Wausau Paper Announces Third-Quarter Financial Results

October 28, 2009 5:00 PM EDT

MOSINEE, Wis.--(BUSINESS WIRE)-- Wausau Paper (NYSE: WPP) today reported that in the third quarter:

    --  Adjusted quarterly earnings of $0.23 per share reached their strongest
        level in 10 years.
    --  Towel & Tissue achieved record quarterly operating profits of $15.9
        million while Printing & Writing and Specialty Products reported
        significant year-over-year improvement with profits exceeding
        cost-of-capital return levels.
    --  Plans were announced to consolidate the Specialty Products and Printing
        & Writing businesses into a single, strategic operating unit.
    --  Cost reduction and cash conservation measures drove a debt reduction of
        nearly $50 million, improving the company's debt-to-capital ratio to 36
        percent.

The company reported third-quarter net earnings of $14.6 million, or $0.30 per share, compared with net earnings of $2.3 million, or $0.05 per share, in the prior year. Net sales decreased 12 percent to $273.4 million while shipments declined 6 percent to 185,000 tons, due to anticipated volume reductions resulting from facility closures and continuing demand weakness in several market categories.

Third-quarter results include after-tax facility closure charges of $0.7 million, or $0.01 per share, related primarily to the May closure of Specialty Products' Jay, Maine, paper mill and the previously announced fourth-quarter closure of Printing & Writing's Appleton, Wisconsin, converting facility; after-tax gains of $2.5 million, or $0.05 per share, related to a tax credit for the use of alternative fuel mixtures at Specialty Products' Mosinee, Wisconsin, facility; and after-tax gains of $1.7 million, or $0.03 per share, related to the sale of Specialty Products' non-core yeast manufacturing business located in Rhinelander, Wisconsin. Prior-year third-quarter results included after-tax charges of $3.9 million, or $0.08 per share, related to a paper machine shutdown and facility closures; after-tax timberland sales gains of $1.4 million, or $0.03 per share; and one-time income tax benefits of $0.9 million, or $0.02 per share. Excluding these items, adjusted third-quarter 2009 net earnings were $11.2 million, or $0.23 per share, compared with net earnings of $3.9 million, or $0.08 per share, last year. Adjusted net earnings are a non-GAAP measure and three-month and nine-month results are reconciled to GAAP earnings below.

                                     3 Months Ended        9 Months Ended

                                     September 30          September 30

                                     2009       2008       2009       2008

GAAP Net Earnings (Loss) Per Share   $ 0.30     $ 0.05     $ 0.23     $ (0.29 )

Facility Closure and Machine           0.01       0.08       0.34       0.36
Shutdown Charges (1)

Alternative Fuel Mixture Excise Tax    (0.05 )    -          (0.12 )    -
Credit

Capital Related Expenses (2)           -          -          0.04       -

Gain on Sale of Yeast Business         (0.03 )    -          (0.03 )    -

Gain on Sale of Timberlands            -          (0.03 )    (0.01 )    (0.07 )

Tax Audit Settlement                   -          (0.02 )    -          (0.02 )

Adjusted Net Earnings (Loss) Per     $ 0.23     $ 0.08     $ 0.45     $ (0.02 )
Share

Note: Totals may not foot due to rounding differences

     2009 charges relate primarily to the second-quarter closure of Specialty
     Products' paper mill in Jay, Maine, and Printing & Writing's planned
(1)  fourth-quarter closure of its converting operation in Appleton, Wisconsin.
     2008 charges relate to the shutdown of a paper machine at Specialty
     Products' Jay, Maine mill and closure of Printing & Writing's Groveton, New
     Hampshire, paper mill and Specialty Products' roll wrap operations.

     Includes expenses associated with the first-quarter towel machine rebuild
(2)  at Towel & Tissue's Middletown, Ohio, mill and the second-quarter start-up
     of Printing & Writing's distribution center in Bedford Park, Illinois.

