Mosinee, Wisconsin, USA, 31 March 2009 -- (BUSINESS WIRE) -- Wausau Paper (NYSE:WPP) today announced a series of initiatives intended to improve financial performance, conserve cash, and increase financial flexibility, including the following:
- focus on cash retention activities, including the suspension of cash dividends;
- enhance the long-term cost structure of the Specialty Products business through the permanent closure of its remaining paper machine in Jay, Maine;
- improve long-term financial flexibility through the amendment of credit facilities and authorization of up to USD 15 million, in additional borrowings on a secured basis; and
- reduce operating costs through a series of workforce, capital spending, and working capital initiatives.
The suspension of dividends will result in cash savings of more than USD 16 million annually. Cost reductions and the paper mill closure, once fully implemented, are expected to improve annual pre-tax operating profits by USD 20 million.
"In light of the continuing uncertain business environment, we believe it's prudent to take measures to conserve cash and focus on debt reduction," stated Thomas J. Howatt, president and CEO. "The dividend suspension and Jay mill closure are particularly difficult decisions to make, but are nonetheless necessary to preserve liquidity and match capacity with demand during a period of severe economic difficulty. We are confident that these actions, in addition to other cost reduction measures identified, will substantially improve the competitive position and long-term financial performance of our business."
The company shut down a paper machine with annual production capacity of 40,000 tons in December, and will cease operations at its Jay, Maine mill by 31 May 31, 2009, further reducing Specialty Products annual production capacity by 28,000 tons or 10%. The shutdown will affect approximately 96 permanent jobs. Pre-tax closure charges are estimated to be USD 26 million with non-cash charges, primarily related to the write-down of long-lived assets, accounting for USD 22 million of the total. Pre-tax closure charges of approximately USD 2.4 million and USD 22 million are expected in the first and second quarters, respectively, with remaining charges occurring over the second half of 2009. After considering income taxes and an anticipated reduction in working capital, the cash effect of the closure is expected to be modestly positive on a cumulative basis.
The company also announced that it has amended its credit facilities to essentially eliminate the effect that pension charges have on shareholders' equity in determining compliance with minimum net worth covenants. In addition, the company's board of directors has authorized additional borrowings of up to USD 15 million of secured debt. Collectively, these actions position the company to remain comfortably in compliance with loan covenants and provide adequate liquidity to meet the operating needs of the business.
Cost-reduction and cash-conservation measures being implemented, including those announced earlier in the first quarter, include the following:
- A hiring freeze and a salaried workforce reduction of 7%;
- A salary freeze for 2009;
- A suspension of the company match on non-bargained 401(k) plans;
- The limitation of capital spending to essential maintenance and safety related projects in addition to major strategic projects already underway;
- A reduction in spending of USD 6 million over the first half of 2009 targeted at manufacturing, selling, and administrative costs; and
- A reduction in working capital of USD 20 million with a principal emphasis on inventories.
"The initiatives announced today, coupled with the authorization of key strategic investments over the past year and recent aggressive restructuring efforts to address nonperforming areas of the business, dramatically improve the company's cost structure and narrow our footprint to six strategic facilities that are highly competitive in our core markets," Howatt concluded.
Wausau Paper, with revenues of USD 1.2 billion in fiscal 2008, produces and markets fine printing and writing papers, technical specialty papers, and "away-from-home" towel and tissue products. To learn more about Wausau Paper, visit: www.wausaupaper.com.
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