Neenah Paper Reports 2007 Fourth Quarter and Full Year Results



    ALPHARETTA, Ga., March 12 /CNW/ -- Neenah Paper, Inc. (NYSE:   NP) today
reported income from continuing operations for the fourth quarter 2007 of $2.9
million, or $0.19 per diluted common share, compared with income from
continuing operations of $3.2 million, or $0.21 per diluted common share, for
the fourth quarter of 2006. Consolidated net income in the fourth quarter of
2007 included an after-tax charge of $3.2 million, or $0.21 per diluted common
share, to recognize settlement costs for litigation related to Terrace Bay
retiree benefits.
    Consolidated net sales of $256 million in the fourth quarter of 2007
increased 44 percent compared with the fourth quarter of 2006. Operating
income of $11.6 million in the fourth quarter of 2007 included a $5.2 million
pre-tax charge for the Terrace Bay litigation settlement discussed above, and
was 29 percent ahead of the $9.0 million reported in the fourth quarter of
2006. While operating income significantly exceeded prior year levels, net
income from continuing operations was lower due to increased tax expense.
    Commenting on results, Sean Erwin, Chairman and Chief Executive Officer
said, "Overall, we saw significant change in Neenah Paper over the past year
as we gained scale through acquisitions that expanded both our capabilities
and our product portfolio and provided us a more global platform. Fourth
quarter results continued to reflect increasing raw material and energy
prices, however, the selling price increases we implemented in the fourth
quarter and early this year are helping to offset such cost increases. While
the quarter also included expenses in Fine Paper for the integration of Fox
River, these costs are now largely complete and will allow us to realize
benefits going forward. Pulp operations also performed very well, setting all-
time productivity records that helped to improve costs and volume growth. Our
balance sheet and cash flows remain strong, giving us adequate liquidity and
flexibility, and in the fourth quarter we used available free cash flows to
pay down debt for the third consecutive quarter."
    Fine Paper fourth quarter 2007 net sales of $95.3 million increased 74
percent, from $54.7 million last year, primarily due to higher volumes from
the acquisition of Fox River. Operating income was $11.7 million in the fourth
quarter of 2007, compared to $12.3 million in the fourth quarter of 2006.
While increased costs, primarily for fiber, were largely offset by higher
selling prices, profits in the current quarter included approximately $2
million of costs related to the Fox River integration including the transition
to a new consolidated distribution center in Wisconsin.
    Technical Products net sales were $97.7 million in the fourth quarter of
2007, an 18 percent increase compared to $82.8 million reported in the same
period last year. The increase in sales was primarily due to volume growth in
tape, transportation filtration, image transfer and wall covering, as well as
currency translation, increased selling prices and a higher value sales mix.
Operating income for the fourth quarter of 2007 was $2.6 million, down from
$3.4 million in the fourth quarter of 2006. The lower profits reflected higher
manufacturing costs due to increased raw material prices, energy costs and
less efficient operations. Mill operating schedules were reduced due to volume
reductions in selected lower margin grades and to control inventories in
response to slowing demand in certain product categories. In addition, 2007
reflected higher initial costs following the start-up of new assets in
Germany.
    Pulp net sales in the fourth quarter of 2007 were $62.8 million, an
increase of almost 60 percent from $39.9 million in the same period of 2006.
Sales grew as a result of a 43 percent increase in volumes compared to an
unusually low prior year period, higher selling prices, and the absence of
pulp hedging losses in 2007. These hedging losses reduced sales and profits by
about $5 million in the fourth quarter of 2006. Including the $5.2 million
pre-tax charge for settlement of the Terrace Bay litigation, operating income
for pulp was $0.6 million in the fourth quarter of 2007, compared with an
operating loss of $3.4 million in the same quarter in 2006. The increase in
operating income resulted from higher volumes and selling prices and the
absence of pulp hedge losses in 2007, as well as record mill productivity and
lower costs in comparison to a 2006 period which included an annual mill
maintenance shutdown. These items together offset the negative impacts from a
stronger Canadian dollar and increased fiber costs.
    Consolidated selling, general and administrative (SG&A) expense was $22.1
million in the fourth quarter of 2007 compared to $16.9 million in the fourth
quarter of 2006. Higher levels of SG&A in 2007 were due to added expenses of
acquired companies. As a percentage of net sales, SG&A expense declined from
9.5 percent in the fourth quarter of 2006 to 8.6 percent in the fourth quarter
of 2007. Net interest expense of $6.2 million in the fourth quarter of 2007
increased from $5.1 million in the fourth quarter of 2006 as a result of
additional borrowings to finance acquisitions. Tax rates for the fourth
quarter were 46 percent in 2007 and 18 percent rate in 2006. Both periods
included adjustments to reflect the final mix of income between segments and
2007 included other adjustments resulting in a normalized full year rate of 29
percent, compared with 37 percent for 2006.
    
