Wausau Paper (NYSE:WPP) today reported net earnings for the second quarter of $3.6 million or $0.07 per share, compared with a net loss of $2.7 million, or $0.05 per share, the year before. Net sales increased 8 percent to $297.3 million while shipments increased 4 percent to 232,000 tons, both records for any quarter.
Prior-year second-quarter results included after-tax charges of $0.12 per share related to the closure of Printing & Writing's sulfite pulp mill in Brokaw, Wisconsin. Second-quarter results for both years reflected after-tax stock incentive credits of $0.01 per share.
For the first half of 2006, Wausau Paper reported net earnings of $2.2 million, or $0.04 per share, compared with a net loss of $0.8 million, or $0.01 per share, during the comparable period last year. In addition to sulfite pulp mill closure charges of $0.12 per share, results for the first half of 2005 included stock incentive credits of $0.03 per share, compared with charges of $0.02 per share in 2006. Net sales increased 7 percent to $580.9 million while shipments increased 3 percent to 456,000 tons.
In discussing the year-over-year second-quarter comparison, Thomas J. Howatt, president and CEO, stated, "Revenues rose to record levels as two of our three business segments increased sales at double-digit rates. This performance was primarily attributable to strong towel and tissue markets, improved uncoated freesheet market conditions, and a continued focus on the strategic drivers of our long-term success - attractive niche markets, product innovation, benchmark customer service, and operational excellence. Continued progress was evident in several key measures. For instance, approximately 30 percent of revenues came from products developed in the last three years, comfortably exceeding our corporate goal of 25 percent, and paper mill productivity improved 2 percent year-over-year, continuing to build on consistent gains in recent years. These sales and efficiency gains helped offset year-over-year fiber and energy cost increases of $0.08 per share."
Specialty Products reported second-quarter operating profits of $1.3 million, compared with $3.9 million last year. Net sales and shipments declined 2 percent and 6 percent, respectively. "Selling price increases and product mix gains could only partially offset the impact of lower shipments and higher manufacturing costs, notably energy and fiber," Mr. Howatt said. "Despite continuing cost pressures and increasingly competitive market conditions, we remain focused on driving long-term profitability by leveraging product innovation and improving our operational efficiencies."
Printing & Writing reported second-quarter operating losses of $3.1 million, compared with losses of $13.3 million last year. Net sales and shipments increased 18 percent and 16 percent, respectively. Second-quarter results included pre-tax pulp mill closure charges of $0.2 million, compared with $9.5 million last year. "Although far from satisfied with second-quarter losses, we are encouraged by the pace of improvement at Printing & Writing in recent months," Mr. Howatt said. "Net sales and shipments reached record levels in the second quarter while efficiency improvement efforts yielded substantial benefits. These factors, combined with somewhat stronger market conditions and improved product pricing, have created positive momentum and enabled us to reduce losses by more than 50 percent from first-quarter levels of $7.1 million. Even so, recent improvements have allowed us to recover only a portion of the energy and fiber cost increases absorbed in recent years."
Towel & Tissue's second-quarter operating profits increased 13 percent to a record $11.2 million from $9.9 million last year. Net sales and shipments were up 11 percent and 7 percent, respectively. "Our Towel & Tissue segment continues to perform well by virtually every metric," pointed out Mr. Howatt. "Selling price increases, volume gains and product mix improvements offset increased energy and fiber costs. While 'away-from-home' towel and tissue markets have grown a steady 2 percent during the first half of 2006, our value-added and Green Seal(R) certified product shipments increased 14 percent and 24 percent, respectively. Accelerated growth in these higher-margin grades continues to be driven by differentiated products such as the OptiCore(TM) and OptiServ(TM) lines introduced in 2005."
Mr. Howatt also noted that the company sold approximately 550 acres of timberland in the second quarter for an after-tax gain of $0.8 million. Less than 100 acres were sold in the year-ago period at an after-tax gain of $0.1 million. "The pace of our timberland sales program is expected to increase in the third quarter as we continue to execute against our earlier-announced plans," said Mr. Howatt. Also during the second quarter the company repurchased approximately 160,000 shares of common stock, and has 1.7 million shares remaining under a previous board authorization.
Commenting on third-quarter outlook, Mr. Howatt pointed out, "Significant cost pressures continue unabated with fiber prices reaching decade highs as we entered the quarter and energy prices sustaining historically high levels. While the supply/demand balance at Towel & Tissue remains favorable and we expect bottom-line improvement at Printing & Writing from second-quarter levels, pricing at Specialty Products remains under considerable pressure. At the same time we expect an acceleration of our timberland sales program, which is projected to contribute approximately $0.06 per share to third-quarter results, to drive substantial improvement over second-quarter levels." In the 2005 third quarter, Wausau Paper reported a net loss of $0.18 per share, which included a charge of $0.26 per share related to the closure of the Brokaw pulp mill and a gain of $0.01 from the sale of timberlands.
