Appleton Reports Third Quarter 2009 Results

APPLETON, Wis., Nov. 9 /PRNewswire/ --

Third quarter 2009 financial highlights
-- Net income of $31.4 million up $61.4 million compared to Q3 2008
-- Net sales of $222.3 million down 13% compared to Q3 2008, but up 4%
compared to Q2 2009
-- Gross profit margin of 21.1% up 3.7% compared to Q3 2008
-- Net cash generated from operations of $31.5 million was up $39.7
million
compared to Q3 2008
-- Debt was down $60 million from Q2 2009, including $40.5 million from a
debt-for-debt exchange
-- Selling, general & administrative expenses down 13% excluding $4.2
million debt exchange costs

-- Borrowing capacity available under the Company's revolving credit
facility was $40 million

Year-to-date highlights
-- Net income of $39.9 million up $91.2 million compared to the same
period
2008
-- Net sales of $648.3 million down 13% compared to the same period 2008
-- Selling, general & administrative expenses down 16% compared to the
same
period 2008
-- Inventories down 10% in 2009

-- Net cash from operations of $44.1 million was up $49.2 million
compared
to the same period in 2008

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.

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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.

Focused on the fundamentals
"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.

Third Quarter and First Nine Month Business Unit Results (dollars in
thousands):
Operating Income
Net Sales for the (Loss) for the
Three Months Ended Three Months Ended
------------------ ------------------
October 4, September 28, October 4, September 28,
2009 2008 2009 2008
---------- ------------- ---------- -------------

Technical Papers $195,750 $226,031 $13,607 $4,575
Performance
Packaging 26,597 29,644 911 (15,157)
Other (Unallocated) -- -- (6,627) (2,746)
--- --- ------ ------
$222,347 $255,675 $7,891 $(13,328)
======== ======== ====== ========

Operating Income
Net Sales for the (Loss) for the
Nine Months Ended Nine Months Ended
----------------- -----------------
October 4, September 28, October 4, September 28,
2009 2008 2009 2008
---------- ------------- ---------- -------------

Technical Papers $573,831 $658,475 $41,899 $29,097
Performance
Packaging 74,477 83,925 2,095 (11,936)
Other (Unallocated) -- -- (10,390) (9,747)
--- --- ------- ------
$648,308 $742,400 $33,604 $7,414
======== ======== ======= ======

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.

Balance Sheet
On September 30, 2009, Appleton completed a voluntary debt-for-debt exchange
of significant portions of its 8.125% senior notes payable due June 2011 and
9.75% senior subordinated notes payable due June 2014. Weak economic
conditions and frozen credit markets caused many corporate bonds, including
those issued by Appleton, to trade well below face value. Appleton took
advantage of the opportunity to significantly reduce its total indebtedness,
plus extend maturities and simplify its debt structure, by exchanging existing
debt at less than face value. This transaction exchanged $92.0 million of
senior notes for $92.0 million of newly issued 11.25% second lien notes
payable due December 2015 and $110.3 million of senior subordinated notes for
$66.2 million of newly issued 11.25% second lien notes. At the same time,
Appleton and its lenders under the senior secured credit facilities entered
into agreements to amend certain provisions of the credit facilities. In
addition, $3.0 million of fees were recorded, $3.7 million of previously
capitalized debt issuance costs were written off and a net gain from debt
extinguishment of $37.4 million was recorded during third quarter 2009. As a
result of these transactions and steady repayment of the revolving credit
facility, total debt at October 4, 2009, of $564.9 million, was $60.0 million
less than at the end of second quarter 2009.

During third quarter 2009, Appleton generated cash from operations of $31.5
million. This compares to $12.3 million of cash generated by operations during
second quarter 2009 and $8.3 million of cash used by operations during third
quarter 2008. Continued diligent management of working capital contributed
$28.9 million to this quarter's cash from operations. During the third quarter
2009, Appleton contributed $10 million to its pension fund. As of October 4,
2009, Appleton was in compliance with its various debt covenants.

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."

Earnings release conference call
Appleton will host a conference call to discuss its third quarter 2009 results
on Tuesday, November 10, 2009, at 11:00 a.m. ET. The call will be broadcast
through its Web site, www.appletonideas.com/investors. A replay will be
available through December 9.

About Appleton
Appleton creates product solutions through its development and use of coating
formulations, coating applications and encapsulation technology. The Company
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. For more information, visit
www.appletonideas.com.

