Filed with the SEC from Oct 11 to Oct 17:
Wausau Paper (WPP)
Starboard Value increased its holdings to 7,100,000 shares (14.4%) by buying 500,000 from Oct. 3 through Oct. 12 at prices ranging from $8.57 to $8.87.
Wausau Paper Corp. (âWausau Paperâ) manufactures, converts, and sells paper and paper products. Our headquarters is located in Mosinee, Wisconsin. At December 31, 2011, we employed approximately 2,300 at six operating facilities located in four states. Our operations are classified into two principal business segments: Tissue and Paper, with both business segments marketing their products under the Wausau Paper Â® trademark. The Tissue segment produces a complete line of towel and tissue products that are marketed, along with soap and dispensing systems, for the away-from-home market. Through 2011, the Paper segment produced specialty and fine printing and writing papers within four core markets - Food, Industrial & Tape, Coated & Liner, and Print & Color.
Financial Information About Segments
Information relating to our sales, a measure of operating profit or loss, and total assets by segment is set forth in Note 14 of the Notes to Consolidated Financial Statements.
Narrative Description of Business
We compete in different markets within the paper industry. Both of our business segments serve distinct market niches. The various markets for our products are highly competitive, with competition based on service, quality, and price.
At December 31, 2011, our six operating facilities were organized into two business segments as described below.
Tissue produces a broad line of paper towel and tissue products, which are marketed along with soap and dispensing system products for the industrial and commercial away-from-home market.
Under the Wausau Paper Â® trademark, Bay West Â® towel and tissue products, made primarily from recycled material, are marketed under a number of brands including DublSoft Â® , EcoSoftâ¢, OptiCore Â® , Revolution Â® , and Dubl-Nature Â® . These products include washroom roll and folded towels, tissue products, a variety of towel, tissue, and soap dispensers, industrial wipers, dairy towels, household roll towels, and other premium towel and tissue products. Products are sold to paper and sanitary supply distributors in North America that serve factories and other commercial and industrial locations, health service facilities, office buildings, restaurants, theme parks, airports, and hotels. Tissue operates a paper mill located in Middletown, Ohio, and it operates a converting facility and its main distribution warehouse in Harrodsburg, Kentucky. In addition, Tissue currently maintains a distribution warehouse in Danville, Kentucky.
Competition comes from major integrated paper companies and smaller converters who primarily service consumer and food service markets as well as the industrial and institutional markets concentrated on by Tissue. Our major competitors include Georgia-Pacific LLC, Kimberly Clark Corporation, and SCA Hygiene Products.
During 2011, the Paper segment was a producer of specialty and fine printing and writing papers focused in four core market sectors - Food, Industrial & Tape, Coated & Liner, and Print & Color. The products of the Paper segment were manufactured at facilities located in Brainerd, Minnesota, and in Rhinelander, Mosinee and Brokaw, Wisconsin.
During 2011, the Print & Color sector provided a breadth of products including premium uncoated printing, writing, text, cover, and board grades in a wide range of weights, colors, sizes, and finishes. In December 2011, our Board of Directors approved the sale of our premium Print & Color brands and the closure of our Brokaw, Wisconsin paper mill. The Print & Color portion of the Paper business unit competed in the declining uncoated freesheet market, and was therefore faced with continuing margin compression and volume pressures. Sale of the Print & Color brands, select paper inventory, and certain manufacturing equipment was completed in late January 2012. Permanent closure of the Brokaw mill is expected by mid-2012, marking the end of our material participation in Print & Color markets. Our exit from the Print & Color business aligns the Paper segment with growth-oriented technical markets; Industrial & Tape, Food, and Coated & Liner. During 2011, we began transitioning production capacity at the Brainerd, Minnesota paper mill from Print & Color to Industrial & Tape markets. In the first quarter of 2011, we completed the rebuild of our paper machine at the Brainerd mill, providing capacity to serve the growing global tape market. Commercialization of the Brainerd millâs new technical capabilities is on schedule with volume ramp-up well underway.
The Food sector includes products for food processing, food packaging, and foodservice including products used for baking applications, microwave popcorn, and food packaging products.
The Industrial & Tape sector includes products for interleaving, saturating, coating, unsaturated crepe base, and a range of micro markets. We completed a $27 million capital project to rebuild an existing paper machine in Brainerd, Minnesota to provide enhanced manufacturing capabilities and to increase capacity to support Paper segment growth in key, strategic markets.
Products in the Coated & Liner sector include siliconized release papers for use in pressure sensitive tapes, specialty label applications, the production of fiber composite applications, casting sheets used in the production of solar cells, and high-performance specialty liners (a base from which âpeel-and-stickâ pressure sensitive labels are dispensed).
Under the Wausau PaperÂ® trademark, products are marketed under a variety of brands including EcoSelectâ¢, ExperTecÂ®, DuraTecÂ®, InvenTecÂ®, ProGardÂ®, ProRediÂ®, ProPlyÂ®, and ProTecÂ®.
