8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) October 9, 2008

Cellu Tissue Holdings, Inc.

(Exact name of registrant as specified in its charter)

Delaware	333-118829	06-1346495
(State or other jurisdiction	(Commission	(IRS Employer
of incorporation)	File Number)	Identification No.)
1855 Lockeway Drive Suite 501 Alpharetta, Georgia		30004
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (678) 393-2651

(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Cellu Tissue Holdings, Inc. issued a press release today announcing second quarter earnings for the quarter ended August 28, 2008.  The press release is furnished as Exhibit 99.1 to this report and incorporated herein by reference.

The information in this Form 8-K, including the accompanying exhibit, is being furnished hereunder and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934 (the “Exchange Act”), or otherwise subject to the liability of such section, nor shall such information be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Exchange Act, regardless of the general incorporation language of such filing, except as shall be expressly set forth by specific reference in such filing.

Item 9.01 FINANCIAL STATEMENTS AND EXHIBITS

The following is being furnished as an exhibit to this Current Report on Form 8-K:

(d) Exhibits
99.1	Release, dated October 9, 2008, “Cellu Tissue Holdings, Inc. Announces Second Quarter 2009 Results,” furnished pursuant to Item 2.02

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	Cellu Tissue Holdings, Inc.
	(Registrant)
Date:  October 9, 2008	By: /s/ David J. Morris
	Mr. David J. Morris
	Senior Vice President, Finance and Chief Financial Officer

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EXHIBIT INDEX

99.1 Release, dated October 9, 2008 “Cellu Tissue Holdings, Inc. Announces Second Quarter 2009 Results”

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EX-99.1

Exhibit 99.1

FOR IMMEDIATE RELEASE

Cellu Tissue Holdings, Inc. Announces Second Quarter 2009 Results

Alpharetta, GA. – October 9, 2008—Cellu Tissue Holdings, Inc. (the “Company” or “Cellu Tissue”), an established leader in the manufacturing of high-quality business-to-business and consumer tissue grades used in health care and consumer products worldwide, today announced financial results for the second quarter ended August 28, 2008.

As previously announced, in the second quarter of the fiscal year ending February 28, 2009, or fiscal year 2009, the Company completed its acquisition of the Hauppague, New York and Thomaston, Georgia tissue converting operations of Atlantic Paper & Foil (“APF”).  Accordingly, the second quarter fiscal year 2009 results are impacted by the effects of the purchase accounting related to this transaction and APF’s operating results, as highlighted below.

Second Quarter 2009 Operating Results

Net sales for the second quarter ended August 28, 2008 totaled $129.0 million compared to $109.0 million for the comparable period in the prior year, an increase of $20.0 million, or 18.3%.  For the second quarter ended August 28, 2008, the Company sold 87,036 tons of tissue hard rolls, machine-glazed paper hard rolls and converted paper products.  This is an increase of 6,887 tons, or 8.6%, over the comparable period in the prior year.  Of these increases, $14.0 million of net sales and 7,941 tons sold related to APF.  Also contributing to the increase in net sales from the comparable period in the prior year is an increase in net selling price per ton to $1,472 for the second quarter ended August 28, 2008 from $1,360 for the comparable period in the prior year.

Net sales within the Tissue Segment for the second quarter ended August 28, 2008 totaled $100.2 million, an increase of 20.1%, from $83.5 million for the comparable period in the prior year.  The increase experienced by the Tissue Segment is attributable to the acquisition of APF and an increase in net selling price per ton over the comparable period in the prior year. Net sales within the Machine-Glazed Paper Segment for the second quarter ended August 28, 2008 totaled $27.9 million, an increase of 9.2% from $25.5 million for the comparable period in the prior year.  The increase experienced by the Machine-Glazed Paper Segment is driven primarily by an increase in net selling price per ton over the comparable period in the prior year and a slight increase in tons sold over the comparable period in the prior year.   Net sales within the Foam Segment, which was part of the APF acquisition, for the second quarter ended August 28, 2008 totaled $.9 million.

For the second quarter ended August 28, 2008, Cellu Tissue reported gross profit of $11.9 million, or 9.3% of net sales, compared to $11.8 million, or 10.8% of net sales, for the comparable period in the prior year.  The decrease in gross profit as a percentage of net sales is the result of increased fiber and energy costs over the comparable period in the prior year.  The impact of significant energy cost increases experienced during the second quarter ended August 28, 2008 resulted in an increase in such costs of $2.8 million over the comparable period in the prior year and $1.7 million over the first quarter 2009.  Furthermore, included in cost of goods sold for the second quarter ended August 28, 2008 is approximately $.3 million of a charge reflecting purchase price allocated to inventory in connection with the APF acquisition.

