Wausau Paper Announces Improved First-Quarter Earnings

MOSINEE, Wis.–(BUSINESS WIRE)–Wausau Paper (NYSE:WPP) today reported net earnings for the first quarter of $15.0 million, or $0.29 per share, compared with a net loss of $0.5 million, or $0.01 per share, in the previous year. Net sales rose 6 percent to a record first-quarter $299.4 million, and shipments increased 1 percent to a record 227,000 tons.

Included in current-year results were one-time state tax benefits of $12.0 million, or $0.24 per share, related to the January 1, 2007, restructuring of the company’s subsidiaries to realign them more closely with Wausau Paper’s current operating structure. The subsidiary realignment allows for the utilization of previously reserved state net operating loss and credit carryovers.

First-quarter results also included an after-tax gain of $0.4 million, or $0.01 per share, from the sale of timberlands and stock incentive credits of less than $0.01 per share. Prior-year first-quarter results included after-tax timberland sales gains of $1.0 million, or $0.02 per share, and stock incentive charges of $1.2 million, or $0.02 per share, including a cumulative effect charge of $0.4 million, or $0.01 per share, related to the adoption of Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payments.

“Record shipments and net sales, coupled with relentless efforts to improve operations in the face of historically high energy and rising fiber costs, produced solid gains in the first quarter compared with a year ago,” said Thomas J. Howatt, president and CEO. “Importantly, our growth continues to be driven by our core business strategies – pursuit of niche markets, product innovation, benchmark customer service and operating excellence. Innovative product solutions – such as the recent expansion of our ExperTec®, EcoSelect™, and ProGard® lines of specialty products – have enabled us to consistently exceed our new product goals, increase sales in targeted niche markets and improve customer service by recognizing market trends and meeting specific product needs,” continued Mr. Howatt. “During the first quarter, nearly 30 percent of net sales came from products developed in the last three years, eclipsing our goal of 25 percent, while at the same time paper mill productivity gains again exceeded our corporate target of 1 percent.”

Specialty Products reported first-quarter operating profits of $2.7 million compared with $3.2 million last year, with the decrease primarily attributable to cost pressures, most notably market pulp. Net sales increased 2 percent while shipments declined 2 percent. “First-quarter profits improved substantially from the breakeven result reported in the fourth quarter and represent Specialty’s best performance since last year’s first quarter,” Mr. Howatt stated. “Despite competitive market conditions we were successful in expanding our line of environmentally preferable products, allowing us to further penetrate attractive niche markets. At the same time, strong operations and cost containment activities have allowed us to partially offset continuing cost pressures.”

Printing & Writing reported first-quarter operating losses of $1.8 million compared with losses of $6.8 million last year. Net sales and shipments increased 7 percent and 3 percent, respectively. “In contrast, the industry’s uncoated freesheet shipments declined approximately 6 percent in the same period, a clear indicator that we are gaining market share,” commented Mr. Howatt. “Moreover, industry consolidation and capacity closures are beginning to create pricing momentum in printing and writing grades. Year-over-year comparisons also reflect the enhanced productivity we’ve achieved as well as the reduction of market-related downtime taken in the first quarter of 2006.”

Towel & Tissue operating profits reached record first-quarter levels of $9.7 million compared with operating profits of $9.2 million last year. Net sales and shipments increased 11 percent and 6 percent, respectively. Mr. Howatt commented, “Selling price increases, mix improvements and volume gains offset increased wastepaper costs and helped drive a ninth consecutive quarterly profit record. Despite ‘away-from-home’ market growth of less than 2 percent, our Green Seal® certified and value-added product shipments each increased more than 20 percent. This above-market growth continues to be driven by strong placements of our innovative proprietary dispensers and the introduction of new products.”

Discussing the second-quarter outlook, Mr. Howatt said, “Energy costs remain at historically high levels while fiber costs continue their upward trend. At the same time, we are encouraged by signs of returning pricing leverage in many of our product areas. The initial influence of pricing leverage, and efforts to contain costs and improve efficiency are expected to drive profit improvement compared with year-ago levels. As a result, we expect second-quarter earnings in the range of $0.08 and $0.10 per share, including timberland sales gains of $0.02 per share.” Second-quarter 2006 results were $0.07 per share and included $0.02 per share in timberland sales gains.

Wausau Paper’s first-quarter conference call is scheduled for 11:00 a.m. (EDT) on Wednesday, April 25, 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 May 2.

