Cellu Tissue (CLU) 8-K Cellu Tissue Holdings, Inc. Announces Third Quarter Fiscal 2010 Results

Exhibit 99.1

1855 Lockeway Dr. Suite 501  —  Alpharetta, GA 30004  —  678-393-2651  —  Fax 678-393-2657

FOR IMMEDIATE RELEASE

Cellu Tissue Holdings, Inc. Announces Third Quarter Fiscal 2010 Results

Alpharetta, GA—December 31, 2009—Cellu Tissue Holdings, Inc., a North American producer of tissue products, with a focus on consumer-oriented private label products and a growing presence in the value retail tissue market, today reported net income of $2.0 million for the fiscal 2010 third quarter ended November 26, 2009 compared to net income of $1.8 million in the third quarter fiscal 2009. Income from operations was $14.2 million for the fiscal 2010 third quarter compared to operating income of $9.4 million in the third quarter fiscal 2009.

“Our third quarter operating performance illustrates the execution of our strategy to leverage our vertically integrated hardroll tissue manufacturing to grow our tissue converting operations,” said Russell C. Taylor, President and Chief Executive Officer of Cellu Tissue Holdings. “As a result of our operating performance, we believe we will exceed the high end of our previously communicated Adjusted EBITDA guidance of $75 million to $80 million for the current fiscal year.”

Third Quarter Fiscal 2010 Financial and Operating Results

Net sales for the fiscal 2010 third quarter decreased $12.9 million, or 9.0%, to $130.1 million from $143.0 million for the comparable prior year period. During the fiscal 2010 third quarter, we sold 82,012 tons of tissue hardrolls, machine-glazed tissue hardrolls and converted tissue products, a decrease of 6,010 tons, or a decrease of 6.8% over the comparable prior year period. During the fiscal 2010 third quarter, we in-sourced an additional 5,484 tons of hardrolls for our converting operations that were previously purchased on the hardroll market in the prior year period. We reduced external hardroll shipments by a similar amount and improved our overall sales mix due to higher selling prices for converted tissue products. This is consistent with our strategy to increase the vertical integration of our acquired operations, supporting improved quality control and profitability. Net selling price per ton decreased to $1,564 during the fiscal 2010 third quarter from $1,609 during the comparable prior year period. This decrease in price primarily reflects the downward pricing pressure brought on by lower pulp prices, which was partially offset by the impact of mix improvements.

Gross profit was $20.3 million for the fiscal 2010 third quarter, or an increase of $4.2 million from $16.1 million in the comparable prior year period. As a percentage of net sales, gross profit increased to 15.6% in the fiscal 2010 third quarter from 11.3% in the fiscal 2009 third quarter. The improvement was primarily driven by sales mix, as well as lower pulp and energy costs.

Income from operations for the third quarter ended November 26, 2009 was $14.2 million compared to $9.4 million for the comparable period in the prior fiscal year. The overall increase is the result of the increase in gross profit as discussed above and overall lower selling, general and administrative expense.

Debt Refinancing

During the second quarter of fiscal 2010, we refinanced our long-term debt, which resulted in higher overall interest rates and extended the overall maturity of most of our long-term debt. Interest expense for the fiscal 2010 third quarter was $8.5 million compared to $6.9 million the comparable prior year period.

Income Tax Expense

Income tax expense for the fiscal 2010 third quarter was $3.4 million compared to income tax expense of $0.9 million for the fiscal 2009 third quarter. During the fiscal 2010 third quarter, the Company reduced its estimate of foreign tax credits that will be generated in the current year, which increased the Company’s underlying estimated annual effective tax rate from 34.7% to 36.3%. In addition, included in income tax expense for the fiscal 2010 third quarter are $1.2 million of discrete tax adjustments that increased income tax expense. These discrete adjustments primarily arose from changes in management estimates relating to calculation of foreign subsidiary deemed dividends and the generation and utilization of alternative minimum tax credits which were recorded as tax expense in the fiscal 2010 third quarter.