Competition for the Paper segment comes from a wide range of paper-producing companies, of which our principal competitors include Ahlstrom Corporation, Packaging Dynamics Corporation, Nordic Paper, Nippon Paper Group, Inc., UPM, Boise Cascade, LLC, Domtar, Inc., Gascogne Paper, Mondi Group, and Neenah Paper, Inc.
Currently, foreign sales represent approximately 9% of our consolidated net sales, with sales to Canada representing 6% of consolidated net sales. Refer to Note 14 of the Notes to Consolidated Financial Statements for our geographic data.
Fiber is the basic raw material used to manufacture our finished product and includes the following categories: market pulp (from wood and recycled paper or paper products), internally produced pulp, wastepaper, and purchased towel and tissue parent rolls. Fiber represents approximately 50% of our total cost of sales in 2011. Market pulp (an aggregate of approximately 341,000 air-dried metric tons in 2011) was purchased on the open market, principally from producers in the United States and Canada. From time to time we may purchase pulp futures contracts as a hedge against significant future increases in the price of market pulp.
Approximately 96,000 standard tons of pulp was produced at our pulp mill in Mosinee, Wisconsin. In 2011, 11% of the pulpwood consumed in our pulping operation was produced from our own timberlands with the remainder purchased in the form of pulpwood and chips. Pulpwood was purchased from approximately 200 independent loggers at market prices while chips were purchased from independent sawmills.
During 2011 we purchased 146,000 standard tons of wastepaper from domestic suppliers at prevailing market prices. This wastepaper represents approximately 90% of the fiber required to manufacture 61% of our Tissue segmentâs 2011 parent roll requirement. The balance of our parent roll requirements, or approximately 69,000 tons, was purchased from other towel and tissue manufacturers at market prices.
Various chemicals are used in the pulping and papermaking processes. These industrial chemicals are available from a number of suppliers and are purchased at current market prices.
Our paper mills consume significant amounts of electrical and steam energy, which are adequately supplied by public utilities or generated at facilities operated by us. We generate approximately 34% of our electrical power needs from spent pulping liquor, fuel oil, coal, wood chips, fiber cake, natural gas, and hydropower. Spent pulping liquor, wood chips, and fiber cake are byproducts of mill operations.
We contract for the supply and delivery of natural gas at some of our facilities. Under some of these contracts, we are committed to the transportation of a fixed volume of natural gas from our natural gas transporters to our facilities. We are not required to buy or sell minimum gas volumes under the agreements but are required to pay a minimum transportation fee for the contracted period. Contracts expire at various times between 2012 and 2019. At December 31, 2011, we also have volume commitments for the supply of fuel oil, natural gas, paper, and certain raw materials. These obligations expire between 2012 and 2016. We may also purchase, from time to time, natural gas contracts with fixed prices for a certain portion of our facility requirements.
Patents and Trademarks
Wausau Paper develops and maintains trademarks and patents in the conduct of our business. Trademarks include Wausau Paper Â® , EcoSelectâ¢, ProPly Â® , ExperTec Â® , DuraTec Â® , InvenTec Â® , ProGard Â® , ProRedi Â® , ProTec Â® , Bay West Â® , EcoSoftâ¢, DublSoft Â® , OptiCore Â® , OptiServ Â® , Revolution Â® , Dubl-Nature Â® , and Wave âN Dry Â® , among others. Our patents cover various paper towel and tissue dispensers, metering or other mechanisms for towel and tissue dispensers and cabinets, and certain silicone release papers. We consider our trademarks and patents, in the aggregate, to be material to our business, although we believe the loss of any one such mark or patent right would not have a material adverse effect on our business. We do not own or hold material licenses, franchises, or concessions.
Seasonal Nature of Business
The markets for some of the grades of paper we produce tend to be somewhat seasonal. However, the marketing seasons for these grades are not necessarily the same. Overall, we experience moderately lower sales in the first quarter, in comparison to the rest of the year, primarily due to reduced business activity for many customers during this period.
As is customary in the paper industry, we carry adequate amounts of raw materials and finished goods inventory to facilitate the manufacture and rapid delivery of paper products to our customers.
No single customer accounted for 10% or more of our consolidated net sales during 2011. On a segment basis, one customer accounted for approximately 11% of Tissue net sales. No single customer accounted for 10% or more of Paper net sales.
Michael C. Burandt*
Class I (2015) Nominee
Mr. Burandt, 67, is President and CEO of Cantina Holdings LLC, an operator of upscale Mexican restaurants in the Atlanta, Georgia, market, a position he has held since September 2007. Previously, from July 1988 until May 2007, Mr. Burandt held various executive positions with Georgia Pacific Corporation, a manufacturer of tissue products, fine paper, building products, containerboard, packaging pulp, and DIXIE Â® brand products. From November 2000 until May 2007, Mr. Burandt was Georgia Pacificâs Executive Vice President of North American Consumer Products, which includes the at-home and away-from-home tissue businesses, fine paper business, bleached board business, and the DIXIE Â® brand businesses. Mr. Burandt will bring his significant experience in the paper business and, in particular, tissue operations, to our Board of Directors.
