Neenah Paper Reports 2007 Second Quarter Results



    ALPHARETTA, Ga., Aug. 8 /CNW/ -- (NYSE:   NP) - Neenah Paper, Inc. today
reported income from continuing operations for the second quarter 2007 of $3.3
million, or $0.22 per diluted common share, compared with income from
continuing operations of $84.2 million, or $5.68 per diluted common share, for
the second quarter of 2006. Consolidated net income in the second quarter of
2006 included an after-tax gain of $75.7 million, or $5.11 per diluted common
share, related to the sale of timberlands. Net sales of $258.1 million for the
second quarter 2007 increased more than 80 percent versus the prior year and
included sales related to the company's acquisitions of Neenah Germany and Fox
River Paper Company.
    Commenting on results, Sean Erwin, Chairman and Chief Executive Officer
said, "During the quarter, our paper businesses delivered solid results
despite challenging market conditions and we made continued progress with key
initiatives. In Fine Paper, we are executing our integration plan to deliver
synergies following the Fox River purchase. Our Technical Products business is
performing well, delivering year-on-year growth with an improved sales mix of
higher value products both in the U.S. and in Germany. We have improved
productivity at the Pictou mill this year and the pulp market remains strong,
although Pulp earnings, as expected, were significantly lower as a result of
the timing and scope of our annual maintenance shutdown, which occurred in May
of this year as opposed to October of last year."
    Fine Paper quarterly net sales of $103.6 million increased 81 percent,
from $57.3 million last year, primarily due to the addition of Fox River.
Operating income was $13.2 million in the second quarter of 2007, compared to
$15.5 million in the second quarter of 2006. Operating income in the current
quarter was reduced by approximately $1.2 million as a result of purchase
accounting standards that required Fox River's beginning inventory to be
revalued to market selling prices. In addition, higher prices for pulp and
increased distribution costs in the quarter were only partly offset by higher
selling prices. Increased volumes and efficiencies from the Fox River
acquisition also contributed positively to operating income for the quarter.
    Technical Products net sales were $102.5 million in the second quarter of
2007, more than tripling from $33.8 million reported in the same period last
year. In addition to added sales from Neenah Germany, results benefited from
increased revenues in domestic operations, with growth in higher value
products and improved selling prices. Operating income for the second quarter
of 2007 was $8.7 million, up from $2.9 million in the second quarter of 2006.
The higher operating income in 2007 reflected the inclusion of the German
business and an improved sales mix and higher selling prices in domestic
operations that offset higher manufacturing input costs.
    Net sales for Pulp in the second quarter of 2007 were $52.0 million
compared with $52.1 million for the same period of 2006. Higher market selling
prices versus the prior year were able to offset lower volumes. While 2007
volumes reflected normal levels, shipments in 2006 were unusually high in the
second and third quarters to meet customer demand following the Terrace Bay
shutdown. Pulp second quarter operating losses of $6.1 million compared with
operating income of $123.1 million in 2006. Prior year results included a pre-
tax gain of $122.6 million from the sale of timberlands and current year
results include recognition of $1.5 million of deferred gains on this sale.
Excluding these gains, operating results in the quarter declined versus 2006
as a result of timing and scope of the annual maintenance shutdown. The impact
of the maintenance down in second quarter 2007 results was approximately $10
million. Benefits from higher selling prices in the second quarter of 2007
were able to offset the negative impacts of a stronger Canadian dollar and
increased fiber costs.
    Selling, general and administrative expense was $21.9 million in the
second quarter of 2007 and compared with $11.8 million in the second quarter
of 2006. The increase was primarily due to incremental expenses for acquired
companies, as well as additional costs in 2007 for amortization of stock based
compensation and an executive retirement. Net interest expense of $6.5 million
in the second quarter of 2007 increased from $4.1 million in the second
quarter of 2006 as a result of added borrowings to finance the Fox River and
Neenah Germany acquisitions. The effective tax rate in the second quarter of
2007 was approximately 33 percent, compared with 38 percent in 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 second quarter of 2007 were $0.7 million
primarily due to expenses for certain post-employment obligations of former
Terrace Bay employees. In the second quarter of 2006, there was a net loss of
$10.9 million from discontinued operations.
    
