010 - Cellu Tissue Holdings, Inc. [yesterday] 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, Cellu Tisue entered into a definitive merger agreement with Clearwater Paper Corporation, whereby Clearwater would acquire all of the outstanding common stock of Cellu Tissue in an all-cash transaction, which values the company at approximately $502 million.

Under the terms of the agreement, Cellu Tissue 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," Taylor said.

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, the company 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 Cellu Tissue's strategy to increase the vertical integration of our acquired operations and to improve quality control and profitability.

Additionally, during the comparable prior year period, the company 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.

SEGMENT OPERATING RESULTS

Tissue
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 the company's 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
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.

Pending Merger; Discontinuing Financial Guidance
On September 15, 2010, Cellu Tissue 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, Cellu Tissue is discontinuing financial guidance for fiscal 2011.

SOURCE: Cellu Tissue Holdings, Inc.

See related story:
Clearwater Paper to Acquire Cellu-Tissue for $502 Million (9/16/2010)