Segment Operating Results

Tissue

Net sales for our tissue segment were $98.6 million during the fiscal 2010 third quarter, a decrease of $12.5 million, or 11.3% from $111.1 million in the comparable prior year period. The decrease was due primarily to in-sourcing an additional 5,484 tons of hardrolls into our converting operations, partially offset by our October 2009 hardroll price increase and an improved mix with respect to converted tissue products sold. Net selling price per ton increased to $1,675 for the fiscal 2010 third quarter from $1,661 for the fiscal 2009 third quarter. This increase in net selling price per ton was primarily the result of improvements in product mix and an increase in converted product selling prices, partially offset by downward pricing pressure brought on by lower pulp prices. For the fiscal 2010 third quarter, we sold 58,884 tons of tissue of which 30,920 tons were sold as hardrolls and 27,964 tons were sold as converted tissue products, compared to the fiscal 2009 third quarter when we sold 66,903 tons of tissue, of which 39,188 tons were sold as hardrolls and 27,715 tons were sold as converted tissue products.

Operating income was $12.8 million in the fiscal 2010 third quarter compared to $8.6 million in the comparable prior year period. In addition to the factors noted above for net sales, operating income improvements were also due to reduced fiber and energy prices.

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Machine-Glazed Tissue

Net sales for our machine-glazed tissue segment for the fiscal 2010 third quarter were $29.7 million, a decrease of $0.8 million or 2.6%, compared to $30.4 million in the comparable prior year period. Tons sold during the fiscal 2010 third quarter increased 9.5%, but this increase was offset by a decline in selling prices associated with lower pulp prices. Net selling price per ton was $1,283 for the fiscal 2010 third quarter compared to $1,442 per ton for the fiscal 2009 third quarter. For the fiscal 2010 third quarter, we sold 23,128 tons of machine-glazed tissue, of which 21,057 tons were sold as hardrolls and 2,071 tons were sold as converted machine-glazed tissue products, compared to the fiscal 2009 third quarter when we sold 21,119 tons of machine-glazed tissue, of which 19,452 tons were sold as hardrolls and 1,667 tons were sold as converted machine-glazed tissue products.

Operating income was $1.7 million in the fiscal 2010 third quarter compared to $2.0 million in the fiscal 2009 third quarter. The decline was primarily driven by lower selling prices, partially offset by lower pulp costs.

Foam

Net sales and operating income for our foam segment was $1.8 million and $0.8 million in the fiscal 2010 third quarter, respectively, compared to $1.4 million and $0.1 million in the prior year period. The increases were due to increased sales volumes, an improvement in selling prices and lower resin prices, the primary raw material used to manufacture our foam products.

Adjusted EBITDA

Earnings before interest, taxes, depreciation, amortization and special items (Adjusted EBITDA) for the third quarter ended November 26, 2009 totaled $20.9 million, compared to $16.8 million for the comparable period in the prior fiscal year.

As previously announced, in the second quarter of fiscal year 2009, we completed our acquisition of the Long Island, New York and Thomaston, Georgia tissue converting operations of Atlantic Paper & Foil (“APF”). Accordingly, the results in the following financial schedules are impacted by the effects of APF’s operating results, which was acquired in July 2008.

Notice Relating to the Use of Non-GAAP Measures

Attached to this press release are tables setting forth the Company’s fiscal second quarter consolidated statements of operations, financial position and selected consolidated financial data, including information concerning the Company’s cash flow position, selected consolidated segment data, reconciliations of consolidated net income to consolidated EBITDA and reconciliations of consolidated EBITDA to consolidated Adjusted EBITDA.

EBITDA represents earnings before interest expense, income taxes and depreciation and amortization. Adjusted EBITDA represents EBITDA adjusted to reflect the additions and eliminations described in the table below. EBITDA and Adjusted EBITDA are supplemental measures of operating performance that do not represent and should not be

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considered as alternatives to net income or cash flow from operations, as determined by U.S. generally accepted accounting principles, or U.S. GAAP, and our calculation thereof may not be comparable to that reported by other companies. EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation, or as substitutes for analysis of our results as reported under U.S. GAAP. Some of the limitations are:

• EBITDA and Adjusted EBITDA do not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;

• EBITDA and Adjusted EBITDA do not reflect changes in, or cash requirements for, our working capital needs;

• EBITDA and Adjusted EBITDA do not reflect the significant interest expense, or the cash requirements necessary to service interest or principal payments, on our debt;

• although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements; and

• other companies in our industry may calculate EBITDA and Adjusted EBITDA differently than we do, limiting their usefulness as comparative measures.

Because of these limitations, EBITDA and Adjusted EBITDA should not be considered as measures of discretionary cash available to us to invest in the growth of our business. We compensate for these limitations by relying primarily on our U.S. GAAP results and using EBITDA and Adjusted EBITDA only supplementally. We further believe that our presentation of these U.S. GAAP and non-GAAP financial measurements provide information that is useful to analysts and investors because they are important indicators of the strength of our operations and the performance of our core business.