    Discontinued Operations
    
    The Company's Terrace Bay pulp and woodlands operations, excluding
certain post-retirement obligations, were transferred to Terrace Bay Pulp Inc.
and Eagle Logging Inc. in August 2006. Results from Terrace Bay have been
classified as discontinued operations for all periods presented. Losses for
discontinued operations in the fourth quarter of 2007 were $25.4 million,
primarily due to a non-cash after-tax charge of $23.9 million for final
settlement of the Ontario pension plan. No additional cash funding was
required with this settlement. In the fourth quarter of 2006, there was a loss
of $0.5 million, net of taxes, from discontinued operations.
    
    Full Year 2007 Results
    
    Consolidated net sales were $990.5 million in 2007 and $594.3 million in
2006. The increase in revenues in 2007 resulted from the acquisitions of
Neenah Germany and Fox River Paper Company as well as higher selling prices in
all product segments. Operating income was $66.9 million in 2007 and $168.4
million in 2006, while earnings from continuing operations were $2.50 per
diluted common share in 2007, compared to $6.43 per diluted common share in
the prior year.
    Earnings in 2007 and 2006 included income of $0.25 and $5.22 per diluted
common share, respectively, related to the Company's sale of timberlands in
June 2006. Earnings in 2007 also included $0.58 per diluted common share for a
reduction in deferred tax expense following a change in German statutory tax
rates enacted in 2007. These items were partly offset by the $0.21 per diluted
share charge for settlement of Terrace Bay retiree benefits litigation
previously mentioned. Excluding these items, adjusted earnings per diluted
common share from continuing operations in 2007 increased 55 percent to $1.88
in 2007 from $1.21 in 2006. The increased adjusted earnings in 2007 were as a
result of added income from acquired businesses, higher pulp earnings, an
improved Technical Products mix and a lower consolidated tax rate. Adjusted
earnings is a non-GAAP measure and is reconciled to GAAP per share earnings
below and in a detailed table at the end of this release.

    2007           2006

    
    Earnings per Share, continuing operations            $2.50          $6.43
     Gains on Sale of Timberlands                        (0.25)         (5.22)
     Terrace Bay Litigation Settlement Expense            0.21              -
     Reduced Deferred Tax Expense due to tax law change  (0.58)             -
    

    
    Adjusted Earnings per Share, continuing operations   $1.88          $1.21
    Discontinued Operations
    
    Losses from discontinued operations were $1.83 per diluted common share
in 2007 and $2.22 per diluted common share in 2006. Losses in 2007 included a
charge of $1.58 per share for final settlement of the Ontario pension plan.
Losses in 2006 included charges of $1.10 per share for partial settlement of
the Ontario pension plan, plus a charge of $0.27 per share related to the
disposal of the Terrace Bay mill in August 2006.
    
    Outlook
    
    The Company indicated the following additional items may influence 2008
results or comparisons with 2007:

    
    -- First quarter 2008 will include an added two months for Fox River,
       which was acquired in March 2007. Additional synergies from the
       acquisition are expected in 2008 and integration costs of approximately
       $5 million in 2007 are not expected to be repeated.
    -- Approximately $7 million of gains on Canadian currency hedges were
       recognized in 2007. Minimal hedges are in place for 2008.
    -- Lower German statutory rates are expected to reduce the 2008
       consolidated tax rate three percentage points below the 2007 normalized
       rate of 29 percent.
    -- Capital spending is expected to be approximately $45 million in 2008,
       including an estimated $7 million for Fox River integration and ERP
       implementation.
    CONFERENCE CALL
    
    Neenah Paper will hold a conference call to discuss fourth quarter
earnings and other matters of interest at 11 a.m. (Eastern) on Thursday, March
13. The call will be simultaneously broadcast via the internet, and
stockholders and other interested parties are invited to listen to the live
broadcast or participate in the call by following the instructions set out in
the Investor Relations section of the company's Web site (www.neenah.com). A
copy of the press release and related financial information is also posted on
the site, and a replay of the call will be available at the site through March
31.
    
    About Neenah Paper, Inc.
    