Income from operations for the second quarter ended August 28, 2008 was $7.5 million compared to $7.1 million for the comparable period in the prior year.  This increase is the result of the increase in gross profit as noted above and a decrease in selling, general and administrative expenses from the comparable period in the prior year.  Selling, general and administrative expenses for the comparable period in the prior year included the initial costs incurred by the Company in connection with its first required compliance with certain requirements of the Sarbanes-Oxley Act of 2002.  Income from operations in the Tissue Segment for the second quarter ended August 28, 2008 was $7.0 million compared to $6.4 million for the second quarter in the prior year.   Income from operations in the Machine-Glazed Paper Segment for the second quarter ended August 28, 2008 was $.3 million compared to $.7 million for the second quarter in the prior year.  Income from operations in the Foam Segment for the second quarter ended August 28, 2008 was $.2 million.

For the second quarter ended August 28, 2008, the Company reported pretax income of $ .5 million compared to $1.8 million for the comparable period in the prior year. Included in the pretax income for the second quarter ended August 28, 2008 is additional interest expense related to the financing of the APF acquisition and amortization expense associated with the intangible assets acquired.  For the second quarter ended August 28, 2008, the Company reported net income of $.3 million compared to $1.1 million for the comparable period in the prior year.  The results of APF, excluding certain transition costs and purchase accounting adjustments, were solidly accretive to net income and are fully meeting expectations.

Earnings before interest, taxes, depreciation and amortization (EBITDA) for the second quarter ended August 28, 2008 totaled $13.0 million compared to $12.5 million for the comparable period in the prior year.

Russell C. Taylor, President and Chief Executive Officer of Cellu Tissue, commented: “During the second quarter, we successfully acquired and integrated APF into our business.  We also continued to achieve favorable financial results despite continued increases in raw materials, especially pulp, and energy costs.”

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Notice Relating to the Use of Non-GAAP Measures

Attached to this press release are tables setting forth our unaudited consolidated statements of operations, financial position, selected consolidated financial data including information concerning our cash flow position, selected consolidated segment data, and reconciliations of consolidated net income from operations to consolidated EBITDA.   EBITDA is not a measure of performance under U.S. generally accepted accounting principles and should not be considered in isolation or used as a substitute for income from operations, net income, net cash provided by operating activities, or other operating or cash flow data prepared in accordance with generally accepted accounting principles.  We have presented EBITDA because this measure is used by investors, as well as our own management, to evaluate the operating performance of our business, including our ability to service debt.

Cellu Tissue’s management invites you to listen to our conference call on Friday, October 10, 2008 at 10 a.m. ET regarding second quarter fiscal year 2009 financial results.  The dial-in number is (800) 230-1074 or International (612) 332-0228; participant code 963795.  A taped replay of the conference call will be available after 12:00 p.m., October 10, 2008 until 11:59 p.m., October 24, 2008.  The number to call for the taped replay is (800) 475-6701 or International (320) 365-3844, access code 963795.

Cellu Tissue Holdings, Inc. is a manufacturer of a variety of specialty tissue hard rolls and machine-glazed paper used in the manufacture of various end products, including diapers, facial and bath tissue, assorted paper towels and food wraps.  In addition, the Company produces a variety of converted tissue products.  Cellu Tissue’s customers include major North American producers of branded and unbranded disposable consumer absorbent and tissue products for the personal and health care markets; consumer and away-from-home tissue products companies; national and regional tissue products distributors; and third-party converters who sell their products to food, bakery and confections companies. Cellu Tissue services a diverse group of high-quality customers, with three of its top ten customers belonging to the Fortune 150 group of companies.

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

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CELLU TISSUE HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

(Dollars, in thousands)

	Three Months Ended					Six Months Ended
	August 28		August 30			August 28		August 30
	2008		2007			2008		2007
Net sales	$	128,956	$	109,000		$	240,453	$	212,201
Cost of goods sold	117,009		97,234			216,354		192,142
Gross profit	11,947		11,766			24,099		20,059
Selling, general and administrative expenses	4,163		4,520			9,123		9,003
Terminated acquisition-related transaction costs	65		—			140		—
Compensation expense	227		186			445		419
Income from operations	7,492		7,060			14,391		10,637
Interest expense, net	6,061		5,103			11,041		10,122
Amortization expense	802		—			802		—
Foreign currency loss	128		196			85		520
Other expense (income)	9		(40		)	39		(82		)
Income before income tax expense	492		1,801			2,424		77
Income tax expense	154		731			869		118
Net income (loss)	$	338	$	1,070		$	1,555	(41		)