Wausau Paper, with record revenues of $1.2 billion in fiscal 2006, produces fine printing and writing papers, technical specialty papers, and “away-from-home” towel and tissue products. Green Seal® is a registered trademark of Green Seal, Inc., in Washington D.C., and is used by permission. To learn more about Wausau Paper visit: 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, 2006. The company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

Note 1. Balance sheet amounts at March 31, 2007, are unaudited.  The

        December 31, 2006, amounts are derived from audited financial

        statements.

Note 2. Effective January 1, 2007, we adopted Financial Accounting

        Standards Board (“FASB”) Staff Position No. AUG AIR-1,

        “Accounting for Planned Major Maintenance Activities.”  This

        FSP prohibits companies from recognizing planned major

        maintenance costs under the “accrue-in-advance” method that

        allowed the accrual of a liability over several reporting

        periods before the maintenance is performed.  We have adopted

        the direct expensing method, under which the costs of planned

        major maintenance activities are expensed in the period in

        which the costs are incurred.  The comparative financial

        statements for 2006 have been adjusted to apply the new method

        retrospectively, resulting in an increase in net earnings for

        the three months ended March 31, 2006, of $0.8 million, or

        $0.02 per basic and diluted share, an increase in net earnings

        of $0.1 million for the three months ended June 30, 2006, a

        decrease in net earnings of $0.3 million, or $0.01 per basic

        and diluted share for the three months ended September 30,

        2006, and a decrease of $0.6 million, or $0.01 per basic and

        diluted share for the three months ended December 31, 2006.

Note 3. On January 1, 2007, we adopted FASB Interpretation No. 48,

        “Accounting for Income Tax Uncertainties” (“FIN 48”).  FIN 48

        defines the threshold for recognizing the benefits of tax

        return positions in the financial statements as

        “more-likely-than-not” to be sustained by the taxing

        authority.  The literature provides guidance on the

        derecognition, measurement and classification of income tax

        uncertainties, along with any related interest and penalties.

        FIN 48 also includes guidance concerning accounting for income

        tax uncertainties in interim periods and increases the level

        of disclosures associated with any income tax uncertainties.

        The adoption of FIN 48 did not have a significant impact on

        our financial statements.

Note 4. Effective January 1, 2007, we reorganized the various

        subsidiaries which comprised our operating segments to align

        more closely with our operating structure.  Each segment is

        now organized as a single member limited liability company and

        operates as a direct subsidiary of Wausau Paper Corp.  The new

        structure allowed us to utilize state net operating loss and

        credit carryovers of certain subsidiaries for which full

        valuation allowances had been previously established due to

        the fact that separate state tax returns were filed under our

        previous structure.  During the three months ended March 31,

        2007, we recorded state tax benefits of $12.0 million, or

        $0.24 per basic and diluted share, as a result of the release

        of these valuation allowances.  No additional state tax

        benefits resulting from the reorganization are anticipated.

Note 5. Effective January 1, 2006, we adopted Statement of Financial

        Accounting Standards No. 123 (revised 2004), “Share-Based

        Payment” (“SFAS 123R”), using the modified prospective

        application transition method. The modified prospective

        application transition method requires that as of the

        effective date, compensation cost related to share-based

        payment transactions is recognized as an operating expense in

        the statement of operations over the requisite service period

        of the grant based on the grant-date fair value of the award.

        Under SFAS 123R, 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 until final settlement.  The difference

        between the liability as previously computed (i.e., intrinsic

        value) and the fair value of the liability award on January 1,

        2006, was $0.4 million net of any related tax effects ($0.7

        million pretax), and was recorded as a cumulative effect of a

        change in accounting principle.

Note 6. In July 2005, we 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.  Pre-tax restructuring expense related

        to certain assets disposed as a direct result of the closure

        and other associated costs were $0.1 million for the three

        months ended March 31, 2006.  No restructuring expense was

        incurred for the three months ended March 31, 2007.

Note 7. Interim Segment Information

        We have reclassified certain prior-year interim segment

        information to conform to the 2007 presentation. The

        reclassifications are the result of a reporting change,

        effective January 1, 2007, in accordance with FASB FSP AUG

        AIR-1 (see Note 2), and as a result of restructuring the

        assets, operating results, and depreciation, depletion and

        amortization of one facility from the Corporate and

        Unallocated segment to the Towel & Tissue segment (see Note

        4).

        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:

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