Contact: | Dana Wardwell |
| (828-454-0676) |
Blue Ridge Paper Products Inc. Reports First Quarter 2006 Results:
CANTON, North Carolina (Bloomberg: bluerd) — Blue Ridge Paper Products Inc. today reported a net loss of $2.9 million for the first quarter ended March 31, 2006. This compared to a net loss of $11.6 million for the fourth quarter ended December 31, 2005 and a net profit of $0.7 million for the first quarter ended March 31, 2005. Total net sales for the first quarter ended March 31, 2006 were $140.1 million, up 10.8% and 9.0% when compared to net sales for the fourth quarter ended December 31, 2005 of $126.4 million and net sales of $128.5 million for the first quarter ended March 31, 2005, respectively.
Commenting on the quarter, Richard Lozyniak, Chief Executive Officer, stated, “While we are disappointed that we did not return to profitability in the first quarter, we are very encouraged by the significant improvement in our operating cash flow, which resulted from improved pricing for our products, exceptionally strong productivity and some moderation in input costs. High energy costs, however, continue to be an area of concern.”
Key Business Highlights
· The uncoated paper market strengthened in the first quarter ended March 31, 2006. Shipments in the first quarter ended March 31, 2006 exceeded fourth quarter ended December 31, 2005 by 2,733 tons or 4.0%. First quarter ended March 31, 2006 average pricing for uncoated paper grades increased 4.7% when compared to pricing for the fourth quarter ended December 31, 2005. Pricing in the second quarter ending June 30, 2006 is projected to increase over the average pricing for the first quarter ended March 31, 2006 due to price increases implemented on March 27, 2006. This increase included $60 per ton for white wove envelope, offset, reply card, multipurpose and tablet grades and $40 per ton for envelope kraft.
· Shipments in the packaging segment for the first quarter ended March 31, 2006 totaled 68,596 tons, which was 10.5% above the fourth quarter ended December 31, 2005. This increase reflected strong shipments of the Company’s non-converted coated board grades from 27,585 tons to 35,781 tons. Pricing in the first quarter ended March 31, 2006 for the Company’s non-converted coated board grades was 7.1% higher than pricing recorded in the fourth quarter ended December 31, 2005. The Company’s carton pricing was up 1.6% in the first quarter ended March 31, 2006 when compared to pricing in the fourth quarter ended December 31, 2005.
· In the first quarter ended March 31, 2006, raw material costs compared to fourth quarter ended December 31, 2005 were flat. However, the Company received moderate cost decreases toward the end of the first quarter for low density polyethylene, wood chips and caustic soda. Energy costs were up in the first quarter ended March 31, 2006 due primarily to contractual increases for coal that were effective January 1, 2006. Transportation costs were down approximately $1.2 million in the first quarter ended March 31, 2006 compared to the fourth quarter ended December 31, 2005. This was primarily due to a reduction in accessorial charges that were at all time highs immediately following the Gulf Coast hurricanes in the third quarter ended September 30, 2005.
· The Canton mill conducted a planned hardwood pulp mill outage in the fourth quarter ended December 31, 2005. The planned outage had a negative impact on fourth quarter earnings of approximately $3.1 million. There was not a corresponding outage in the first quarter ended March 31, 2006. The Canton mill is scheduled to have a pine pulp mill outage in the second quarter ending June 30, 2006.
The Company defines EBITDA as net income before interest, taxes and depreciation and amortization. Adjusted EBITDA is EBITDA adjusted for certain unusual and non-cash items. EBITDA and Adjusted EBITDA are non-GAAP measures. The Company believes that EBITDA and Adjusted EBITDA can assist investors in analyzing and assessing its ability to service debt. In addition, management focuses on EBITDA and Adjusted EBITDA, as defined, as measures of the Company’s operating performance and as measures of the ability of the business to generate cash. These measures should not be considered in isolation or as an alternative to net income in measuring operating performance or as an alternative to cash flows from operations in measuring its liquidity. EBITDA and Adjusted EBITDA as the Company defines these terms may not be comparable to similarly titled financial performance measures presented by other companies.
The Adjusted EBITDA for the three-month period ended March 31, 2006 was $6.5 million compared to Adjusted EBITDA of a negative $4.3 million for the three-month period ended December 31, 2005.