Charles E. Hodges*
Class I (2015) Nominee
Mr. Hodges, 60, has been the President of The Hodges Group LLC, an operations effectiveness consulting company providing process improvement consulting to the pulp and paper industry, since September 2011. Mr. Hodges was previously a principal of that company from January 2006 until March 2008. From March 2008 until August 2011, Mr. Hodges served in various positions, including President, Chief Executive Officer, and Chief Operating Officer, at Port Townsend Paper Company, a provider of kraft paper, containerboard, and unbleached kraft pulp as well as packaging products in British Columbia. Mr. Hodgesâ more than 30 years of experience in the paper industry, both as an executive and director of a number of companies and trade associations, will enable him to provide effective oversight of the Company.
Henry C. Newell
Class I (2015) Nominee
Mr. Newell, 54, is President and Chief Executive Officer of the Company. Mr. Newell joined the Company in 2007 as Vice President-Business Development. He was subsequently promoted to the position of Senior Vice President-Specialty Products (in January 2009) and, later, Senior Vice President âPaper (in January 2010), before being promoted to Executive Vice President â Chief Operating Officer on March 1, 2011. Prior to joining the Company in 2007, Mr. Newell served as Vice President and Chief Financial Officer for several portfolio companies of Atlas Holdings LLC, an industrial holding company with portfolio investments that included companies in the wood products and paper and packaging sectors. Mr. Newell has extensive knowledge of the paper industry and broad-based experience with our Company, and his role as our President and Chief Executive Officer makes him an appropriate nominee to join our Board.
G. Watts Humphrey, Jr.*
Class II (2013) Director
Mr. Humphrey, 67, is President of GWH Holdings, Inc. (private investment company), Chairman of IPEG, Inc.(International Plastics Equipment Group, Inc.), Chairman of Centria (metal building systems), and owner of Shawnee Farm (thoroughbred breeding/racing). Mr. Humphrey is also a Lead Independent Director of Churchill Downs Incorporated. Mr. Humphreyâs experience in multiple industries provides our Board with a broad business perspective and specific expertise in the areas of administration, operations, and planning.
Dennis J. Kuester*
Class II (2013) Director
Mr. Kuester, 70, is a former director, CEO, and Chairman of the Board of Marshall & Ilsley Corporation. He is also a director of Modine Manufacturing Company, and was formerly director of Metavante Technologies, Inc. In addition to a broad banking background, Mr. Kuester has extensive experience in the areas of strategic planning, economics, business leadership, and risk management. since 2001
Londa J. Dewey*
Class II (2013) 1 Director
Ms. Dewey, 51, is President of QTI Management Services, Inc., d/b/a The QTI Group, a human resources and staffing company. She was formerly President of the Private Client Group and Market President of U.S. Bank. Ms. Dewey is a director of MGE Energy, Inc., a publicly-traded utility holding company; a director of American Family Insurance, a mutual insurance company; and a director and immediate past Chair of the Board for Meriter Health Services, Inc., an integrated health services organization and the parent company of Meriter Hospital. Ms. Dewey provides the Board with her skills relating to financial analysis, business strategy, and risk assessment and management. since 2011
Gary W. Freels*
Class III (2014) Director
Mr. Freels, 63, is President and Chief Executive Officer of Alexander Properties, Inc. (investment management). Mr. Freels has extensive experience in the areas of investment management, audit, and finance. since 1996
Thomas J. Howatt
Class III (2014) Director
Mr. Howatt, 62, is the Companyâs Chairman and, from August 2000 until December 2011, served as the Companyâs President and Chief Executive Officer. Mr. Howatt has extensive knowledge of the paper industry and experience with our Company. since 2000
MANAGEMENT DISCUSSION FROM LATEST 10K
Information Concerning Forward-Looking Statements
The following discussion and analysis of our financial condition and results of operations contain forward-looking statements that involve risks, uncertainties, and assumptions. Forward-looking statements are not guarantees of performance. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of Wausau Paper and our consolidated subsidiaries may differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. Forward-looking statements may be identified by, among other things, beliefs or expectations that certain events may occur or are anticipated and projections or statements of expectations with respect to various aspects of our business, our plans or intentions, our stock performance, the industry within which we operate, the markets in which we compete, the economy, and any other expressions of similar import or covering other matters relating to our business and operations. Risks, uncertainties, and assumptions relating to our forward-looking statements include the level of competition for our products, downturns in our target markets, changes in the paper industry, changes in the price or availability of raw materials and energy, the failure to develop new products that meet customer needs, adverse changes in our relationships with large customers and our labor unions, the failure to recruit and retain key personnel, costs of compliance with environmental regulations, our ability to fund our operations, unforeseen operating problems, changes in strategic plans or our ability to execute such plans, maintenance of adequate internal controls, changes in financial accounting standards, increasing costs of certain employee and retiree benefits, unforeseen liabilities arising from current or prospective claims, attempts by shareholders to effect changes at or acquire control over the Company, and the effect of certain organizational anti-takeover provisions. These and other risks, uncertainties, and assumptions are described under the caption âRisk Factorsâ in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2011, and from time to time in our other filings with the Securities and Exchange Commission after the date of such annual report. We assume no obligation, and do not intend, to update these forward-looking statements.