Wausau Paper's second-quarter conference call is scheduled for 9:30 a.m. (EDT) on Wednesday, July 26, 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 August 3.
Wausau Paper produces fine printing and writing papers, technical specialty papers, and "away-from-home" towel and tissue products. Green Seal(R) is a registered trademark of Green Seal, Inc., in Washington D.C., and is used by permission.
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, 2005. The company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.
(tables attached)
Wausau Paper
Interim Report - Quarter Ended June 30, 2006
(in thousands, except per share amounts)
Condensed Consolidated Statements
of Operations (unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
----------------------- -----------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
Net sales $ 297,286 $ 275,291 $ 580,949 $ 543,032
Cost of sales 268,946 258,445 530,284 503,051
----------- ----------- ----------- -----------
Gross profit 28,340 16,846 50,665 39,981
Selling and
administrative
expense 19,735 18,376 40,711 35,903
Restructuring 77 177 209 177
----------- ----------- ----------- -----------
Operating profit (loss) 8,528 (1,707) 9,745 3,901
Interest expense (2,879) (2,687) (5,592) (5,337)
Other income/(expense),
net 47 122 89 237
----------- ----------- ----------- -----------
Earnings (loss) before
income taxes and
cumulative effect
of a change in
accounting principle 5,696 (4,272) 4,242 (1,199)
Provision (credit) for
income taxes 2,108 (1,581) 1,570 (444)
----------- ----------- ----------- -----------
Earnings (loss) before
cumulative effect
of a change in
accounting principle 3,588 (2,691) 2,672 (755)
Cumulative effect of
a change in accounting
principle (net of
income taxes) 0 0 (427) 0
----------- ----------- ----------- -----------
Net earnings (loss) $ 3,588 $ (2,691) $ 2,245 $ (755)
=========== =========== =========== ===========
Earnings (loss)
per share before
cumulative effect
of a change in
accounting principle
(basic and diluted) $ 0.07 $ (0.05) $ 0.05 $ (0.01)
Cumulative effect of
a change in accounting
principle (net of
income taxes) 0 0 (0.01) 0
----------- ----------- ----------- -----------
Net earnings (loss)
per share (basic
and diluted) $ 0.07 $ (0.05) $ 0.04 $ (0.01)
=========== =========== =========== ===========
Weighted average
shares outstanding-
basic 51,041 51,589 51,041 51,640
=========== =========== =========== ===========
Weighted average
shares outstanding-
diluted 51,358 51,589 51,342 51,640
=========== =========== =========== ===========
Condensed Consolidated Balance Sheets June 30, December 31,
(Note 1) 2006 2005
----------- ------------
Current assets $ 288,623 $ 279,684
Property, plant and equipment, net 480,429 494,228
Other assets 48,550 46,601
----------- ------------
Total Assets $ 817,602 $ 820,513
=========== ============
Current liabilities $ 153,898 $ 148,965
Long-term debt 163,748 161,011
Other liabilities 197,713 200,318
Stockholders' equity 302,243 310,219
----------- ------------
Total Liabilities and Stockholders'
Equity $ 817,602 $ 820,513
=========== ============
Condensed Consolidated Statements Six Months
of Cash Flow (unaudited) Ended June 30,
-------------------------
2006 2005
----------- ------------
Net cash provided by (used in)
operating activities $ 5,191 $ (4,498)
----------- ------------
Cash flows from investing activities:
Capital expenditures (11,779) (15,631)
Proceeds from property, plant and
equipment disposals 3,205 222
----------- ------------
Net cash used in investing activities (8,574) (15,409)
----------- ------------
Cash flows from financing activities:
Net issuances/payments of commercial
paper 3,000 0
Payments under capital lease obligation
and note payable (115) (47)
Dividends paid (8,685) (8,787)
Proceeds from stock option
exercises 1,437 0
Excess tax benefits related to stock
incentive plans 99 0
Payments for purchase of
company stock (3,244) (2,738)
----------- ------------
Cash used in financing activities (7,508) (11,572)
----------- ------------
Net decrease in cash and cash
equivalents $ (10,891) $ (31,479)
=========== ============
Note 1. Balance sheet amounts at June 30, 2006, are unaudited. The
December 31, 2005, amounts are derived from audited financial
statements.
