Appleton, Wis. - Third quarter 2010 highlights compared to third quarter 2009:

- Net sales of $214.9 million were up 9.8%
- Net sales of thermal papers were up 25.2% and shipments up approximately 26%
- Net sales of Encapsys® were up 33.7% and shipments up approximately 60%
- Operating income up $3.9 million versus third quarter 2009, $9.4 million versus second quarter 2010
- Debt was $56.2 million lower than in second quarter 2010, $3.0 million lower than year-end 2009
- Improved liquidity to more than $90 million
- Completed the sale of the Performance Packaging operations

Appleton's third quarter 2010 net sales of $214.9 million increased 9.8 percent compared to third quarter 2009 due to higher shipment volumes and the positive impact of price increases initiated during the first three quarters of the year.

Appleton reported third quarter 2010 operating income of $10.7 million compared to $6.9 million during third quarter 2009. Increasing raw material prices, which continued to negatively impact current quarter results, were offset by favorable price and mix and reduced manufacturing costs. By comparison, third quarter 2009 included a $5.0 million alternative fuels tax credit as a reduction to cost of sales and $4.2 million of additional SG&A expense as a result of the September 2009 voluntary debt-for-debt exchange.

Appleton's net sales for the first nine months of 2010 were $645.7 million, an increase of 12.5 percent compared to net sales for the first nine months of 2009. Appleton reported operating income of $25.2 million for the nine months ended October 3, 2010, compared to $31.1 million of operating income for the same period last year. The negative impact on 2010 results of unfavorable price and mix and higher raw material and utility costs was partially offset by stronger shipment volumes, reduced manufacturing costs and an $8.2 million environmental insurance recovery. In addition, 2009 results included a $13.0 million alternative fuels tax credit recorded as a reduction to cost of sales.

"We delivered on our expectations for improved revenue, shipments and EBITDA performance in the third quarter despite the continued challenges of rising input costs," said Mark Richards, Appleton's chairman, president and chief executive officer.  "We benefitted from increased demand for our products and market share gains driven by strong sales of our Superior carbonless sheet product and our BPA-free thermal receipt paper."

Richards added that the third quarter results also benefitted from numerous price increases the Company implemented during the first three quarters of the year to offset the impact of rapidly rising pulp prices. "We have begun to see the benefit of the price increases on our profit margins as we had anticipated," Richards said. Improved manufacturing performance, especially from the Company's thermal paper operations, also contributed to improved results.

Commenting on the 60 percent increase in shipment volume for the Company's Encapsys microencapsulation division, Richards stated, "Our management team has done a great job of leveraging a core technical capability and nurturing the creation of the Encapsys division. We are encouraged by the rapid and consistent growth Encapsys has achieved and by the prospects for continued growth in this new business division."

The Company's paper mill in West Carrollton, Ohio, returned to full operation in early August following the July collapse of a coal silo that disrupted production at the mill. "The disruption caused by the silo collapse challenged us and our resources in ways that might have overwhelmed a less capable and determined organization. Thanks to employees around the Company, it didn't. Our employees acted with courage and confidence to limit the impact of this disaster on our customers and our company," Richards said. The incident did not result in a material adverse impact on the Company's consolidated financial statements due to the rapid response of all Appleton employees and comprehensive insurance coverage.

Paper Business

Third quarter 2010 net sales of $206.1 million within the Company's paper business were 7.9 percent higher than third quarter 2009 due to an approximately 4 percent increase in shipment volumes and the positive impact of price increases initiated during the first three quarters of the year. Carbonless net sales decreased 2.4 percent, compared to third quarter 2009, primarily due to decreased volumes caused by the disruption in supply as a result of the temporary interruption of paper mill operations at the West Carrollton, Ohio mill in early July. Net sales of thermal papers increased 25.2 percent, compared to the prior year quarter, due to increased shipment volumes of approximately 26 percent.

Third quarter 2010 operating income of $9.6 million decreased $2.6 million from third quarter 2009 due to inflation of raw materials and utilities (-$8.6 million), alternative fuels tax credit recorded in 2009 (-$5.0 million), net gross profit impact of lower carbonless/higher thermal shipment volumes (-$1.7 million)  and higher distribution costs (-$0.4 million) offset by favorable price and mix (+$6.2 million), reduced manufacturing and other costs (+$3.7 million), reduced start-up costs of the thermal coater at the West Carrollton, Ohio paper mill (+$1.8 million) and reductions in mill curtailments to match customer demand (+$1.4 million).