Commenting on performance for the quarter, Thomas J. Howatt, president and CEO, said, "The strength of our third-quarter results reflects the success of the value-driven growth strategy of our Towel & Tissue business and the extensive restructuring initiatives undertaken in our paper businesses over the last two years in addition to a significantly favorable input cost environment. The recently announced combination of our Specialty Products and Printing & Writing businesses into a single operating segment at year-end essentially completes the restructuring of these businesses, achieving a cost-competitive, flexible operations platform, and narrowing the corporation to two core businesses. Coupled with aggressive cost reduction and cash conservation measures implemented early in the year, we have achieved a dramatic improvement in our balance sheet and overall financial performance, and are well positioned to take advantage of market opportunities when business conditions improve."

BUSINESS UNIT RESULTS

Printing & Writing reported a third-quarter operating profit of $3.8 million compared with an operating loss of $0.7 million last year, while net sales declined 7 percent and shipments increased 2 percent. Current-quarter results include pre-tax facility closure charges of $0.5 million related primarily to the Appleton converting facility. Prior-year results included pre-tax Groveton mill closure charges of $2.4 million.

Exclusive of facility closure charges, Printing & Writing profits of $4.4 million were the strongest reported in nearly seven years and the resulting 13 percent return on capital employed exceeded the cost-of-capital return levels targeted over the second half of the year. With orders relatively stable and inventories at target levels, third-quarter market-related downtime was reduced to the equivalent of 2,400 tons, or approximately 3 percent, of production capacity as compared to 15,000 tons, or approximately 20 percent, of production capacity during the second quarter. With year-to-date demand for uncoated freesheet papers declining approximately 14 percent, Printing & Writing is focused on the fourth-quarter completion of its converting & distribution initiative and year-end integration with Specialty Products to further reduce costs and enhance its competitive position.

Specialty Products' third-quarter operating profit of $11.7 million includes pre-tax charges of $0.6 million related primarily to the closure of the Jay mill, pre-tax gains of $4.0 million from an alternative fuel mixture tax credit, and pre-tax gains of $2.7 million associated with the sale of its yeast manufacturing business. Prior-year operating loss was $1.1 million and included charges of $3.7 million related to a permanent paper machine shutdown. Net sales and shipments declined 25 percent and 15 percent, respectively, due to facility closures and continued order weakness.

The third-quarter sale of a non-strategic yeast manufacturing operation - which represented less than 2 percent of Specialty Products' 2008 net sales - has narrowed the business to core markets in which it has a competitive and cost-effective position. The business unit's year-end combination with Printing & Writing is expected to provide more than $2 million of administrative cost reductions, enhance market access and create a business unit with the flexibility to effectively serve both mature print and growth-oriented specialty paper markets.

Towel & Tissue achieved record operating profits for a second consecutive quarter, reporting third-quarter operating profits of $15.9 million as compared with prior-year profits of $9.3 million and prior-quarter profits of $13.8 million. Net sales and shipments declined 1 percent and 2 percent, respectively. Operating margins increased to 18 percent for the quarter as higher-margin value-added product shipments increased 6 percent. Although year-to-date demand for "away-from-home" towel and tissue products declined 8 percent, the business unit has benefited from a year-over-year decline in fiber and energy costs as well as the initial savings associated with the rebuild of a towel machine at Middletown, Ohio. With three days of machine downtime planned in the fourth quarter to implement further improvements, full benefits of the $32.5 million rebuild are expected to be achieved early in 2010.

OUTLOOK

Commenting on the fourth-quarter outlook, Mr. Howatt said, "The successful execution of our restructuring initiatives, cash conservation measures and strategic capital program has allowed us to weather a severe economic recession while enhancing the long-term competitive position of our businesses. While the timing of a meaningful economic recovery remains uncertain at this time, we will continue our intense focus on executing the strategies that have delivered a substantial improvement in performance in 2009. Against a backdrop of weak market conditions, increasing fiber prices and scheduled maintenance downtime, we expect fourth-quarter adjusted net earnings in the range of $0.11 to $0.13 per share." Adjusted net earnings in the fourth quarter of 2008 were $0.03 per share.