    Year-To-Date
    
    For the six months ended June 30, 2007, income from continuing operations
was $18.5 million, or $1.22 per diluted common share, compared with $87.6
million, or $5.91 per diluted common share, in 2006. Results in 2006 and 2007
included gains of $5.11 and $0.06 per diluted common share respectively,
related to the sale of timberlands. Excluding these timberlands gains,
earnings per diluted common share for the first six months of 2007 increased
almost 40 percent, from $0.80 in 2006 to $1.10 in 2007. The higher net income
in 2007 was due to additional profits from acquisitions, an improved Technical
Products mix, and pulp earnings that increased despite timing of the
maintenance shutdown, primarily as a result of increased selling prices and
improved productivity. In addition, earnings were higher in 2007 due to a
decline in the effective tax rate from 38 percent in the first six months of
2006 to 30 percent in 2007.
    Year-to-date net sales in 2007 were $482.8 million, versus $275.7 million
in 2006, with higher sales resulting from acquisitions and from improved
selling prices in all product segments. Selling, general and administrative
expense for the first six months increased from $26.9 million in 2006 to $39.8
million this year, although as a percentage of sales, these costs declined
from 10 percent to 8 percent due to increased scale and efficiency gains
associated with the acquisitions.
    Losses from discontinued operations were $0.08 per diluted common share
for the first six months of 2007 and $0.90 per diluted common share for the
same period in 2006.
    
    CONFERENCE CALL
    
    As previously announced, Neenah Paper will hold a conference call to
discuss second quarter earnings and other matters of interest at 11 a.m.
(Eastern) on Thursday, August 9. 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 August 31.
    
    About Neenah Paper, Inc.
    
    Neenah Paper manufactures and distributes a wide range of premium and
specialty paper grades, with well-known brands such as CLASSIC(R),
ENVIRONMENT(R), STARWHITE(R), ESSE(R), KIMDURA(R) and MUNISING LP(R),
Gessner(R) and varitess(R). The company also produces and sells bleached pulp,
primarily for use in the manufacture of tissue and writing papers. Neenah
Paper is based in Alpharetta, Georgia, and 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 at 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)
                                   (Unaudited)
    

    
                                               For the           For the
                                         Three Months Ended Six Months Ended
                                               June 30,          June 30,
                                             2007     2006     2007     2006
    

    
    Net Sales                              $258.1   $142.8   $482.8   $275.7
    Cost of products sold                   227.4    116.7    408.6    226.1
          Gross Profit                       30.7     26.1     74.2     49.6
    Selling, general and administrative
     expenses                                21.9     11.8     39.8     26.9
    Gain on sale of woodlands                (1.5)  (122.6)    (2.9)  (122.6)
    Other income - net                       (1.1)    (2.0)    (1.7)    (3.6)
          Operating Income                   11.4    138.9     39.0    148.9
    Interest expense-net                      6.5      4.1     12.5      8.6
          Income From Continuing
           Operations
          Before Income Taxes                 4.9    134.8     26.5    140.3
    Provision for income taxes                1.6     50.6      8.0     52.7
          Income From Continuing
           Operations                         3.3     84.2     18.5     87.6
          Loss From Discontinued
           Operations                        (0.7)   (10.9)    (1.2)   (13.4)
          Net Income                         $2.6    $73.3    $17.3    $74.2
    

    
    Earnings Per Common Share:
    Basic
          Continuing Operations             $0.22    $5.71    $1.25    $5.94
          Discontinued Operations           (0.04)   (0.74)   (0.08)   (0.91)
                                            $0.18    $4.97    $1.17    $5.03
    Diluted
          Continuing Operations             $0.22    $5.68    $1.22    $5.91
          Discontinued Operations           (0.05)   (0.74)   (0.08)   (0.90)
                                            $0.17    $4.94    $1.14    $5.01
    

    
    Weighted Average Common
          Shares Outstanding (000s)
          Basic                            14,857   14,747   14,835   14,745
          Diluted                          15,221   14,826   15,124   14,812
    