Notice regarding forward-looking statements
This news release contains forward-looking statements. The words "will,"
"may," "should," "believes," "anticipates," "intends," "estimates," "expects,"
"projects," "plans," "seek" or similar expressions are intended to identify
forward-looking statements. All statements in this news release, other than
statements of historical fact, including statements which address Appleton's
strategy, future operations, future financial position, estimated revenues,
projected costs, prospects, plans and objectives of management and events or
developments that Appleton expects or anticipates will occur, are
forward-looking statements. All forward-looking statements speak only as of
the date on which they are made. They rely on a number of assumptions
concerning future events and are subject to a number of risks and
uncertainties, many of which are outside the Company's control that could
cause actual results to differ materially from such statements. These risks
and uncertainties include, but are not limited to, the factors listed under
"Item 1A - Risk Factors" in the annual report on Form 10-K for the year ended
January 3, 2009, as well as in the quarterly reports on Form 10-Q for the
quarter ended July 5, 2009, and for the current quarter ended October 4, 2009.
Many of these factors are beyond Appleton's ability to control or predict.
Given these uncertainties, you should not place undue reliance on the
forward-looking statements. Appleton disclaims any obligation to update or
revise publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.

Table 1

Appleton Papers Inc.
Consolidated Statements of Operations
(unaudited)
(dollars in thousands)

For the Three For the Three
Months Ended Months Ended
October 4, 2009 September 28, 2008
--------------- ------------------

Net sales $222,347 $255,675
Cost of sales 175,582 211,173
------- -------

Gross profit 46,765 44,502

Selling, general and administrative
expenses 38,874 40,146
Goodwill impairment -- 17,684
--- ------

Operating income (loss) 7,891 (13,328)

Other expense (income)
Interest expense 13,987 10,748
Debt extinguishment income, net (37,366) --
Interest income (10) (128)
Foreign exchange (gain) loss (403) 1,774
---- -----

Income (loss) from continuing
operations before income taxes 31,683 (25,722)

Provision for income taxes 240 85
--- ---

Income (loss) from continuing
operations 31,443 (25,807)

Discontinued operations
Loss from discontinued operations,
net of income taxes -- (4,224)
--- ------

Net income (loss) $31,443 $(30,031)
======= ========

Other Financial Data:

Depreciation and amortization of
intangible assets including
impairment within continuing
operations $15,529 $32,441

Table 2

Appleton Papers Inc.
Consolidated Statements of Operations
(unaudited)
(dollars in thousands)

For the Nine For the Nine
Months Ended Months Ended
October 4, 2009 September 28, 2008
--------------- ------------------

Net sales $648,308 $742,400
Cost of sales 509,582 592,022
------- -------

Gross profit 138,726 150,378

Selling, general and administrative
expenses 105,122 125,280
Goodwill impairment -- 17,684
--- ------

Operating income 33,604 7,414

Other expense (income)
Interest expense 38,209 32,034
Debt extinguishment income, net (42,746) --
Interest income (47) (365)
Litigation settlement, net -- (22,274)
Foreign exchange (gain) loss (1,005) 2,000
Other income (820) --
---- ---

Income (loss) from continuing
operations before income taxes 40,013 (3,981)

Provision for income taxes 163 177
--- ---

Income (loss) from continuing
operations 39,850 (4,158)

Discontinued operations
Loss from discontinued operations,
net of income taxes -- (47,149)
--- -------

Net income (loss) $39,850 $(51,307)
======= ========

Other Financial Data:

Depreciation and amortization of
intangible assets including
impairment within continuing
operations $46,437 $62,007

Table 3

Appleton Papers Inc.
Consolidated Balance Sheets
(unaudited)
(dollars in thousands)

October 4, 2009 January 3, 2009
--------------- ---------------

Cash and cash equivalents $3,539 $4,180
Accounts receivable 103,235 88,218
Inventories 112,471 124,856
Other current assets 46,723 45,920
Assets held for sale 9,073 9,327
----- -----
Total current assets 275,041 272,501

Property, plant and equipment, net 412,918 439,301

Other long-term assets 133,369 208,864
Assets held for sale 8,806 9,255
----- -----

Total assets $830,134 $929,921
======== ========

Accounts payable $56,823 $61,093
Other current liabilities 92,097 92,585
Liabilities held for sale 2,198 2,085
----- -----
Total current liabilities 151,118 155,763

Long-term debt 558,900 598,598

Other long-term liabilities 196,507 282,505

Total equity (76,391) (106,945)
------- --------

Total liabilities & equity $830,134 $929,921
======== ========

SOURCE Appleton Papers Inc.

Bill Van Den Brandt, Manager, Corporate Communications of Appleton Papers
Inc., +1-920-991-8613, bvandenbrandt@appletonideas.com