Critical Accounting Policies and Estimates
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and revenues and expenses during the periods reported. Actual results could differ from those estimates. We believe the following are the accounting policies which could have the most significant effect on our reported results and require subjective or complex judgments by management.
In certain circumstances, we will grant sales rebates to help stimulate sales of some of our products. The expense for such rebates is accrued for and recorded as a deduction in arriving at our net sales amount at the time of the sale of the product to the customer. The amount of rebates to be paid is estimated based upon historical experience, announced rebate programs, and competitive pricing, among other things. In the future, we may take actions to increase customer rebates, possibly resulting in an increase in the deduction recorded in arriving at our net sales amount at the time the incentive is offered.
Impairment of Long-Lived Assets
In accordance with Financial Accounting Standards Board (âFASBâ) Accounting Standards Codification (âASCâ) Subtopic 360-10 âProperty, Plant, and Equipmentâ, we evaluate the recoverability of the carrying amount of long-lived assets, including dispenser systems, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. We use judgment when applying the impairment rules to determine when an impairment test is necessary. Factors we consider that could trigger an impairment review include significant underperformance relative to historical or forecasted operating results, a significant decrease in the market value of an asset, a significant change in the extent or manner in which an asset is used, and significant negative or industry trends.
Impairment losses are measured as the amount by which the carrying value of an asset exceeds its estimated fair value. Generally, fair value will be determined using valuation techniques such as the present value of expected future cash flows, which requires us to make estimates of our future cash flows related to the asset subject to review. These estimates require assumptions about demand for our products, future market conditions, and technological developments. Other assumptions in determining fair value include determining the discount rate and future growth rates. In the years ended December 31, 2011 and 2010, we recorded an impairment loss of $58.8 million and $0.5 million, respectively, while no impairment loss was recorded in 2009. Additional information regarding impairment losses is available in âNote 2 â Restructuringâ in the Notes to Consolidated Financial Statements.
Defined benefit pension costs and obligations are actuarially determined and are affected by assumptions including discount rate, the expected rate of return on plan assets, and assumed annual rate of compensation increase for plan employees, among other factors. Changes in discount rate and differences from actual and assumed asset returns as well as changes in other assumptions will affect the amount of pension expense recognized in future periods. For example, fluctuation in the discount rate assumption of 25 basis points would have impacted 2011 defined benefit pension obligations by approximately $8.1 million. In addition, a fluctuation in the expected rate of return on plan assets assumption of 25 basis points would have impacted defined benefit pension costs by approximately $0.5 million. Additional information regarding pension benefits is available in âNote 7 â Pension and Other Post-retirement Benefit Plansâ in the Notes to Consolidated Financial Statements.
Other Post-retirement Benefits
The costs and obligations for post-retirement benefits other than pension are also actuarially determined and are affected by assumptions including the discount rate and expected future increase in per capita costs of covered post-retirement health care benefits. Changes in the discount rate and differences between actual and assumed per capita health care costs may affect the recorded amount of the expense in future periods. For example, fluctuation in the discount rate assumption of 25 basis points would have impacted the 2011 obligations for post-retirement benefits other than pension by approximately $3.1 million. In addition, a one percentage point increase in the assumed health care cost trend rate would impact obligations for post-retirement benefits by approximately $14.2 million, while a decrease of one percentage point would impact the same obligations by approximately $11.7 million. Additional information regarding post-retirement benefits is available in âNote 7 â Pension and Other Post-retirement Benefit Plansâ in the Notes to Consolidated Financial Statements.
We record environmental liabilities based on estimates for known environmental remediation exposures utilizing information received from third-party experts and our past experience with these matters. At third-party sites where more than one potentially responsible party has been identified, we record a liability for its estimated allocable share of costs related to our involvement with the site as well as an estimated allocable share of costs related to the involvement of insolvent or unidentified parties. Environmental liability estimates may be affected by changing determinations of what constitutes an environmental exposure or acceptable level of cleanup. To the extent that remediation procedures change or the financial condition of other potentially responsible parties is adversely affected, the estimate of our environmental liabilities may change. Additional information regarding environmental matters is available in âNote 10 â Commitments and Contingenciesâ in the Notes to Consolidated Financial Statements.