ADJUSTED EBITDA — RECONCILIATION OF NON-GAAP MEASURES ($000)
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| Three-Months Ended |
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| March 31, 2006 |
| December 31, 2005 |
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Net Loss |
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| $ | (2,896 | ) | $ | (11,596 | ) |
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Income taxes |
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| ― |
| ― |
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Interest expense |
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| 4,475 |
| 4,431 |
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Depreciation expense |
|
|
| 3,662 |
| 3,967 |
| ||
Amortization expense |
|
|
| 370 |
| 360 |
| ||
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|
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EBITDA |
|
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| 5,611 |
| (2,838 | ) | ||
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ESOP expense |
| (A) |
| 1,116 |
| (428 | ) | ||
Flood impact |
| (B) |
| (189 | ) | (692 | ) | ||
Bad debt expense |
| (C) |
| ― |
| 36 |
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Gain on asset sales |
| (D) |
| ― |
| (380 | ) | ||
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Adjusted EBITDA |
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| $ | 6,538 |
| $ | (4,302 | ) |
(A) ESOP expense is a non-cash labor expense the Company incurs each year in connection with the Employee Stock Ownership Plan of the Company’s parent. The adjustment for the three-month period ended December 31, 2005 reflects an adjustment to account for a decrease in the valuation of the 2005 share price.
(B) Flood impact from Hurricanes Frances and Ivan reflects the losses associated with property damage, repairs and maintenance plus business interruption, offset by insurance recoveries booked and funds received from the state and federal government.
(C) Reflects bad debt expenses.
(D) Reflects a gain on the sale of equipment or other operating assets sold during the period.
For additional information, please refer to the Company’s annual report on Form 10-K for the fiscal year ended December 31, 2005.
Certain statements in this presentation constitute forward-looking statements or statements that may be deemed or construed to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The words “forecast,” “estimate,” “project,” “intend,” “expect,” “should,” “would,” “believe” and similar expressions and all statements that are not historical facts are intended to identify forward-looking statements. These forward-looking statements involve and are subject to known and unknown risks, uncertainties and other factors, which could cause our actual results, performance (financial or operation), or achievements to differ from the future results, performance (financial or operating), or achievements expressed or implied by such forward-looking statements. These factors include but are not limited to the following: changes in underlying paper and packaging prices, raw material prices and demand for our products, and the success of various cost-savings initiatives. These and other risks are more fully discussed in our annual report on Form 10-K for the fiscal year ended December 31, 2005.
2
Condensed Consolidated Balance Sheets
March 31, 2006 and December 31, 2005
(Dollars in thousands)
(unaudited)
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| March 31, |
| December 31, |
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| 2006 |
| 2005 |
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Assets |
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Current assets: |
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Cash |
| $ | 1,396 |
| $ | 2,110 |
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Accounts receivable, net of allowance for doubtful accounts and discounts of $1,213 and $2,298 in 2006 and 2005, respectively |
| 58,174 |
| 56,002 |
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Inventories |
| 51,353 |
| 53,988 |
| ||
Prepaid expenses |
| 1,290 |
| 1,029 |
| ||
Insurance proceeds receivable |
| 291 |
| 291 |
| ||
Income tax receivable |
| 50 |
| 50 |
| ||
Deferred tax asset |
| 4,190 |
| 4,448 |
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Total current assets |
| 116,744 |
| 117,918 |
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Property, plant, and equipment, net of accumulated depreciation of $108,915 and $105,253 in 2006 and 2005, respectively |
| 188,935 |
| 190,463 |
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Deferred financing costs, net |
| 4,738 |
| 5,108 |
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Other assets |
| 200 |
| 193 |
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Total assets |
| $ | 310,617 |
| $ | 313,682 |
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Liabilities and Stockholder’s Equity (Deficit) |
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Current liabilities: |
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Current portion of senior debt |
| $ | 42 |
| $ | 41 |
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Current portion of capital lease obligation |
| 566 |
| 595 |
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Accounts payable |
| 45,858 |
| 48,917 |
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Accrued expenses and other current liabilities |
| 28,614 |
| 33,987 |
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Interest payable |
| 5,579 |
| 1,875 |
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Total current liabilities |
| 80,659 |
| 85,415 |
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Senior debt, net of current portion |
| 162,513 |
| 159,749 |
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Parent Pay-In-Kind (PIK) Senior Subordinated Note |
| 44,425 |
| 44,425 |
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Capital lease obligations |
| 847 |
| 979 |
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Pension and postretirement benefits |
| 23,379 |
| 22,678 |
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Deferred tax liability |
| 4,190 |
| 4,448 |
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Other liabilities |
| 1,118 |
| 730 |
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Total liabilities |
| 317,131 |
| 318,424 |
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Obligation to redeem ESOP shares |
| 28,829 |
| 27,716 |
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Obligation to redeem restricted stock units of Parent |
| 1,643 |
| 1,631 |
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Commitments and contingencies (See notes) |
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Stockholder’s equity: |
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Common stock (par value $0.01, 1000 shares authorized and outstanding in |
| — |
| — |
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Additional paid-in capital |
| 64,111 |
| 64,121 |
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Accumulated deficit |
| (88,950 | ) | (86,054 | ) | ||
Unearned compensation |
| (13 | ) | (25 | ) | ||
Accumulated other comprehensive loss |
| (4,183 | ) | (4,183 | ) | ||
|
| (29,035 | ) | (26,141 | ) | ||
Receivable from Parent |
| (7,951 | ) | (7,948 | ) | ||
Total stockholder’s equity (deficit) |
| (36,986 | ) | (34,089 | ) | ||
Total liabilities and stockholder’s equity (deficit) |
| $ | 310,617 |
| $ | 313,682 |
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3
BLUE RIDGE PAPER PRODUCTS INC.