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

    
    Reconciliation of consolidated operating income to adjusted operating
    income:
    

    
                                           For the                For the
                                     Three Months Ended       Six Months Ended
                                           June 30,              June 30,
                                        2007       2006       2007       2006
    

    
    Operating income                   $11.4     $138.9      $39.0     $148.9
    Subtract: Gain on sale of
     woodlands                          (1.5)    (122.6)      (2.9)    (122.6)
    Operating income adjusted for
     gain on sale of woodlands          $9.9      $16.3      $36.1      $26.3
    

    
    Reconciliation of net income
     to adjusted net income:
    

    
                                           For the                For the
                                      Three Months Ended      Six Months Ended
                                           June 30,              June 30,
                                        2007       2006       2007       2006
    

    
    Net Income                          $2.6      $73.3      $17.3      $74.2
    Add (subtract):
         After-tax gain on sale of
          woodlands                     (0.9)     (75.7)      (1.8)     (75.7)
         Loss from discontinued
          operations, net of tax         0.7       10.9        1.2       13.4
    Net income adjusted for after-
     tax gain on sale of woodlands
     and loss from discontinued
     operations                         $2.4       $8.5      $16.7      $11.9
    



    
    Reconciliation of earnings per
     share to adjusted earnings
     per share:
                                           For the                For the
                                      Three Months Ended      Six Months Ended
                                           June 30,              June 30,
                                        2007       2006       2007       2006
    

    
    Earnings Per Diluted Common
     Share                             $0.17      $4.94      $1.14      $5.01
    Add (subtract):
         After-tax gain on sale of
          woodlands                    (0.06)     (5.11)     (0.12)     (5.11)
         Loss from discontinued
          operations, net of tax        0.05       0.74       0.08       0.90
    

    
    Earnings per diluted common
     share adjusted for after-tax
     gain on sale of woodlands and
     loss from discontinued
     operations                        $0.16      $0.57      $1.10      $0.80
    

    
    Notes:
         In accordance with generally accepted accounting principles in the
         United States ("GAAP"), reported net income and earnings per diluted
         share include the after-tax effects of discontinued operations and
         unusual and non-recurring items. In addition, report
    



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

    
                                               For the           For the
                                          Three Months Ended Six Months Ended
                                                June 30,          June 30,
    Business Segment Data                    2007     2006     2007     2006
    

    
    Net Sales:
      Fine Paper                           $103.6    $57.3   $175.9   $115.4
      Technical Products                    102.5     33.8    203.2     66.8
      Pulp                                   52.0     52.1    104.0     95.2
      Intersegment Sales                       -      (0.4)    (0.3)    (1.7)
         Consolidated                      $258.1   $142.8   $482.8   $275.7
    

    
    Operating Income (Loss):
      Fine Paper                            $13.2    $15.5    $25.6    $31.1
      Technical Products                      8.7      2.9     18.9      4.9
      Pulp                                   (6.1)   123.1      1.9    119.5
      Unallocated corporate expenses         (4.4)    (2.6)    (7.4)    (6.6)
         Consolidated                       $11.4   $138.9    $39.0   $148.9
    



    Balance Sheet Data                       June 30, 2007   December 31,
2006

    
    Cash and cash equivalents(1)                      $1.1                $1.6
    Adjusted working capital(2)                      154.0                92.6
    Total debt                                       346.9               283.6
    Stockholders' equity                             225.4               184.9
    Total assets                                     911.0               744.7
    


    
                                             For the Six Months Ended June 30,
    Cash Flow Data                                             2007     2006
    Cash provided by operating activities                     $21.6    $44.5
    Depreciation and amortization                              22.0     13.7
    Stock-based compensation                                    3.5      2.7
    Capital expenditures                                       23.6      9.9
    Pension contributions(3)                                    3.9      5.4
    

    
    Notes:
    (1)  Excludes restricted cash of $5.8 million at June 30, 2007
    (2)  Adjusted working capital consists of all current assets and current
         liabilities, net of cash (including restricted cash) and debt payable
         within one year.
    (3)  Cash contributions to pension trusts.
    




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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