Note 2. Effective January 1, 2006, Wausau Paper adopted Statement of
Financial Accounting Standard No. 123 (revised 2004), "Share-
Based Payment." This accounting standard requires compensation
cost relating to share-based payment transactions be
recognized in the financial statements. We elected the
modified prospective transition method to implement this new
standard. Share-based payment awards that are settled in cash
continue to be classified as a liability; however, rather than
remeasuring the award at the intrinsic-value each reporting
period, the award is remeasured at its fair value each
reporting period. The difference between the liability as
previously computed (i.e., intrinsic value) and the fair
value of the liability award on the date of adoption, net of
any related tax effects, is recorded as a cumulative effect
of a change in accounting principle.
Note 3. In July 2005, Wausau Paper announced plans to permanently
close the sulfite pulp mill at our Brokaw, Wisconsin,
facility. The pulp mill was closed in November 2005 and the
related long-lived assets were abandoned. The cost of sales
for the period ended June 30, 2005, as reflected in the
Condensed Consolidated Statements of Operations, include $9.3
million in pre-tax charges for accelerated depreciation and an
adjustment of pulp mill inventory to net realizable value. The
cost of sales for the three and six-month periods ended June
30, 2006, include pre-tax pulp mill closure charges of $0.1
million. Restructuring expense for the period ended June 30,
2005, reflects a pre-tax charge of $0.2 million for certain
assets disposed as a result of the closure. Restructuring
expense for the three and six-month periods ended June 30,
2006, reflect pre-tax charges of $0.1 million and $0.2
million, respectively, for other associated closure costs.
Note 4. Interim Segment Information
Wausau Paper has reclassified certain prior-year interim
segment information to conform to the 2006 presentation. The
reclassification is the result of a reporting change,
effective January 1, 2006, for timberland assets held for sale
from the operating segments to corporate.
Wausau Paper's operations are 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, Wisconsin; Mosinee,
Wisconsin; and Jay, Maine. Specialty Products also includes
two converting facilities that produce laminated roll wrap and
related specialty finishing and packaging products. Printing &
Writing produces a broad line of premium printing and writing
grades at manufacturing facilities in Brokaw, Wisconsin;
Groveton, New Hampshire; and Brainerd, Minnesota. Printing &
Writing also includes a converting facility that converts
printing and writing grades. 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.
Sales, operating profit, and asset information by segment is
as follows:
(in thousands, except ton data) June 30, December 31,
2006 2005
----------- ------------
Segment assets (Note 1)
Specialty Products $ 335,644 $ 333,482
Printing & Writing 254,983 254,528
Towel & Tissue 180,694 175,134
Corporate & Unallocated(a) 46,281 57,369
----------- ------------
$ 817,602 $ 820,513
=========== ============
Three Months Six Months
Ended June 30, Ended June 30,
2006 2005 2006 2005
-------- -------- -------- --------
Net sales external
customers (unaudited)
Specialty Products $111,937 $113,981 $233,429 $232,345
Printing & Writing 112,033 95,246 211,351 187,850
Towel & Tissue 73,316 66,064 136,169 122,837
-------- -------- -------- --------
$297,286 $275,291 $580,949 $543,032
======== ======== ======== ========
Operating profit (loss)
(unaudited)
Specialty Products $ 1,259 $ 3,857 $ 3,609 $ 7,797
Printing & Writing (3,052) (13,289) (10,157) (17,858)
Towel & Tissue 11,207 9,922 20,223 17,806
Corporate & Eliminations (886) (2,197) (3,930) (3,844)
-------- -------- -------- --------
$ 8,528 $ (1,707) $ 9,745 $ 3,901
======== ======== ======== ========
Three Months Six Months
Ended June 30, Ended June 30,
2006 2005 2006 2005
-------- -------- -------- --------
Depreciation, depletion and
amortization (unaudited)
Specialty Products $ 5,696 $ 6,209 $ 11,739 $ 12,417
Printing & Writing 3,108 7,376 6,186 11,424
Towel & Tissue 5,231 4,902 10,365 9,680
Corporate & Unallocated 311 284 614 571
-------- -------- -------- --------
$ 14,346 $ 18,771 $ 28,904 $ 34,092
======== ======== ======== ========
Tons sold (unaudited)
Specialty Products 94,720 100,404 197,007 205,192
Printing & Writing 93,311 80,411 176,942 160,571
Towel & Tissue 43,974 41,266 82,263 77,553
-------- -------- -------- --------
232,005 222,081 456,212 443,316
======== ======== ======== ========
(a) Segment assets do not include intersegment accounts receivable,
cash, deferred tax assets, and certain other assets which are not
identifiable with the segments.