Business News

Appleton Reports Second Quarter 2008 Results

Tuesday 12. August 2008 - Appleton's net sales from continuing operations for second quarter ended June 29, 2008, increased 2.9 percent to $249.8 million compared to net sales from continuing operations of $242.8 million for the same quarter of 2007.

Appleton reported income from continuing operations of $0.3 million for second quarter 2008 compared to a loss from continuing operations of $0.9 million for the same quarter of 2007. Appleton reported a $42.7 million net loss for second quarter 2008 compared to a $1.7 million net loss for second quarter 2007, primarily due to impairment charges reducing the carrying value of Bemrose Group Limited, Appleton’s secure and specialized print services business based in Derby, England.

As previously announced, late in 2007 Appleton committed to a formal plan to sell Bemrose Group Limited. The operating results of Bemrose for the three and six months ended June 29, 2008, and July 1, 2007, have been reclassified and are reported as discontinued operations. On August 1, 2008, Appleton completed the sale of Bemrose Group Limited for net proceeds of $7.6 million. In anticipation of the sale transaction, the Company recorded impairment charges aggregating $41.2 million related to goodwill and other long-lived assets in the three-month period ended June 29, 2008. These charges arose in the second quarter due to a decline in the value of the business arising primarily as the result of deteriorating economic conditions and tougher markets for Bemrose products, as well as increased funding requirements of the Bemrose pension plan arising from negotiations with the plan trustees.

Appleton’s net sales from continuing operations for the first half of 2008 were $486.0 million, an increase of 2.3 percent compared to the first half of 2007. Income from continuing operations for the six months ended June 29, 2008, was $21.6 million compared to $0.6 million of income from continuing operations for the same period last year. During the first half of 2008, Appleton recorded a $22.3 million net litigation settlement gain as the result of prevailing in a lawsuit to recover previously incurred costs from an insurance carrier. As a result of the litigation gain and the Bemrose impairment charges, Appleton recorded a net loss of $21.3 million for the first half of 2008 compared to a $1.8 million net loss recorded for the same period last year.

Second Quarter Business Unit Results (dollars in thousands):


Net Sales for the Operating Income (Loss) for the
Three Months Ended Three Months Ended

June 29, 2008 July 1, 2007 June 29, 2008 July 1, 2007

Technical Papers $222,498 $217,352 $11,991 $13,337

Performance Packaging 27,281 25,413 1,758 1,841

Other (Unallocated) — — (3,311) (3,627)

$249,779 $242,765 $10,438 $11,551



Technical Papers


Technical Papers second quarter 2008 net sales of $222.5 million were $5.1 million, or 2.4 percent, higher than second quarter 2007 as higher net sales of thermal and security papers offset lower net sales of coated solutions. Coated solutions net sales decreased $2.6 million, or 1.8 percent, compared to second quarter 2007, primarily due to lower shipment volumes and unfavorable mix which offset gains from improved pricing. Net sales of thermal papers increased $6.7 million, or 10.5 percent, compared to the prior year quarter, due to increased shipment volumes. Net sales of security papers increased $1.0 million, or 12.0 percent, compared to second quarter 2007, due to increased shipment volumes and improved pricing.

In comparison to second quarter 2007, Technical Papers second quarter 2008 operating income decreased $1.3 million to $12.0 million as $10.9 million of raw material and energy inflation offset favorable pricing, productivity and lower selling, general and administrative expenses.

On August 8, 2008, the union employees at Appleton’s paper mill in Roaring Spring, Pennsylvania, ratified a four-year labor agreement negotiated between Appleton and Local 10-0422 of the United Steelworkers Union. The agreement includes improvements in wages and benefits and addresses other issues ensuring that Appleton remains competitive as the world leader in carbonless, thermal and security paper products.

Performance Packaging

Performance Packaging second quarter 2008 net sales were $1.9 million, or 7.4 percent, higher than second quarter 2007 primarily due to improved pricing and favorable mix. Despite higher second quarter 2008 net sales, operating income of $1.8 million for second quarter 2008 was unchanged from the year earlier period. In 2008, gross margins have been negatively impacted by higher raw material costs.

Other (Unallocated)

Other (unallocated) includes costs associated with new business development activities and unallocated corporate expenses. Other (unallocated) costs decreased $0.3 million in second quarter 2008 compared to second quarter 2007.

Balance Sheet

Capital spending during the first half of 2008 totaled $50.7 million, of which $44.6 million was associated with the West Carrollton mill expansion project. Through second quarter 2008, Appleton has spent $76.2 million on the $125 million expansion project. The Company conducted a dedication ceremony at the mill on August 6 to celebrate completion of the project, although spending for this project will continue through the remainder of the year. Capital spending during the first six months of 2007 was $16.8 million.

At the end of second quarter 2008, the Company had cash totaling $16.6 million. This compared to cash of $44.8 million at year-end 2007. Through second quarter 2008, the Company borrowed $179.0 million and repaid $137.8 million on the revolving line of credit within its senior credit facility. As mentioned earlier, spending continues on the West Carrollton mill expansion project. Also, during second quarter 2008, as a result of employee deferrals, required diversification payments and distributions to terminated employees, redeemable common stock was repurchased at a net aggregate price of $13.7 million.