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CELLU TISSUE HOLDINGS, INC,

CONSOLIDATED BALANCE SHEETS

(Dollars, in thousands)

	August 28		February 29
	2008		2008
	(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	2,604	$	883
Receivables, net	62,634		44,543
Inventories	42,264		33,997
Prepaid expenses and other current assets	3,843		3,923
Deferred income taxes	5,429		7,157
TOTAL CURRENT ASSETS	116,774		90,503
PROPERTY, PLANT AND EQUIPMENT, NET	293,583		296,598
GOODWILL	30,736		6,970
OTHER INTANGIBLES, NET	38,114		8,750
OTHER ASSETS	2,148		1,491
TOTAL ASSETS	$	481,355	$	404,312
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Revolving line of credit	$	23,000	$	9,800
Accounts payable	26,603		24,056
Accrued expenses	22,792		18,860
Accrued interest	8,931		8,254
Other current liabilities	15,592		15,000
Current portion of long-term debt	760		760
TOTAL CURRENT LIABILITIES	97,678		76,730
LONG-TERM DEBT, LESS CURRENT PORTION	241,508		198,087
DEFERRED INCOME TAXES	60,660		62,008
OTHER LIABILITIES	20,128		20,149
STOCKHOLDERS’ EQUITY	61,381		47,338
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	481,355	$	404,312

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CELLU TISSUE HOLDINGS, INC.

SUMMARY OF CONSOLIDATED CASH FLOW ACTIVITY (Unaudited)

(Dollars, in thousands)

	Six Months Ended
	August 28			August 30
	2008			2007
OPERATING ACTIVITIES
Net income (loss)	$	1,555		(41		)
Stock-based compensation	446			383
Deferred income taxes	380			(1,474		)
Accretion of debt discount	601			304
Amortization of bond costs	70			—
Amortization of intangibles	802			—
Depreciation	11,208			12,195
Changes in working capital, net of effects of acquisitons	(8,337		)	1,857
Net cash provided by operating activities	6,725			13,224
INVESTING ACTIVITIES
Cash paid for acquisition, net of cash acquired	(63,829		)	(43,618		)
Capital expenditures	(4,821		)	(6,941		)
Net cash used in investing activities	(68,650		)	(50,559		)
FINANCING ACTIVITIES
Borrowings on revolving line of credit, net	13,200			2,600
Payments on long-term debt	(380		)	—
Equity investment by shareholders	15,001			—
Debt issuance costs	(847		)	—
Net proceeds from bond offering	36,900			20,000
Net cash provided by financing activities	63,874			22,600
Effect of foreign currency	(228		)	809
Net increase (decrease) in cash and cash equivalents	1,721			(13,926		)
Cash and cash equivalents at beginning of period	883			16,261
Cash and cash equivalents at end of period	$	2,604		$	2,335

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CELLU TISSUE HOLDINGS, INC.

CONSOLIDATED BUSINESS SEGMENT INFORMATION (Unaudited)

(Dollars, in thousands)

BUSINESS SEGMENTS

	Three Months Ended				Six Months Ended
	August 28		August 30		August 28		August 30
	2008		2007		2008		2007
NET SALES:
Tissue	$	100,243	$	83,495	$	183,903	$	161,131
Machine-Glazed Paper	27,850		25,505		55,687		51,070
Foam	863		—		863		—
Consolidated	$	128,956	$	109,000	$	240,453	$	212,201
INCOME FROM OPERATIONS:
Tissue	$	6,994	$	6,383	$	13,346	$	10,466
Machine-Glazed Paper	319		677		866		171
Foam	179		—		179		—
Consolidated	$	7,492	$	7,060	$	14,391	$	10,637

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CELLU TISSUE HOLDINGS, INC.

RECONCILIATION OF CONSOLIDATED NET INCOME (LOSS) TO EBITDA

(Unaudited) (Dollars, in thousands)

	Three Months Ended				Six Months Ended
	August 28		August 30		August 28		August 30
	2008		2007		2008		2007
NET INCOME (LOSS)	$	338	$	1,070	$	1,555	$	(41	)
Add back:
Depreciation and amortization	6,412		5,517		12,010		12,195
Interest expense	6,077		5,146		11,071		10,185
Income tax expense	154		731		869		118
EBITDA	$	12,981	$	12,464	$	25,505	$	22,457

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