Management uses EBITDA and Adjusted EBITDA:

• as measurements of operating performance because they assist us in comparing our operating performance on a consistent basis, as both remove the impact of items not directly resulting from our core operations;

• �� for planning purposes, including the preparation of our internal annual operating budget;

• to allocate resources to enhance the financial performance of our business;

• to evaluate the performance and effectiveness of our operational strategies;

• to evaluate our capacity to fund capital expenditures and expand our business; and

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• to calculate incentive compensation for our employees.

In addition, these measurements are used by investors as supplemental measures to evaluate the overall operating performance of companies in our industry. Management believes that investors’ understanding of our performance is enhanced by including these non-GAAP financial measures as a reasonable basis for comparing our ongoing results of operations. Many investors are interested in understanding the performance of our business by comparing our results from ongoing operations from one period to the next and would ordinarily add back events that are not part of normal day-to-day operations of our business. By providing these non-GAAP financial measures, together with reconciliations, we believe we are enhancing investors’ understanding of our business and our results of operations, as well as assisting investors in evaluating how well we are executing strategic initiatives.

Cellu Tissue’s management invites you to listen to its conference call on January 4, 2010 at 4:00 p.m. ET regarding fiscal 2010 third quarter consolidated financial results. To participate in the conference call, dial (800) 230-1074 or International (612) 332-0107. A taped replay of the conference call will be available after 6:30 p.m. January 4, 2010 until January 18, 2010. The number to call for the taped replay is (800) 475-6701 or International (320) 365-3844, access code 140049.

Cellu Tissue Holdings, Inc. is a North American producer of tissue products, with a focus on consumer-oriented private label products and a growing presence in the value retail tissue market.

For more information, contact Cellu Tissue Holdings, Inc. at www.cellutissue.com.

The statements contained in this release that are not purely historical are forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, including but not limited to statements regarding the Company’s future financial performance. Readers are cautioned not to place undue reliance on these forward-looking statements and any such forward-looking statements are qualified in their entirety by reference to the following cautionary statements. All forward-looking statements included in this document are based upon information available to Cellu Tissue as of the date hereof, and Cellu Tissue assumes no obligation to update any such forward-looking statements. Such statements and any other forward-looking statements are subject to risks, assumptions and uncertainties that may cause the statements to be inaccurate and readers are cautioned not to place undue reliance on such statements, including risks related to energy and fiber costs, the growth of our converted tissue business and synergies relating to the APF Acquisition and any other risks described in our Annual Report on Form 10-K for the fiscal year ended February 28, 2009 and subsequent filings with the SEC.

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CELLU TISSUE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

	For the three months ended						For the nine months ended
	November 26, 2009			November 27, 2008			November 26, 2009			November 27, 2008
Net sales	$	130,147,065		$	143,042,017		$	386,871,937		$	390,582,434
Cost of goods sold		109,873,809			126,941,122			324,143,190			351,693,706
Gross profit		20,273,256			16,100,895			62,728,747			38,888,728
Selling, general and administrative expenses		5,014,478			5,469,559			15,871,380			15,038,246
Terminated acquisition-related transaction costs		—			—			—			140,044
Amortization expense		1,080,163			1,258,994			3,215,855			2,061,429
Income from operations		14,178,615			9,372,342			43,641,512			21,649,009
Interest expense, net		8,512,921			6,910,402			27,350,917			17,951,147
Foreign currency loss (gain)		397,491			(241,333	)		1,110,719			(156,713	)
Other expense (income)		(85,566	)		(36,975	)		(458,015	)		1,443
Income before income tax expense		5,353,769			2,740,248			15,637,891			3,853,132
Income tax expense		3,353,758			901,500			8,609,541			1,268,999
Net income	$	2,000,011		$	1,838,748		$	7,028,350		$	2,584,133