Other significant accounting policies, not involving the same level of uncertainties as those previously discussed, are important to an understanding of the consolidated financial statements. Additional information regarding significant accounting policies is available in âNote 1 â Description of the Business and Summary of Significant Accounting Policiesâ in the Notes to Consolidated Financial Statements. Operations Review
In December 2011, our Board of Directors approved the sale of our premium Print & Color brands and the closure of our Brokaw, Wisconsin paper mill. The Print & Color portion of the Paper business segment competed in the declining uncoated freesheet market, and was faced with continuing margin compression and volume pressures. Sale of the Print & Color brands, select paper inventory, and certain manufacturing equipment was completed in late January 2012. The permanent closure of the Brokaw mill is expected by mid-2012, marking the end of our material participation in Print & Color markets. Our exit of the Print & Color business aligns the Paper segment with growth-oriented technical markets: Industrial & Tape, Food, and Coated & Liner. The Tissue segment continues to focus on production and marketing of a broad line of paper towel and tissue products, which are marketed along with soap and dispensing system products for the industrial and commercial away-from-home market.
In the near term, the pace of growth in the United States and global economies remains uncertain. With our 2012 exit from the Print & Color markets, our focus is narrowed to relatively stable or growing tissue and technical market categories. We are focused and determined to achieve sales growth in our target markets to help us achieve our long-term return-on-capital-employe d target of 15%. Our ability to reach this target will continue to be influenced by general economic conditions, the price of energy and raw materials, competitive factors, and changes in market demand and product pricing.
Our Tissue business segmentâs financial performance was pressured in 2011 by historically high wastepaper costs and competitive conditions in standard product categories. The Tissue segmentâs operating margins improved late in the year, as wastepaper costs decreased and the full benefit of earlier selling price increases were realized. We continue to focus our efforts on our value-added product categories to improve our competitive strength and operating margins. As a direct result of this focus, in 2011, our Board of Directors approved plans to expand the Tissue segmentâs production capabilities in response to growing demand for its environmentally friendly, value-added products. The expansion will include a new paper machine, located at our Harrodsburg, Kentucky converting facility, which will be capable of producing premium towel and tissue products from 100% recycled fiber. This $220 million expansion project remains on budget and continues to meet all construction and product development milestones. Systems testing and machine start-up are anticipated to occur in the fourth quarter of 2012.
In December 2011, we announced the sale of our premium Print & Color brands and the closure of our Brokaw, Wisconsin paper mill. Our exit of the Print & Color business allows us to narrow our focus to growth within our core technical markets. The Paper segment demonstrated year over year earnings improvement within these core technical markets during 2011, despite increased fiber costs and inconsistent demand in certain technical market categories.
Net sales for the year ended December 31, 2011 were $1,034.6 million, compared with net sales of $1,055.7 million for the year ended December 31, 2010, a decrease of 2%. Total shipments in 2011 of 627,260 tons decreased 6% from the 666,614 tons shipped in 2010, primarily due to volume reductions within the Paper segmentâs Print & Color sector. Net sales in 2009 were $1,032.1 million, and total tons shipped were 685,045 tons.
Comparing 2011 to 2010, average net selling price increased over 4%, or over $34 million, with actual net selling price increases contributing to more than three-quarters of the improvement, and the remaining increase a result of enhancements in overall product mix. Compared to 2009, 2010 average net selling price increased over 5%, increasing net sales by $53 million, with actual net selling price increases contributing to more than half of the improvement, and the remaining increase a result of enhancements in overall product mix.
Gross profit margin decreased to $58.6 million, or 5.7% of net sales, in 2011 compared with $130.6 million, or 12.4% of net sales, in 2010. Gross profit margin in 2009 was $132.8 million, or 12.9% of net sales. During the year ended December 31, 2011, as compared to the same period in 2010, an increase in fiber and energy costs of approximately $19 million and $5 million, respectively, partially offset an increase in average net selling price, and increased gains from our timberland sales. In addition, gross profit in 2011 was impacted by Brokaw mill closure charges within our Paper segment of $75.6 million, and expenses totaling $4.8 million due to a paper machine rebuild within our Paper segment and an expansion project in our Tissue segment. In 2010 as compared to 2009, a significant increase in fiber costs more than offset a decrease in energy costs, an increase in average net selling price, and increased gains from our timberland sales. Our timberland sales favorably impacted gross profit by $36.0 million in 2011, $8.0 million in 2010, and $3.2 million in 2009.
Raw materials and packaging comprise approximately 60% of our total cost of sales, with market pulp, wastepaper, and purchased towel and tissue parent rolls accounting for over three-quarters of this total. Labor and fringes are approximately 20% of our total cost of sales, while utilities account for approximately 10%. Other operating expenses, including outbound freight, depreciation, and maintenance, comprise the remaining 10% of our cost of sales.
Fiber prices, consisting primarily of market pulp, wastepaper, pulpwood, and purchased towel and tissue parent rolls, increased during both 2011 and 2010. As compared to 2010, 2011 fiber costs increased approximately $19 million, after increasing approximately $63 million in 2010 as compared with 2009.
MANAGEMENT DISCUSSION FOR LATEST QUARTER
In December 2011, our Board of Directors approved the sale of our premium Print & Color brands and the closure of our Brokaw, Wisconsin paper mill. The Print & Color portion of the Paper segment competed in the declining uncoated freesheet market, and was faced with continuing margin compression and volume pressures. During the first quarter of 2012, we completed the sale of the premium Print & Color brands, inventory, and select equipment, and in February ceased papermaking operations at the Brokaw, Wisconsin paper mill. Consequently, the impact of this site and its related closure activities are reported as discontinued operations, and all results discussed below exclude the results of discontinued operations unless otherwise indicated. For additional information on discontinued operations, please refer to âNote 3 â Discontinued Operations and Otherâ in the Notes to Condensed Consolidated Financial Statements.
