CLU Cellu Tissue Holdings USD0.01

ALPHARETTA, Ga., July 7 /PRNewswire-FirstCall/ -- Cellu Tissue Holdings, Inc. (NYSE: CLU), a North American producer of tissue products, today reported net sales of $132.1 million and a net loss of $1.3 million, or a loss of $0.07 per diluted share, for the fiscal 2011 first quarter ended May 27, 2010.  

Summarized consolidated fiscal 2011 first quarter results compared to fiscal 2010 first quarter results are as follows:

• Net sales for the fiscal 2011 first quarter were $132.1 million, up 11.1% compared to $118.9 million in the fiscal 2010 first quarter.
• Income from operations for the fiscal 2011 first quarter was $5.7 million compared to $13.3 million in the fiscal 2010 first quarter.  
• Adjusted EBITDA was $12.9 million in the fiscal 2011 first quarter compared to $20.5 million in the fiscal 2010 first quarter.
• Interest expense for the fiscal 2011 first quarter was $7.5 million compared to $6.5 million in the first quarter of fiscal 2010, due to higher interest rates.
• Net loss for the fiscal 2011 first quarter was $1.3 million, or a loss of $0.07 per diluted share, compared to net income of $2.3 million, or earnings of $0.13 per diluted share for the fiscal 2010 first quarter.

"Our fiscal 2011 first quarter results reflect strong and improving fundamentals within our business offset by the continued impact of record 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. "Our sales volumes and operating cost structure were in-line with our internal expectations.  We have also taken the appropriate steps to combat continued high pulp costs by executing price increases in tissue hardrolls, machine-glazed products, and the away-from-home converted market as planned, and we will see these benefits beginning in the fiscal second quarter.

"We are maintaining our fiscal 2011 EBITDA guidance range of $77 million to $85 million.  This guidance assumes that we continue to execute our strategy to grow converted tissue products and that pulp prices will begin trending down during the second half of our fiscal year, returning to historical levels by our fiscal year-end."

Fiscal 2011 First Quarter Financial and Operating Results

Net sales for the quarter increased $13.2 million, or 11.1% quarter-over-quarter, primarily as a result of a 5.7% increase in tons sold, the continued mix shift to converted tissue products and the previously mentioned hardroll price increases.  The increase in total tons sold reflects growth in converted tons sold, partially offset by in-sourcing an additional 3,400 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 increased 5.3% primarily due to hardroll price increases completed in the first quarter of fiscal 2011 and by the favorable impact of increasing the mix of converted tissue products relative to hardrolls. Prices in the hardroll market increased in the first quarter of fiscal 2011 but lagged price increases in the pulp market.

Gross profit as a percentage of net sales decreased to 9.2% in the fiscal 2011 first quarter from 16.7% in the fiscal 2010 first quarter.  The decline was primarily driven by higher pulp costs, partially offset by improved sales mix and increases in hardroll prices.

Income from operations for the fiscal 2011 first quarter was $5.7 million compared with $13.3 million in the same period of the prior fiscal year, which was primarily attributable to the decline in gross profit.  

Income Tax Benefit

Income tax benefit for the fiscal 2011 first quarter was $0.6 million compared to income tax expense of $4.1 million for the fiscal 2010 first quarter.  The Company's effective tax rate for the first quarter of fiscal 2011 was 31.9%, 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 34%.

Segment Operating Results

Tissue

Net sales for Tissue during the quarter increased to $103.0 million, or 10.2% quarter-over-quarter, primarily as a result a 5.2% increase in tons sold, the continued mix shift to converted tissue products and the hardroll price increases.  The increase in total tons sold reflects growth in converted tons sold, which was partially offset by in-sourcing an additional 3,400 tons of hardrolls for the Company's converting operations, which were purchased on the external hardroll market in the prior year period. The 4.7% increase in net selling price per ton primarily reflects the continued mix shift to converted tissue products from tissue hardrolls. Income from operations was $6.5 million in the fiscal 2011 first quarter compared to $12.4 million in the fiscal 2010 first quarter.  Income from operations in the fiscal 2011 first quarter reflects rising pulp prices that were partially offset by mix improvements and hardroll price increases.  

Machine-Glazed Tissue

Net sales in Machine-Glazed Tissue increased to $27.3 million from $23.6 million in the fiscal 2010 first quarter as a result of increased sales volumes and higher net selling prices. Operating income in Machine-Glazed Tissue was $0.3 million in the fiscal 2011 fourth quarter, down compared to $1.3 million in the fiscal 2010 first quarter due to significantly higher pulp prices, partially offset by higher net selling prices.

Foam

Net sales in Foam were $1.8 million compared to $1.9 million in the prior fiscal year period.  Income from operations decreased by $0.6 million in the current fiscal year period due to lower selling prices and higher resin costs, 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 first quarter ended May 27, 2010 totaled $12.9 million, compared to $20.5 million for the comparable period in the prior fiscal year.  

Notice Relating to the Use of Non-GAAP Measures

Attached to this press release are tables setting forth the Company's first 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 July 8, 2010 at 9:00 a.m. ET regarding fiscal 2011 first quarter consolidated financial results. To participate in the conference call, you may either dial (800) 230-1951 or International (612) 332-0636, 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 1:00 p.m. on July 8, 2010 until July 22, 2010.  The number to all for the taped replay is (800) 475-6701 or International (320) 365-3844, access code 163364. 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 future financial performance and future pulp pricing,  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 subsequent filings with the SEC.

SOURCE Cellu Tissue Holdings, Inc.