Wausau Paper's third-quarter conference call is scheduled for 11:00 a.m. (EDT) on Thursday, October 29, and can be accessed through the Company's Web site at www.wausaupaper.com under "Investor Information." A replay of the webcast will be available at the same site through November 6.

About Wausau Paper:

Wausau Paper, with revenues of $1.2 billion in fiscal 2008, produces and markets fine printing and writing papers, technical specialty papers, and "away-from-home" towel and tissue products. To learn more about Wausau Paper visit: http://www.wausaupaper.com.

Safe Harbor under the Private Securities Litigation Reform Act of 1995: The matters discussed in this news release concerning the Company's future performance or anticipated financial results are forward-looking statements and are made pursuant to the safe harbor provisions of the Securities Reform Act of 1995. Such statements involve risks and uncertainties which may cause results to differ materially from those set forth in these statements. Among other things, these risks and uncertainties include the strength of the economy and demand for paper products, increases in raw material and energy prices, manufacturing problems at Company facilities, and other risks and assumptions described under "Information Concerning Forward-Looking Statements" in Item 7 and in Item 1A of the Company's Form 10-K for the year ended December 31, 2008. The Company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

Wausau Paper

Interim Report - Quarter Ended September 30, 2009

(in thousands, except per
share amounts)

Condensed Consolidated     Three Months              Nine Months
Statements

of Operations (unaudited)  Ended September 30,       Ended September 30,

                           2009         2008         2009           2008

Net sales                  $ 273,447    $ 312,162    $ 774,392      $ 916,091

Cost of sales                224,066      282,589      681,142        850,814

Gross profit                 49,381       29,573       93,250         65,277

Selling & administrative     21,998       23,026       61,543         65,689
expenses

Restructuring                1,047        1,880        4,937          15,841

Operating profit (loss)      26,336       4,667        26,770         (16,253 )

Interest expense             (2,443  )    (2,352  )    (8,171  )      (7,683  )

Other income, net            30           29           95             270

Earnings (loss) before       23,923       2,344        18,694         (23,666 )
income taxes

Provision (credit) for       9,282        15           7,321          (9,609  )
income taxes

Net earnings (loss)        $ 14,641     $ 2,329      $ 11,373       $ (14,057 )

Net earnings (loss) per    $ 0.30       $ 0.05       $ 0.23         $ (0.29   )
share (basic and diluted)

Weighted average shares      48,840       48,779       48,830         49,118
outstanding-basic

Weighted average shares      49,131       48,978       49,063         49,118
outstanding-diluted

Condensed Consolidated                               September 30,  December 31,
Balance Sheets (Note 1)

                                                     2009           2008

Current assets                                       $ 227,825      $ 262,562

Property, plant, and                                   383,617        405,408
equipment, net

Other assets                                           47,432         42,880

Total Assets                                         $ 658,874      $ 710,850

Current liabilities                                  $ 146,615      $ 143,732

Long-term debt                                         126,800        191,963

Other liabilities                                      163,212        167,574

Stockholders' equity                                   222,247        207,581

Total Liabilities and                                $ 658,874      $ 710,850
Stockholders' Equity

Condensed Consolidated                               Nine Months
Statements

of Cash Flow (unaudited)                             Ended September 30,

                                                     2009           2008

Cash flows from operating
activities:

Net earnings (loss)                                  $ 11,373       $ (14,057 )

Provision for
depreciation, depletion,                               61,008         50,183
and amortization

Gain on sale of assets                                 (2,748  )      (4,112  )

Deferred income taxes and
other non-cash items                                   2,221          (5,040  )
affecting net loss

Changes in operating
assets and liabilities:

Receivables                                            (9,630  )      (7,525  )

Inventories                                            40,882         6,013

Accounts payable and                                   7,927          3,464
other liabilities

Other                                                  (5,011  )      (20,746 )

Net cash provided by                                   106,022        8,180
operating activities

Cash flows from investing
activities:

Capital expenditures                                   (39,448 )      (24,715 )

Proceeds from property,
plant, and equipment                                   6,780          8,054
disposals

Net cash used in                                       (32,668 )      (16,661 )
investing activities