    Neenah Paper is a leading global manufacturer of premium, performance-
based papers and specialty products used in a variety of applications
including filtration, printing and writing, and as backing and component
materials for many specialized industrial and consumer applications. Products
are marketed under well-known brands such as CLASSIC(R), ENVIRONMENT(R),
STARWHITE(R), Gessner(R), JET-PRO(R) SofStretch(TM) and varitess(R). The
company also produces and sells bleached pulp, primarily for use in the
manufacture of tissue and printing papers. Based in Alpharetta, Georgia, the
company has paper manufacturing operations in the United States and Germany
and a pulp mill and related timberlands in Nova Scotia, Canada. Additional
information about Neenah Paper can be found at the company's web site,
www.neenah.com.
    
    Cautionary Note Regarding Forward-Looking Statements
    
    Certain statements in this press release may constitute "forward-looking"
statements as defined in Section 27A of the Securities Act of 1933 (the
"Securities Act"), Section 21E of the Securities Exchange Act of 1934 (the
"Exchange Act"), the Private Securities Litigation Reform Act of 1995 (the
"PSLRA"), or in releases made by the Securities and Exchange Commission, all
as may be amended from time to time. Statements contained in this press
release that are not historical facts may be forward-looking statements within
the meaning of the PSLRA. Any such forward-looking statements reflect our
beliefs and assumptions and are based on information currently available to us
and are subject to risks and uncertainties that could cause actual results to
differ materially including, but not limited to, changes in U.S./Canadian
dollar, U.S. dollar/Euro and other currency exchange rates, changes in pulp
prices, the cost or availability of raw materials, unanticipated expenditures
related to the cost of compliance with environmental and other governmental
regulations, the ability of the company to realize anticipated cost savings,
and the successful integrations of the former Fox River business and Neenah
Germany operations. Forward-looking statements are only predictions and
involve known and unknown risks, uncertainties and other factors that may
cause our actual results, performance or achievements, or industry results, to
be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. We undertake no
obligation to publicly update any forward-looking statements, whether as a
result of new information, future events or otherwise.  These cautionary
statements are being made pursuant to the Securities Act, the Exchange Act and
the PSLRA with the intention of obtaining the benefits of the "safe harbor"
provisions of such laws. Neenah Paper, Inc. cautions investors that any
forward-looking statements we make are not guarantees or indicative of future
performance.


    
                      NEENAH PAPER INC AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF OPERATIONS
                (In millions, except share and per share data)
    


    
                                      For the Three Months   For the Years
                                        Ended December 31,  Ended December 31,
                                          2007     2006     2007     2006
    

    
    Net Sales                             $255.8   $177.2   $990.5   $594.3
    Cost of products sold                  225.1    154.8    852.9    502.3
      Gross Profit                          30.7     22.4    137.6     92.0
    Selling, general and administrative
     expenses                               22.1     16.9     82.4     56.9
    Gain on sale of woodlands               (1.7)    (1.4)    (6.2)  (125.5)
    Other income - net                      (1.3)    (2.1)    (5.5)    (7.8)
      Operating Income                      11.6      9.0     66.9    168.4
    Interest expense-net                     6.2      5.1     25.1     16.5
      Income From Continuing Operations
      Before Income Taxes                    5.4      3.9     41.8    151.9
    Provision for income taxes               2.5      0.7      3.9     56.5
      Income From Continuing Operations      2.9      3.2     37.9     95.4
      Loss From Discontinued Operations,
       net of taxes                        (25.4)    (0.5)   (27.7)   (32.9)
      Net Income (Loss)                   $(22.5)    $2.7    $10.2    $62.5
    


    
    Earnings (Loss) Per Common Share:
    Basic
      Continuing Operations                $0.19    $0.22    $2.55    $6.46
      Discontinued Operations              (1.70)   (0.04)   (1.86)   (2.23)
      Basic                               $(1.51)   $0.18    $0.69    $4.24
    

    
    Diluted
      Continuing Operations                $0.19    $0.21    $2.50    $6.43
      Discontinued Operations              (1.68)   (0.03)   (1.83)   (2.22)
      Diluted                             $(1.49)   $0.18    $0.67    $4.21
    


    
    Weighted Average Common
      Shares Outstanding (000s)
      Basic                               14,933   14,775   14,874   14,757
    

    Diluted                             15,135   14,912   15,141   14,847



    
                      NEENAH PAPER INC AND SUBSIDIARIES
                        SELECTED FINANCIAL INFORMATION
                 Reconciliation of Non-GAAP Disclosure Items
                     (In millions, except per share data)
    

    Reconciliation of earnings per share to adjusted earnings per share:

    
                                      For the Three Months   For the Years
                                        Ended December 31,  Ended December 31,
                                          2007   2006         2007    2006
    