Condensed Consolidated Statements of Operations
Three Months Ended March 31, 2006 and 2005
(Dollars in thousands)
(unaudited)
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| 2006 |
| 2005 |
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Net sales |
| $ | 140,107 |
| $ | 128,547 |
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Cost of goods sold: |
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Cost of goods sold, excluding depreciation and amortization, flood-related loss and repairs and insurance recoveries |
| 127,801 |
| 113,195 |
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Depreciation and amortization |
| 3,604 |
| 3,904 |
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Flood-related loss and repairs |
| — |
| 848 |
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Insurance recoveries |
| — |
| (100 | ) | ||
Gross profit |
| 8,702 |
| 10,700 |
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Selling, general and administrative expenses |
| 5,789 |
| 5,147 |
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Depreciation and amortization |
| 58 |
| 436 |
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Insurance recoveries |
| — |
| (23 | ) | ||
ESOP expense |
| 1,116 |
| 1,631 |
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Profit-sharing expense |
| — |
| 80 |
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Operating profit |
| 1,739 |
| 3,429 |
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Other income (expense): |
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Interest expense, excluding amortization |
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of deferred financing costs |
| (4,475 | ) | (4,258 | ) | ||
Amortization of deferred financing costs |
| (370 | ) | (332 | ) | ||
Government grant income |
| 206 |
| 1,878 |
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Gain on equity method investment |
| 4 |
| — |
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|
| (4,635 | ) | (2,712 | ) | ||
Profit (loss) before income taxes |
| (2,896 | ) | 717 |
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Income tax |
| — |
| — |
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Net income (loss) |
| $ | (2,896 | ) | $ | 717 |
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4
BLUE RIDGE PAPER PRODUCTS INC.
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2006 and 2005
(Dollars in thousands)
(unaudited)
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| 2006 |
| 2005 |
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Cash flows from operating activities: |
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Net income (loss) |
| $ | (2,896 | ) | $ | 717 |
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Adjustment to reconcile net income (loss) to net cash used in operating activities: |
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Depreciation and amortization |
| 3,662 |
| 4,340 |
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Compensation expense for Parent restricted stock |
| 13 |
| 76 |
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Amortization of deferred financing costs |
| 370 |
| 332 |
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ESOP expense |
| 1,116 |
| 1,631 |
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Parent PIK Senior Subordinated Note for interest |
| 1,000 |
| 915 |
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Changes in operating assets and liabilities: |
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Accounts receivable, net |
| (2,172 | ) | (10,558 | ) | ||
Inventories |
| 2,635 |
| (3,201 | ) | ||
Prepaid expenses |
| (261 | ) | 459 |
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Insurance proceeds receivable |
| — |
| 4,439 |
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Income tax receivable |
| — |
| 21 |
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Accounts payable |
| (4,247 | ) | (10,664 | ) | ||
Accrued expenses and other current liabilities |
| (5,373 | ) | (2,668 | ) | ||
Interest payable |
| 2,704 |
| 2,820 |
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Pension and postretirement benefits |
| 701 |
| 643 |
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Other assets and liabilities |
| 379 |
| (126 | ) | ||
Net cash used in operating activities |
| (2,369 | ) | (10,824 | ) | ||
Cash flows used in investing activities: |
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Additions to property, plant, and equipment |
| (2,134 | ) | (2,020 | ) | ||
Net cash used in investing activities |
| (2,134 | ) | (2,020 | ) | ||
Cash flows from financing activities: |
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Repurchase of Parent common and preferred stock |
| (3 | ) | (3 | ) | ||
Proceeds from borrowings under line of credit |
| 39,701 |
| 54,050 |
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Repayment of borrowings under line of credit |
| (36,926 | ) | (41,175 | ) | ||
Repayments of long-term debt and capital lease obligations |
| (171 | ) | (147 | ) | ||
Other financing activities |
| 1,188 |
| — |
| ||
Net cash provided by financing activities |
| 3,789 |
| 12,725 |
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Net decrease in cash |
| (714 | ) | (119 | ) | ||
Cash, beginning of period |
| 2,110 |
| 2,466 |
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Cash, end of period |
| $ | 1,396 |
| $ | 2,347 |
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Supplemental disclosures of cash flow information: |
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Cash paid for interest, including capitalized interest of $217 and $79 in 2006 and 2005, respectively |
| $ | 896 |
| $ | 614 |
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Noncash investing and financing activities: |
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Issuance of restricted stock units |
| — |
| 339 |
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5