Cash flows from financing
activities:

Net issuances of                                       1,389          17,425
commercial paper

Net borrowings under                                   2,500          -
credit agreement

Payments under capital
lease obligation and                                   (68,534 )      (136    )
notes payable

Dividends paid                                         (4,151  )      (12,567 )

Payments for purchase of                               -              (8,496  )
company stock

Net cash used in                                       (68,796 )      (3,774  )
financing activities

Net increase (decrease)
in cash & cash                                       $ 4,558        $ (12,255 )
equivalents

         Balance sheet amounts at September 30, 2009, are unaudited. The
Note 1.  December 31, 2008, amounts are derived from audited financial
         statements.

         We are eligible for a tax credit under the Internal Revenue Code for
         alternative fuel mixtures used as fuel in a taxpayer's business. The
Note 2.  credit is equal to $0.50 per gallon of alternative fuel contained in
         the mixture and is refundable in cash. The cost of sales for the three
         and nine months ended September 30, 2009, includes net pre-tax credits
         of $4.0 million and $9.7 million, respectively.

         In August 2008, we announced plans to permanently shut down one of the
         two paper machines at our Specialty Products' paper mill in Jay, Maine.
         The shutdown of this machine was completed in December 2008. In March
         2009, we announced further plans to permanently shut down the remaining
         paper machine and cease all operations at the Jay, Maine paper mill.
         The paper mill was closed during the second quarter of 2009. The cost
         of sales for the three and nine months ended September 30, 2009,
         includes a pre-tax credit of $0.3 million and pre-tax charges of $20.9
         million, respectively, for depreciation on assets and other associated
         closure costs, due to the closure of the paper mill. The cost of sales
Note 3.  for the three and nine months ended September 30, 2008, includes $2.1
         million in pre-tax charges for accelerated depreciation on assets and
         other associated closure costs, due to the shutdown of the paper
         machine. Pre-tax restructuring expense related to severance and benefit
         continuation costs and other associated closure costs for the three and
         nine months ended September 30, 2009, were $0.7 million and $4.0
         million, respectively. Pre-tax restructuring expense related to
         severance and benefit continuation costs and other associated costs due
         to the shutdown of the paper machine was $1.6 million for the three and
         nine months ended September 30, 2008. Additional pre-tax charges
         related to the closure of the Jay, Maine paper mill of approximately
         $0.7 million are expected to be incurred during the remainder of 2009.

         In December 2008, we announced plans to permanently cease Printing &
         Writing's converting operations at our Appleton, Wisconsin facility.
         The operations at the Appleton facility are being reduced in a phased
         manner and the facility is expected to be permanently closed prior to
         December 31, 2009. The converting equipment at the Appleton facility is
         being relocated to our other Printing & Writing mills. The cost of
Note 4.  sales for the three and nine months ended September 30, 2009, includes
         $0.2 million and $1.0 million, respectively, in pre-tax charges for
         associated closure costs. Pre-tax restructuring expense related to
         severance and benefit continuation costs was $0.2 million and $0.5
         million for the three and nine months ended September 30, 2009.
         Additional pre-tax closure charges of approximately $0.5 million are
         expected to be incurred during the remainder of 2009.

         In December 2007, the roll wrap portion of our Specialty Products'
         business was sold to Cascades Sonoco, Inc. We continued to manufacture
         roll wrap and related products for the buyer during a post-closing
         transition period which expired on July 2, 2008. The cost of sales for
         the three and nine months ended September 30, 2009, includes $0.1
         million in pre-tax charges for associated closure costs. Pre-tax
Note 5.  restructuring expense related to associated closure costs for the three
         and nine months ended September 30, 2009, was $0.1 million. Pre-tax
         restructuring expense related to severance and benefit continuation
         costs and other associated closure costs for the three and nine months
         ended September 30, 2008, was less than $0.1 million and $0.5 million,
         respectively. No additional significant costs are anticipated during
         the remainder of 2009.