Our exit from the Print & Color business aligns the Paper segment with the growth-oriented technical markets in which it has historically competed: Food, Tape & Industrial, and Coated & Liner. The Tissue segment continues to focus on production and marketing of a broad line of paper towel and tissue products, which are marketed along with soap and dispensing system products for the industrial and commercial away-from-home market.
In December 2011, we announced that our Board of Directors had approved the sale of our premium Print & Color brands, and the closure of our Paper segmentâs Brokaw, Wisconsin paper mill. The sale of the premium Print & Color brands, select paper inventory, and certain manufacturing equipment to Neenah Paper, Inc. closed on January 31, 2012. We permanently ceased papermaking operations at the mill on February 10, 2012. We have determined that the assets of the Brokaw mill, which are part of our Paper segment, meet the criteria for held for sale classification, and are reported as discontinued operations in accordance with ASC Subtopic 205-20, âDiscontinued Operations.â We expect to complete the disposal of the Brokaw mill assets within the next nine months.
On December 15, 2011, the Board of Directors declared a quarterly cash dividend of $0.03 per common share. The dividend was paid on February 15, 2012, to shareholders of record on February 1, 2012. On April 19, 2012, the Board of Directors declared a quarterly cash dividend of $0.03 per common share. The dividend was paid on May 15, 2012 to shareholders of record on May 1, 2012. On June 18, 2012, the Board of Directors declared a quarterly cash dividend of $0.03 per common share. The dividend is payable August 15, 2012 to shareholders of record on August 1, 2012.
Information Concerning Forward-Looking Statements
The foregoing discussion and analysis of our financial condition and results of operations contains forward-looking statements that involve risks, uncertainties, and assumptions. Forward-looking statements are not guarantees of performance. If the risks or uncertainties ever materialize or the assumptions prove incorrect, the results of Wausau Paper Corp. and our consolidated subsidiaries may differ materially from those expressed or implied by such forward-looking statements and assumptions. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. Forward-looking statements may be identified by, among other things, beliefs or expectations that certain events may occur or are anticipated and projections or statements of expectations with respect to various aspects of our business, our plans or intentions, our stock performance, the industry within which we operate, the markets in which we compete, the economy, and any other expressions of similar import or covering other matters relating to our business and operations. Risks, uncertainties, and assumptions relating to our forward-looking statements include the level of competition for our products, downturns in our target markets, changes in the paper industry, changes in the price or availability of raw materials and energy, the failure to develop new products that meet customer needs, adverse changes in our relationships with large customers and our labor unions, the failure to recruit and retain key personnel, costs of compliance with environmental regulations, our ability to fund our operations, unforeseen operating problems, changes in strategic plans or our ability to execute such plans, maintenance of adequate internal controls, changes in financial accounting standards, increasing costs of certain employee and retiree benefits, unforeseen liabilities arising from current or prospective claims, attempts by shareholders to effect changes at or acquire control over the Company, and the effect of certain organizational anti-takeover provisions. These and other risks, uncertainties, and assumptions are described under the caption âRisk Factorsâ in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2011, and from time to time in our other filings with the Securities and Exchange Commission after the date of such annual report. We assume no obligation, and do not intend, to update these forward-looking statements.
Perry Grueber - Director, IR
Thank you Joe, good morning everyone and thank you for joining us for the Wausau Paper's 2010 third quarter analyst and investor call. I am pleased to be here today with Tom Howatt, our President and Chief Executive Officer; Scott Doescher, Executive VP and Chief Financial Officer; and Mike Wildenberg, Senior VP of Tissue Segment.
This call is being web cast and slides are provided to summarize key elements of our presentation. The presentation is also downloadable from the investor section of the website wausaupaper.com.
In a moment Tom will begin our presentation by reviewing third quarter results for the corporation in our Paper segment. Mike will then review the Tissue segment's financial performance and discuss our current quarter expectations for that business. Following those comments, Scott will provide a high level financial review, and finally, Tom will comment on our strategies, priorities and third quarter outlook, after which we would be happy to address any questions you might have.
Statements made during this presentation, other than those that refer to past results are forward-looking statements made pursuant to the Safe Harbor provisions of the Securities Reform Act of 1995. Such statements, including those concerning expected performance, price increases and future earnings or dividends involve risks and uncertainties that may cause results to differ materially from those expectations set forth during this discussion. Among other things, these risks and uncertainties include the risks and assumptions described in item 1A and item 7 of the company's Form 10-K for the year ended December 31, 2009.
The company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events. In addition, our presentation refers to certain non-GAAP financial measures. A reconciliation of these measures to GAAP is provided in the appendix of this presentation and is also available on our website.
