ALPHARETTA, Ga., May 7 /PRNewswire-FirstCall/ -- Neenah Paper, Inc. ( NYSE:NP ) today reported income from continuing operations for the first quarter 2008 of $8.5 million, or $0.57 per diluted common share, compared with income from continuing operations of $10.1 million, or $0.67 per diluted common share for the first quarter of 2007. Consolidated net sales of $206 million in the first quarter of 2008 increased 19 percent compared with the first quarter of 2007, primarily due to increased fine paper volumes following the acquisition of Fox River in March 2007. Operating income of $17.9 million in the first quarter of 2008 declined compared to income of $19.4 million in the first quarter of 2007, principally due to increases in manufacturing input costs that offset benefits of higher selling prices and operational efficiencies.

Following a decision in February 2008 to commit to a plan to sell both the company's Pictou pulp mill and its Nova Scotia timberland assets, results for these operations have been reported as discontinued operations in all periods. In the first quarter of 2008, the net loss from discontinued operations was $81.4 million, or $5.46 per diluted common share, principally due to after-tax charges of $80.3 million, or $5.38 per diluted common share, for impairment of Pictou pulp mill assets and recognition of the estimated loss on disposal of the mill. Net income from discontinued operations of $4.6 million, or $0.31 per diluted common share, was reported in the first quarter of 2007.

Fine Paper first quarter 2008 net sales of $97.0 million increased 34 percent, from $72.3 million in 2007, primarily due to higher volumes from the acquisition of Fox River. Operating income was $10.0 million in the first quarter of 2008 and $12.4 million in the first quarter of 2007. The first quarter 2008 included almost $1 million of incremental costs related to the Fox River integration. In addition, increased costs for fiber and energy and a less favorable sales mix in the first quarter of 2008 offset the benefit of higher volumes, increased selling prices and improved operational efficiencies resulting from the Fox River acquisition.

Technical Products net sales were $108.6 million in the first quarter of 2008, an eight percent increase compared to the first quarter of 2007. The increase in sales was primarily due to favorable currency translation effects as a result of the strengthening of the Euro versus the U.S. Dollar, as well as higher selling prices and a more favorable sales mix. Volume growth in filtration and abrasives was offset by declines in other product categories as a result of reduced exports from Germany due to the strong Euro, intentional cutbacks in selected lower margin grades, and generally weaker economic conditions. Operating income for the first quarter of 2008 was $8.1 million, compared to $10.2 million in the first quarter of 2007. The reduction in income was primarily due to higher manufacturing input costs and lower volumes that offset the benefits of increased selling prices, a more profitable sales mix, favorable currency translation and improved operations at the company's mill in Munising, Michigan.

Unallocated corporate and other expenses were $0.2 million in the first quarter of 2008 and $3.2 million in the first quarter of 2007. Results in 2008 include Other Income of $4.3 million for the accelerated recognition of lower future employee benefit liabilities for Terrace Bay retirees. For both periods, unallocated corporate expenses now include costs of approximately $3 million per year previously allocated to the pulp segment before pulp was reclassified as discontinued operations.

Consolidated selling, general and administrative (SG&A) expense was $21.2 million in the first quarter of 2008, compared to $17.1 million in the first quarter of 2007. Increased SG&A in 2008 was primarily due to added expenses associated with the Fox River acquisition.

Net interest expense of $6.2 million in the first quarter of 2008 increased slightly from $6.0 million in the first quarter of 2007. Debt increased compared to year-end levels as a result of borrowings to finance share repurchases associated with the Reverse/Forward stock split, payment to settle litigation related to Terrace Bay retiree benefits, and other operational needs. Effective tax rates for continuing operations in the first quarter were 27 and 25 percent in 2008 and 2007, respectively.