         In October 2007, we announced plans to cease Printing & Writing's
         papermaking operations at our Groveton, New Hampshire paper mill.
         Papermaking operations permanently ceased in December 2007. Pre-tax
         restructuring expense for the three and nine months ended September 30,
         2009, includes $0.1 million and $0.3 million, respectively, related to
         associated closure costs. The cost of sales for the three and nine
Note 6.  months ended September 30, 2008, includes $2.2 million and $10.1
         million, respectively, in pre-tax charges for depreciation on assets
         and other associated closure costs. Pre-tax restructuring expense
         related to severance and benefit continuation costs, contract
         termination costs, and other associated closure costs for the three and
         nine months ended September 30, 2008, was $0.2 million and $13.7
         million, respectively. No additional significant costs are anticipated
         during the remainder of 2009.

Note 7.  Interim Segment Information

         Our operations are currently classified into three principal reportable
         segments: Specialty Products, Printing & Writing, and Towel & Tissue,
         each providing different products. Separate management of each segment
         is required because each business unit is subject to different
         marketing, production, and technology strategies.

         Specialty Products produces specialty papers at its manufacturing
         facilities in Rhinelander and Mosinee, Wisconsin. Papermaking
         operations at Specialty Products' Jay, Maine facility permanently
         ceased in the second quarter of 2009 (see Note 3). In 2008, Specialty
         Products also included two converting facilities that produced
         laminated roll wrap and related specialty finishing and packaging
         products (see Note 5). Printing & Writing produces a broad line of
         premium printing and writing grades at manufacturing facilities in
         Brokaw, Wisconsin; and Brainerd, Minnesota. Printing & Writing also
         includes a converting facility that converts printing and writing
         grades. The converting facility will be permanently closed by December
         31, 2009 (see Note 4). Towel & Tissue produces a complete line of towel
         and tissue products that are marketed along with soap and dispensing
         systems for the "away-from-home" market. Towel & Tissue operates a
         paper mill in Middletown, Ohio and a converting facility in
         Harrodsburg, Kentucky.

         Asset information, sales, operating profit, and other significant items
         by segment is as follows:

(in thousands, except ton                            September 30,  December 31,
data)

                                                     2009           2008

Segment assets (Note 1)

Specialty Products                                   $ 234,669      $ 279,354

Printing & Writing                                     178,432        180,221

Towel & Tissue                                         209,144        210,977

Corporate & Unallocated*                               36,629         40,298

                                                     $ 658,874      $ 710,850

                           Three Months              Nine Months

                           Ended September 30,       Ended September 30,

                           2009         2008         2009           2008

Net sales external
customers (unaudited)

Specialty Products         $ 93,757     $ 125,390    $ 270,280      $ 376,999

Printing & Writing           89,188       95,660       255,707        289,179

Towel & Tissue               90,502       91,112       248,405        249,913

                           $ 273,447    $ 312,162    $ 774,392      $ 916,091

Operating profit (loss)
(unaudited)

Specialty Products         $ 11,673     $ (1,052  )  $ (2,481  )    $ (3,292  )

Printing & Writing           3,843        (725    )    4,957          (29,792 )

Towel & Tissue               15,932       9,328        36,983         23,737

Corporate & Eliminations     (5,112  )    (2,884  )    (12,689 )      (6,906  )

                           $ 26,336     $ 4,667      $ 26,770       $ (16,253 )

Depreciation, depletion,
and amortization
(unaudited)

Specialty Products         $ 3,645      $ 6,648      $ 31,959       $ 17,380

Printing & Writing           2,322        2,014        6,555          11,862

Towel & Tissue               7,493        6,783        21,064         20,332

Corporate & Unallocated      572          199          1,430          609

                           $ 14,032     $ 15,644     $ 61,008       $ 50,183

Tons sold (unaudited)

Specialty Products           71,746       84,175       199,758        272,025

Printing & Writing           66,116       64,817       185,980        203,500

Towel & Tissue               47,457       48,307       131,136        135,400

                             185,319      197,299      516,874        610,925

*Segment assets do not include intersegment accounts receivable, cash, deferred tax assets, and certain other assets which are not identifiable with the segments.

    Source: Wausau Paper

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