Paper business net sales for the first nine months of 2010 were $626.1 million which was 11.3 percent higher than the first nine months of 2009 due to a nearly 15 percent increase in shipment volumes. Carbonless net sales increased 3.9 percent, compared to the first nine months of 2009, primarily due to strong international demand as well as the launch of the Company's new Superior carbonless sheet product. Net sales of thermal papers increased 24.1 percent, compared to the prior year, due to increased shipment volumes of approximately 31 percent.

Paper business operating income of $17.9 million for the first nine months of 2010 decreased $20.3 million compared to the first nine months of 2009 due to unfavorable price and mix (-$23.1 million), inflation of raw materials and utilities (-$19.2 million), alternative fuels tax credit recorded in 2009 (-$13.0 million) and higher distribution costs and other (-$2.1 million) offset by reduced manufacturing costs (+$14.6 million), reductions in mill curtailments to match customer demand (+$7.7 million), higher shipment volumes (+$7.6 million) and reduced start-up costs of the thermal coater at the West Carrollton, Ohio paper mill (+$7.2 million).

Encapsys

Encapsys third quarter 2010 net sales of $14.2 million were 33.7 percent higher than third quarter 2009. Third quarter 2010 volumes were approximately 60 percent higher than the prior year quarter. The increase in net sales contributed to a $2.2 million quarter-over-quarter increase in operating income.

During the first nine months of 2010, Encapsys net sales totaled $37.5 million which was 28.0 percent higher than the same period of 2009.  Year-to-date 2010 operating income was $6.1 million compared to $1.9 million for the first nine months of 2009.

Other (Unallocated)

Other (unallocated) includes unallocated corporate expenses. Current quarter costs decreased $3.6 million from third quarter 2009.  Year-to-date 2010 expense was $10.3 million lower than 2009 due to the recording of the $8.2 million Fox River insurance recovery during first quarter 2010. Also, third quarter 2009 charges included $4.2 million of additional expense as a result of the September 2009 voluntary debt-for-debt exchange.

Balance Sheet

At the end of third quarter 2010, the Company held cash balances totaling $9.9 million compared to cash balances of $10.0 million at year-end 2009. At October 3, 2010, total debt decreased to $547.1 million compared to $550.1 million at year-end 2009. In comparison to second quarter 2010, total debt decreased by $56.2 million. By current quarter-end, all outstanding borrowings against the revolving credit facility had been repaid. During the first nine months of 2010, the Company used $22.7 million of cash in operations largely as a result of a $20.0 million increase in working capital as well as a $15.0 million pension payment made during third quarter for the 2009 plan year. In comparison to the end of second quarter 2010, working capital decreased $13.2 million. At the end of the third quarter, the Company had approximately $93.0 million of liquidity. Appleton invested $11.5 million on capital projects and used $23.0 million of cash for financing activities, including mandatory repayments of debt, repayment of the revolving credit facility and net redemption of common stock. Also during third quarter 2010, the Company received $56.0 million in cash proceeds for the July 2010 sale of American Plastics Company, Inc. and New England Extrusion Inc.

Outlook

Richards said the Company entered the fourth quarter with steady demand for its carbonless and thermal products and improving profit margins due to previously implemented price increases. "We expect the product mix to continue to improve for our carbonless segment as we manage demand from domestic and international accounts," Richards said.

Richards noted that in August, the Environmental Working Group released a report revealing that 40 percent of thermal receipts it tested contained high levels of the potentially harmful chemical BPA. The report noted that Appleton discontinued the use of BPA in thermal POS paper in 2006, a fact that was widely reported in the media. "Our position as the only thermal paper producer not using BPA in any of its products has driven volume and market share gains.  Today we announced we are adding visible red fibers to our BPA-free receipt paper because consumers and retail workers asked us to visually distinguish our BPA-free paper from competitive products. We expect the addition of the red fibers will build on our advantage in the marketplace," said Richards.

The Encapsys unit is expected to continue its rapid growth in the specialty chemical and delivery solutions market and exceed its strong first half performance.

Richards said the Company will continue to be challenged by pulp prices that have run contrary to the trends for other commodity inputs during a recession. The Company is expecting no improvements to pulp costs. "We will continue to focus on the elements of our performance that we can control: improving operational efficiencies, reducing waste, controlling spending and increasing cash flow.  That disciplined approach has been the foundation for our success as we have managed our way through the recession," said Richards.