And with those formalities out of the way, I'll now turn the call over to Tom Howatt. Tom?
Tom Howatt - President & CEO
Good morning everyone. I'll begin with highlights of our third quarter performance. Third quarter net earnings of $0.27 per share were modestly below last years $0.30 per share.
Adjusted earnings for the quarter were just $0.03 per share below last year despite absorbing record high market pulp prices.
Earnings exceeded our earlier guidance of $0.13 to $0.15 per share due to our particularly strong sales mix and full realization of recent selling price increases.
And at the October meeting the Board of Directors reinstated a regular quarterly cash dividend of $0.03 per share and recognition of the earnings and balance sheet improvements achieved since the spending the dividend in early 2009. The combination of persistently high unemployment, weak consumer spending and a lack of recovery and housing markets has resulted in an economic recovery that remains quite fragile.
That said our market place strategies continue to create opportunities for growth. Our green leader position and away from home Tissue markets remain strong and we are well positioned to grow and select technical paper markets such as food, tape, industrial and coated liner.
Finally, while prices for market pulp have begun to decline for record levels, the pace of decline has to-date than far more muted than previously forecasted. Turning to our earnings summary, adjusted net earnings of $0.20 per share for the quarter were achieved despite absorbing year-over-year fiber cost increases equal to $0.27 per share. Results benefited from solid product mix gains in both businesses as well as full realization of recent selling price increases.
We believe our favorable performance in the face of exceptional input cost volatility is a direct result of the effective market development strategies coupled with the restructuring and investment actions undertaken in the recent years.
Moving to our Paper segment, third quarter adjusted operating profit was $8.3 million versus $9.9 million in the prior year. Earning is still relatively flat despite absorbing $17 million and year-over-year fiber cost increases.
Reduced year-over-year shipments reflect the 2009 closure of the Jay main mill as well as concentrated inventory reduction efforts in the prior year. Despite the decline in shipments net sales held even with the prior year as first half pricing action and mixed gains were realized. Demand and consumer oriented markets remained week in the quarter while technical sectors performed more favorably.
The rebuild of our Brainerd paper machine remains on schedule for a first quarter 2011 startup and will require 18 days of downtime in the quarter. The rebuilt machine will be cost effective across the full spectrum of premium, intermediate and value tape grades and will also improve the cost position and quality of our print and color grades produced at Brainerd. At this time we're actively engaged with customers and in both our tape and industrial sectors to execute a smooth commercialization plan as we bring capacity online to support their growth.
I'd now like to ask Mike Wildenberg to review market conditions and the performance of our Tissue segment.
Mike Wildenberg - SVP
Thank you Tom. This morning I'll provide comments on the third quarter performance of the tissue segment, our view on waste paper cost and an overview of key market trends. The tissue segment reported third quarter operating profit of $13.5 million and operating margins of 15%.
This was accomplished while absorbing $5 million in year-over-year fiber cost increases. Contributing to the results for the quarter were particularly strong sales mix and record converting efficiencies. This strong performance did however fall somewhat below record prior year profit of $15.9 million and margins of nearly 18%.
While total shipments were roughly in line with third quarter away from home market demand, shipments of our higher margin value added products reached record levels. Our success in this important product category continues to be driven by strong growth in our Green Seal certified product line.
In fact Green Seal products now represent nearly half of our total shipments, double the rate of five years ago. As I mentioned, third quarter fiber costs were approximately $5 million higher than last year. As you can see from this chart, waste paper prices increased rapidly over the last year and our expectations are that they will remain at elevated levels over the near term.
Our Middletown de-inking operation utilized recycled fiber from a range of sources. Depicted on this chart are the five grades that we consume sorted office waste paper, old news paper, coated book, coated ground wood and old corrugated containers. While sorted office papers tend to be the largest volume category for us, we have flexibility of vary paper mix based upon price and availability.
This ability allows us to control cost by taking advantage of favorable cost differentials between grades. Next I would like to review current conditions in each of our major in use markets. To frame this discussion here is a chart I've previously used to highlight the market segments in which compete.
While away-from-home demand for/and our pricing have been relatively stable through the first nine months of the year, performance varies somewhat by market segment property management is out largest end user segment.
Even though occupancy rates have remain depressed, the receptivity of building managers to our green products and control use dispensers is driven by the desire to differentiate there facilities and attract and retain tenants.
Our current volume and market share indicate that significant opportunity remains. Working from a modest position we are focused on further penetration of this attractive market category. We enjoy a strong position in the education and government sectors. Here too, green products and control used dispensing systems have been and continue to be well received.
In similar fashion we continue to grow in the health care sector thanks to a strong product fit. Given macro demographic trends we are targeting further growth in this market category. Our business in the industrial market has remain stable all be at, at depressed level. While this remains an important sector for us, it's clear that our most significant growth opportunities lay in those markets discussed earlier.
Lastly I would like to remind you that our share in the leisure, hospitality and food segments of the away-from-home market is intestinally limited. We have been particularly fortunate in this regard as these markets have been the most severely impacted by consumer behavior and the recessionary environment.