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CELLU TISSUE HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	November 26, 2009		February 28, 2009
ASSETS
Current Assets:
Cash and cash equivalents	$	7,149,239	$	361,035
Receivables, net		50,590,365		54,065,899
Inventories		46,293,794		47,216,049
Prepaid expenses and other current assets		3,793,227		2,085,774
Income tax receivable		114,077		174,084
Deferred income taxes		6,858,622		3,515,295
Total Current Assets		114,799,324		107,418,136
Property, Plant and Equipment, net		307,389,840		301,987,941
Goodwill		41,020,138		41,020,138
Other intangibles		28,456,622		31,672,477
Other assets		10,435,170		1,948,108
Total Assets	$	502,101,094	$	484,046,800
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Bank overdrafts	$	—	$	3,285,420
Revolving line of credit		—		18,530,824
Accounts payable		21,251,246		16,726,143
Accrued expenses		29,043,137		26,548,639
Accrued interest		14,376,826		10,160,124
Other current liabilities		955,155		17,448,707
Current portion of long-term debt		760,000		760,000
Total Current Liabilities		66,386,364		93,459,857
Long-term debt, less current portion		268,322,681		242,361,944
Deferred income taxes		82,004,394		75,110,277
Other liabilities		1,025,426		5,378,059
Stockholders’ Equity:
Common stock, Class A, $.01 par value, 1,000 shares authorized, 100 shares issued and outstanding		1		1
Capital in excess of par value		73,284,301		70,948,860
Accumulated earnings		10,726,421		3,698,071
Accumulated other comprehensive income (loss)		351,506		(6,910,269	)
Total Stockholders’ Equity		84,362,229		67,736,663
Total Liabilities and Stockholders’ Equity	$	502,101,094	$	484,046,800

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CELLU TISSUE HOLDINGS, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Nine Months Ended
	November 26, 2009			November 27, 2008
Cash flows from operating activities
Net income	$	7,028,350		$	2,584,133
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		18,231,462			17,614,651
Amortization of intangibles		3,215,855			2,061,429
Amortization of deferred financing fees		883,013			188,816
Accretion of debt discount		1,326,436			1,211,258
Loss from write-off of discount on notes		1,911,471			—
Write-off of deferred financing fees		299,803			—
Stock-based compensation		636,686			689,534
Deferred income taxes		3,550,790			177,625
Loss on disposal of fixed asset		316,623			—
Loss from natural gas swaps		—			953,523
Changes in operating assets and liabilities, net of effects of acquisitions:
Receivables		4,424,208			(11,531,614	)
Inventories		1,745,955			(3,417,251	)
Prepaid expenses, other current assets and income tax receivable		(1,717,083	)		645,075
Other assets and liabilities		465,471			(45,630	)
Accounts payable, accrued expenses and accrued interest		11,364,625			(1,530,539	)
Total adjustments		46,655,315			7,016,877
Net cash provided by operating activities		53,683,665			9,601,010
Cash flows from investing activities
Cash paid for acquisition, net of cash acquired		—			(64,148,096	)
Capital expenditures		(19,772,877	)		(9,734,100	)
Net cash used in investing activities		(19,772,877	)		(73,882,196	)
Cash flows from financing activities
Equity investment by shareholders		—			21,701,817
Cash portion of earnout payment		(18,301,245	)		(13,727,700	)
Bank overdrafts		(3,285,420	)		1,348,876
Borrowings on revolving line of credit, net		22,411,826			76,600,000
Payments on revolving line of credit, net		(40,942,650	)		(57,900,000	)
Payments on long-term debt		(760,000	)		(760,000	)
Retirement of long-term debt		(222,255,572	)		—
Payment of deferred financing fees		(9,736,006	)		(885,959	)
Net proceeds from bond offering		245,738,400			36,900,000
Net cash (used in) provided by financing activities		(27,130,667	)		63,277,034
Effect of foreign currency		8,083			634,126
Net increase (decrease) in cash and cash equivalents		6,788,204			(370,026	)
Cash and cash equivalents at beginning of period		361,035			883,388
Cash and cash equivalents at end of period	$	7,149,239		$	513,362

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CELLU TISSUE HOLDINGS, INC.

CONSOLIDATED BUSINESS SEGMENT INFORMATION (Unaudited)

