Business News
Appleton Reports First Quarter 2008 Results
Tuesday 13. May 2008 - Appleton's net sales from continuing operations for first quarter ended March 30, 2008, increased 1.6 percent to $236.2 million compared to net sales from continuing operations of $232.4 million for the same quarter of 2007.
Appleton reported net income from continuing operations of $21.4 million for first quarter 2008 compared to net income from continuing operations of $1.5 million for the same quarter of 2007. During first quarter 2008, Appleton recorded a $22.2 million net litigation settlement gain as the result of prevailing in a lawsuit to recover previously incurred costs from an insurance carrier.
As previously announced, late in 2007 Appleton committed to a formal plan to sell BemroseBooth, its secure and specialized print services business based in Derby, England. The operating results of this business for the quarters ended March 30, 2008, and April 1, 2007, have been reclassified and are now reported as discontinued operations. During first quarter 2008, results from discontinued operations were breakeven. This compares to a loss from discontinued operations of $1.6 million recorded for first quarter 2007, of which, $1.4 million was for restructuring activities.
First Quarter Business Unit Results (dollars in thousands):
Net Sales for the Operating Income (Loss) for the
Three Months Ended Three Months Ended
March 30, April 1, March 30, April 1,
2008 2007 2008 2007
Technical Papers $209,230 $208,627 $12,429 $18,677
Performance Packaging 27,000 23,723 1,463 280
Other (Unallocated) — — (3,588) (6,010)
$236,230 $232,350 $10,304 $12,947
Technical Papers
Technical Papers first quarter 2008 net sales of $209.2 million were $0.6 million, or 0.3 percent, higher than first quarter 2007 as higher net sales of thermal and security papers offset lower net sales of coated solutions. Coated solutions net sales decreased $2.2 million, or 1.6 percent, compared to first quarter 2007, primarily due to lower shipment volumes and unfavorable mix which offset gains from improved pricing. Net sales of thermal papers increased $1.9 million, or 3.2 percent, compared to the prior year quarter, due to increased shipment volumes. Net sales of security papers increased $0.9 million, or 11.3 percent, compared to first quarter 2007, due to increased shipment volumes and improved pricing.
Technical Papers first quarter operating income decreased $6.2 million, or 33.5 percent, to $12.4 million primarily due to lower gross margins. Raw material and energy increased 8.8 percent in first quarter 2008 compared to first quarter 2007. Operating income also was impacted by lower shipment volumes and unfavorable mix which offset improved pricing and manufacturing gains.
Performance Packaging
Performance Packaging first quarter 2008 net sales were $3.3 million, or 13.8 percent, higher than first quarter 2007 primarily due to improved pricing and favorable mix. First quarter 2008 operating income of $1.5 million was $1.2 million higher than first quarter 2007 due to improved pricing, favorable mix and manufacturing gains.
Other (Unallocated)
Other (unallocated) includes costs associated with new business development activities and unallocated corporate expenses. Other (unallocated) costs decreased $2.4 million in first quarter 2008 compared to first quarter 2007. The 2007 quarter included $1.8 million of consulting fee expense associated with a one-time income tax refund.
Balance Sheet
Capital spending during first quarter 2008 totaled $26.0 million. The West Carrollton mill expansion project accounted for $22.2 million of this spending. Through first quarter 2008, Appleton has spent $53.8 million on the $125 million expansion project. The project remains on schedule with start up anticipated in the second half of 2008. Capital spending during first quarter 2007 was $7.3 million.
At the end of first quarter 2008, the Company had cash totaling $22.0 million. This compared to cash of $44.8 million at year-end 2007. The decrease in cash was largely the result of increased capital spending associated with the West Carrollton mill expansion project. During first quarter 2008, the Company borrowed $29.3 million and repaid $19.3 million on the revolving line of credit within its senior credit facility.
During February 2008, Appleton entered into two five-year interest rate swap contracts. One contract fixes the interest rate on $75.0 million of its variable rate notes at 5.45 percent and the other contract fixes the interest rate at 5.4 percent on another $75.0 million of its variable rate notes.
Update
In September 2007, Appleton filed petitions with the U.S. Department of Commerce and the U.S. International Trade Commission (ITC) alleging that lightweight thermal paper products imported from China, Germany and Korea are being wrongfully dumped in the United States. Appleton also alleges that the Chinese government is wrongfully subsidizing the Chinese lightweight thermal paper industry. Appleton is asking the Department of Commerce and the ITC to impose offsetting duties on lightweight thermal paper products imported from those countries. The ITC ruled on November 16, 2007, that there is a reasonable indication that the U.S. industry producing lightweight thermal paper products is being materially injured or threatened with material injury due to unfairly traded imports from China and Germany. The ITC further ruled that imports from Korea are negligible because they represent less than three percent of imports into the United States. The Department of Commerce issued its preliminary determination regarding the Chinese subsidy on March 10, 2008, finding margins that range from 0.57% to 59.5%. On May 7, 2008, the Department of Commerce imposed preliminary antidumping duties in the amount of 133% against China and 6.5% against Germany. A final determination regarding injury and duties is expected in September or October 2008.