Our commitment to accelerating the growth of this business has never been greater. At the most basic level our strategy seeks to maximize the differentiating characteristics of our products and the services we provide to our whole sale customers.
To grow the business we continue to focus on leveraging the leadership position we have in creating the Green Crops category by introducing innovating green products such as the OptiSource hand care system. As discussed these products are key to our growth in targeted marketing categories.
Emphasizing value added products and dispensing systems that allow us to avoid the more commoditized and price competitive portion of the away-from-home market and enhancing customer service by aligning our products with specific customer needs.
We are confident in our strategies and are pursuing initiatives to extent our market position through organic growth and investment opportunities.
The forth quarter will provide challenges. Fiber costs are likely to remain at elevated levels and order patterns reflect the impact of a weak domestic economy and continued high unemployment. In addition we experienced an equipment failure that resulted in ten days of down time in our toweling machine in the middle town mill.
Although repairs have been completed and operations have return to normal we expect forth quarter operating profits to be impacted by approximately $1.5 million. With all the restricted factors outlined we fully expect continued strong value-added product sales, improved operational performance and in particular, continued growth and demand for our Green-Seal certified line of products. Scott will continue our presentation with the financial review, Scott?
Scott Doescher - EVP, Finance
Thank you, Mike. Third quarter adjusted earning of $0.20 per share was strong considering the record-high pulp price environment in which we operated. During the period, we sold 4,400 acres of timberlands, achieving an average selling price of approximately $1,000 per acre and an after-tax gain of $2.6 million. We have 8,000 acres of non-strategic timberlands remaining in our sales program.
IRS guidance with respect to the calculation of the 2009 alternative fuel mixtures tax credit allowed us to recognize an after-tax gain of $800,000 during the quarter. In addition, we recently received approval and are now registered as a producer of cellulosic biofuel as defined in the Internal Revenue Code. We're currently analyzing the financial impact of converting all or a portion of the previously claimed 2009 alternative fuel mixture tax credit to the cellulosic biofuel producer credit. We expect to conclude our analysis in the fourth quarter and if more beneficial, we'll pursue conversion of the credit.
Our balance sheet at mid-year remained solid with a debt-to-capital ratio of 31%. Refinancing activities completed earlier in the year, we have provided the capacity to maintain operations and the flexibility to pursue strategic growth opportunities. Though economic conditions remained sluggish, EBITDA generation has remained healthy, totaling approximately $84 million year-to-date.
I would like to review two earnings reconciliation schedules. The first schedule compares second quarter 2010 adjusted earnings of $0.07 per share with third quarter 2010 adjusted earnings of $0.20 per share.
Compared with last quarter, sales price, mix and volume variances favorably impacted third quarter earnings by $0.09 per share, while fiber cost increased a penny per share. There were no annual maintenance or adjust executed during the third quarter, improving earnings the equivalent of $0.04 per share. Operations and all of the variances had a positive penny per share impact on earnings.
The second reconciliation comparing third quarter 2009 adjusted earnings of $0.23 per share with third quarter adjusted results is dominated by two factors; sales and fiber price. Compared with last year, third quarter sales price, mix and volume variances were a favorable $0.25 per share. The year-over-year improvements reflects substantial gains in both selling price and product mix. Reflecting a rapid escalation in market pulp prices in the preceding fourth quarters, year-over-year fiber costs increased the equivalent to $0.27 per share. And finally, operations and all other variances were combined $0.01 per share on favorable to the last year.
Our balance sheet strengthened once again this past quarter with both networking capital and long-term debt showing improvement.
Capital spending was $27.5 million through September 30th, with full-year year spending of $41 million expected. In 2011, we expect capital spending to approximate 2010 levels; this estimate includes approximately $15 million associated with the completion of branded machine rebuild.
I will now return the call to Tom to discuss our strategic priorities and fourth quarter outlook. Tom?
Tom Howatt - President & CEO
While difficult economic circumstances have resulted in a degree of earnings variability over the last several quarters. We remain focused on three strategy priorities. We continue to work toward achieve a targeted 15% return on capital employed with effective marketplace strategies, restructuring activities and select capital investment driving improved performance over the last two years.
By lining our production capacity with attractive core markets such as tissue, food, take and industrial. We benefit in the near term and position ourselves for growth over the long term. And finally the combination as a solid balance sheet coupled with leadership roll in our core markets, positions us to make strategic investments to drive profitable growth in the future.
As we begin the fourth quarter we believe that we are well positioned to compete effectively in our core markets. At the same time fiber prices remain at elevated levels and recent order patterns have slowed reflecting seasonal weakness and customers adjusting to more moderate expectations for 2011.
In addition, maintenance work complete early in the quarter at Middletown mill is expected to impact earnings by approximately $0.02 per share.
As a result we expect fourth quarter adjusted earnings in the range of $0.06 to $0.09 per share as compared to $0.14 per share last year. We would be pleased to answer your questions at this time.