    
    Income From Continuing Operations     $2.9   $3.2        $37.9   $95.4
    Add (subtract):
    Gain on sale of woodlands             (1.7)  (1.4)        (6.2) (125.5)
    Income tax provision                   0.7    0.5          2.4    48.0
     After-tax gain on sale               (1.0)  (0.9)        (3.8)  (77.5)
    Employee benefits litigation
     settlement                            5.2      -          5.2       -
    Income tax provision                  (2.0)     -         (2.0)      -
     After-tax loss on litigation
     settlement                            3.2      -          3.2       -
    Tax benefit of change in German
     statutory tax rates                   0.1      -         (8.8)      -
      Total adjustment                     2.3   (0.9)        (9.4)  (77.5)
    Income from continuing operations
     adjusted for after-tax restructuring
     gain on woodlands sale, after-tax
     loss on litigation settlement and
     benefit of change in German
     statutory tax rates                  $5.2   $2.3        $28.5   $17.9
    


    
    Earnings From Continuing Operations
     Per Diluted Common Share            $0.19  $0.21        $2.50   $6.43
    Add (subtract):
      After-tax gain on sale of
       woodlands                         (0.07) (0.06)       (0.25)  (5.22)
      After tax loss on litigation
       settlement                         0.21      -         0.21       -
      Tax benefit of change in German
       statutory tax rates                0.01      -        (0.58)      -
    

    
    Earnings from continuing operations
     per diluted common share adjusted
     for after-tax restructuring gain
     on woodlands sale, after-tax loss on
     litigation settlement and benefit
     of change in German statutory tax
     rates                               $0.34  $0.15      $1.88   $1.21
    



    
    Notes:
    In accordance with generally accepted accounting principles in the United
    States ("GAAP"), reported income from continuing operations and earnings
    from continuing operations per diluted share include the after-tax effects
    of unusual and non-recurring items.  We believe that by adjusting such
    reported amounts to exclude the effects of unusual and non-recurring
    items, the resulting adjusted operating income, adjusted net income and
    adjusted earnings per share are on a basis that reflects the results of
    our ongoing operations.  Adjusted income from continuing operations and
    adjusted earnings from continuing operations per share are not recognized
    terms under GAAP and should not be considered in isolation or as a
    substitute for income from continuing operations, earnings from continuing
    operations per diluted share or any other performance measures derived in
    accordance with GAAP.  Other companies may use different methodologies for
    calculating their non-GAAP financial measures and, accordingly, the
    Company's non-GAAP financial measures may not be comparable to their
    measures.
    



    
                      NEENAH PAPER INC AND SUBSIDIARIES
                           SELECTED FINANCIAL DATA
                                (In millions)
    

    
                                       For the Three Months   For the Years
                                        Ended December 31,  Ended December 31,
    Business Segment Data                    2007     2006     2007     2006
    

    
    Net Sales:
       Fine Paper                           $95.3    $54.7   $366.5   $223.9
       Technical Products                    97.7     82.8    400.8    183.1
       Pulp                                  62.8     39.9    223.5    189.3
       Intersegment Sales                       -     (0.2)    (0.3)    (2.0)
                Consolidated Total         $255.8   $177.2   $990.5   $594.3
    

    
    Operating Income:
       Fine Paper                           $11.7    $12.3    $46.6    $56.2
       Technical Products                     2.6      3.4     24.7      9.2
       Pulp                                   0.6     (3.4)     9.2    115.8
       Unallocated corporate expenses        (3.3)    (3.3)   (13.6)   (12.8)
                Consolidated Total          $11.6     $9.0    $66.9   $168.4
    



    
                                                                December 31,
    Balance Sheet Data                                         2007     2006
    

    
    Cash and Cash Equivalents                                  $2.4     $1.6
    Working Capital, net of cash(1)                           128.8     92.6
    Total Debt                                                332.1    283.6
    Stockholders' Equity                                      288.0    184.9
    Total Assets                                              932.8    744.7
    



    
                                                             For the Years
                                                           Ended December 31,
    Cash Flow Data                                             2007     2006
    

    
    Cash Provided By Operating Activities                     $69.5    $65.8
    Depreciation and amortization                              45.3     30.2
    Amortization of stock-based
     compensation                                               6.4      5.8
    Capital expenditures                                       58.3     25.1
    Pension contributions(2)                                   10.1     24.2
    


    
    Notes:
    1 - Working capital, net of cash-consists of all current assets and
        current liabilities, net of cash and debt
        payable within one year.
    2 - Cash contributions to pension trusts, including $10.8 million in
        August 2006 for partial settlement of the Ontario, Canada defined
        benefit pension plan.
    




For further information:

For further information: Bill McCarthy, Vice President - Financial 
Analysis and Investor Relations of Neenah Paper, Inc., +1-678-518-3278 Web
Site: http://www.neenah.com

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NEENAH PAPER, INC.

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