Discontinued Operations

Pulp net sales in the first quarter of 2008 were $50.8 million, compared with $52.0 million in the same period of 2007. Lower volumes, primarily due to timing, offset the benefit of increased selling prices. Operating losses from discontinued operations were $131.8 million, including $130.0 million in pre-tax charges for the impairment and expected losses on the sale of the Pictou mill. In the first quarter of 2007, operating income from discontinued operations was $7.4 million. Excluding charges in 2008 for the aforementioned impairment and loss on sale of Pictou, operating results for pulp declined approximately $9 million as a result of higher fiber and other input costs and reduced gains on foreign currency transactions and timberlands sale amortization. Benefits of higher year-on-year selling prices in the first quarter were largely offset by the unfavorable impact of a stronger Canadian dollar.

Commenting on results, Sean Erwin, Chairman and Chief Executive Officer said, "The continued rise in costs of raw materials and energy, coupled with slowing economic growth, are clearly impacting current results. To address this, we have intensified our ongoing efforts to reduce costs and are implementing additional selling price increases in both Fine Paper and Technical Products. In addition to short term initiatives, our teams continue to execute plans that will deliver long term value. We are starting to see benefits from the Fox River acquisition and with the recent consolidation of remaining converting and distribution operations, our integration activities are largely complete and we will start to realize additional benefits from these actions going forward. Also, with the expected sale of Pictou and changes in timing of other projects, capital spending in 2008 is now forecast to be $35 million, down from $45 million previously estimated."

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 .

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

                                        For the Three Months Ended March 31,
                                                   2008              2007

  Net Sales                                       $205.6            $172.7
  Cost of products sold                            171.4             137.2
     Gross Profit                                   34.2              35.5
  Selling, general and administrative
   expenses                                         21.2              17.1
  Other income - net                                (4.9)             (1.0)
     Operating Income                               17.9              19.4
  Interest expense-net                               6.2               6.0
     Income From Continuing Operations Before
      Income Taxes                                  11.7              13.4
  Provision for income taxes                         3.2               3.3
     Income From Continuing Operations               8.5              10.1
     Income (Loss) From Discontinued Operations
      - net                                        (81.4)              4.6
     Net Income (Loss)                            $(72.9)            $14.7


  Earnings (Loss) Per Common Share:
  Basic
     Continuing Operations                         $0.58             $0.68
     Discontinued Operations                       (5.52)             0.31
     Basic                                        $(4.94)            $0.99

  Diluted
     Continuing Operations                         $0.57             $0.67
     Discontinued Operations                       (5.46)             0.31
     Diluted                                      $(4.89)            $0.98


  Weighted Average Common
     Shares Outstanding (000s)
     Basic                                        14,765            14,790

     Diluted                                      14,912            15,005



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

                                        For the Three Months Ended March 31,
  Business Segment Data                             2008              2007

  Net Sales:
     Fine Paper                                    $97.0             $72.3
     Technical Products                            108.6             100.7
     Intersegment Sales                                -              (0.3)
              Consolidated Total                  $205.6            $172.7

  Operating Income:
     Fine Paper                                    $10.0             $12.4
     Technical Products                              8.1              10.2
     Unallocated corporate expenses                 (0.2)             (3.2)
              Consolidated Total                   $17.9             $19.4


  Balance Sheet Data                       March 31, 2008  December 31, 2007
  Cash and cash equivalents                         $1.5              $2.4
  Adjusted working capital(1)                      119.8             126.9
  Total debt                                       360.2             332.1
  Stockholders' equity                             220.6             288.0
  Total assets                                     928.1             932.8


                                       For the Three Months Ended March 31,
  Cash Flow Data                                    2008              2007
  Cash provided by (used in) operating
   activities                                     $(10.4)             $0.4
  Depreciation and amortization                     11.6              11.0
  Amortization of stock-based compensation           1.3               1.7
  Capital expenditures                               7.1               6.2
  Pension contributions(2)                           3.2               1.9

  Notes:
  1 - Adjusted working capital consists of all current assets and current
      liabilities, net of cash, debt payable within one year and current
      deferred income taxes.
  2 - Cash contributions to pension trusts.

Source: Neenah Paper, Inc.