BUSINESS SEGMENTS

	Three Months Ended
	November 26, 2009			November 27, 2008
NET SALES:
Tissue	$	98,631,644		$	111,144,412
Machine-Glazed Tissue		29,674,620			30,455,456
Foam		1,840,801			1,442,149
Consolidated	$	130,147,065		$	143,042,017
INCOME FROM OPERATIONS:
Tissue	$	12,775,812		$	8,590,369
Machine-Glazed Tissue		1,698,158			1,969,014
Foam		784,808			71,953
Segment income from operations		15,258,778			10,631,336
Amortization expense		(1,080,163	)		(1,258,994	)
Consolidated	$	14,178,615		$	9,372,342
	Nine Months Ended
	November 26, 2009			November 27, 2008
NET SALES:
Tissue	$	299,880,029		$	300,355,288
Machine-Glazed Tissue		81,194,563			87,904,091
Foam		5,797,345			2,323,055
Consolidated	$	386,871,937		$	390,582,434
INCOME FROM OPERATIONS:
Tissue	$	40,487,145		$	20,759,448
Machine-Glazed Tissue		4,365,119			2,700,380
Foam		2,005,103			250,610
Segment income from operations		46,857,367			23,710,438
Amortization expense		(3,215,855	)		(2,061,429	)
Consolidated	$	43,641,512		$	21,649,009

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CELLU TISSUE HOLDINGS, INC,

RECONCILIATION OF CONSOLIDATED NET INCOME TO EBITDA

(Unaudited)

($ in thousands)

	Three Months Ended
	November 26, 2009		November 27, 2008
NET INCOME (LOSS)	$	2,000	$	1,839
Add back:
Depreciation		6,181		5,893
Amortization		1,080		1,258
Interest expense		8,512		6,910
Income tax expense		3,355		902
EBITDA	$	21,128	$	16,802
	Nine Months Ended
	November 26, 2009		November 27, 2008
NET INCOME	$	7,028	$	2,584
Add back:
Depreciation		18,232		17,615
Amortization		3,215		2,061
Interest expense, net		27,351		17,951
Income tax expense		8,609		1,269
EBITDA	$	64,435	$	41,480

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CELLU TISSUE HOLDINGS, INC.

RECONCILIATION OF CONSOLIDATED EBITDA TO CONSOLIDATED ADJUSTED EBITDA

(Unaudited)

($ in thousands)

	Three Months Ended November 26, 2009			Three Months Ended November 27, 2008
EBITDA (1)	$	21,128		$	16,802
Add back:
Insurance claim for wrapper damage (2)		(200	)		—
APF Transition and Related Costs (3)
Elimination and alignment of certain overhead functions		—			40
ADJUSTED EBITDA	$	20,928		$	16,842
	Nine Months Ended November 26, 2009			Nine Months Ended November 27, 2008
EBITDA (a)
Add back:	$	64,435		$	41,480
Natural Dam Fire (4)		250			—
Insurance claim for wrapper damage (2)		(546	)		—
APF Transition and Related Costs (3)
Elimination and alignment of certain overhead functions		—			373
Facility consolidation		373			—
Fair value accounting for acquired inventory		—			284
Terminated Acquisition Costs (5)		—			140
Mississippi Sales Tax Audit (6)		—			258
ADJUSTED EBITDA	$	64,512		$	42,535

(1) EBITDA and Adjusted EBITDA include stock-based compensation expense related to equity awards. Stock-based compensation expense was $0.2 million for each of the three months ended November 26, 2009 and November 27, 2008, $0.6 million for the nine months ended November 26, 2009, and $0.7 million for the nine months ended November 27, 2008.

(2) Reflects insurance proceeds exceeding the book value for damaged packaging equipment (damaged in transit).

(3) In fiscal year 2009, we acquired APF, which was a significant acquisition because of its size and complexity of operations. In connection with the APF Acquisition, we determined that several initiatives, to be completed over a twelve-month period, would help achieve the identified synergies. These initiatives included eliminating certain overhead functions and aligning those activities with our existing infrastructure as well as consolidating production and inventory storage facilities. Our consolidation of facilities included centralizing the acquired APF production facility and two APF inventory storage facilities located in Hauppauge, New York into one consolidated facility in Long Island, New York and moving machinery for a napkin line from our Neenah, Wisconsin location to the acquired APF Thomaston, Georgia facility. In addition, as a result of applying purchase accounting to record inventory at fair market value, we increased the book value of acquired inventory, which we amortized to cost of goods sold as the inventory was sold to customers during the second quarter of fiscal year 2009.

(4) Insurance deductible costs related to a fire at our Natural Dam mill at our Gouverneur, New York facility.

(5) Acquisition-related costs incurred in connection with an acquisition that did not transpire.

(6) State tax catch-up costs for fiscal year 2009 relate to a Mississippi sales and use tax assessment based on an audit of prior periods. The Mississippi taxing authority assessed sales and use tax for natural gas consumption purchased in prior periods for which our service provider had not charged the appropriate sales and use tax amounts.

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