Neenah Paper Reports $9.1 Million Loss
Friday, March 13, 2009
Press release from the issuing companyALPHARETTA, Ga. -- Neenah Paper, Inc. today reported a loss from continuing operations for the fourth quarter of 2008 of $67.0 million, or $4.58 per diluted common share, including after-tax charges of $54.0 million, or $3.69 per diluted common share, related to the impairment of German goodwill and $3.9 million, or $0.27 per share, to increase current tax expense to reflect limitations on tax benefits associated with the Fox River acquisition.
Excluding these items, the company generated an adjusted loss from continuing operations of $9.1 million, or $0.62 per diluted common share, compared with income from continuing operations of $1.4 million, or $0.09 per diluted common share, in the fourth quarter of 2007. Consolidated net sales of $147 million in the fourth quarter 2008 was comparable to $193 million of sales in the same prior year period, as deteriorating global economic conditions led to lower market demand and reductions in customer inventory levels.
Commenting on results, Sean Erwin, Chairman and Chief Executive Officer, said, "With significant and rapid declines in market demand in the fourth quarter, we moved quickly and took actions to reduce spending and maximize cash flow. Consequently, despite the earnings loss and our $8 million semi- annual bond interest payment, we still generated free cash flow of more than $6 million and paid down debt by $9 million. Without our pulp business, Neenah Paper is clearly better positioned to handle the current economic turmoil. Although we did not see much benefit in the fourth quarter, input costs for pulp, latex and energy did begin to decline. We expect to realize much more significant benefits from this in 2009, along with additional savings from our spending reductions. Our balance sheet remains manageable, and we continue to have adequate liquidity with no significant financing requirements in the near term. Most importantly, we have the right teams and resources in place and are executing strategies that have made us a leader in the markets we serve, and that will bring value to our customers and to our shareholders."
Quarterly Segment and Other Financial Results
Fine Paper fourth quarter 2008 net sales of $72 million declined from $95 million in 2007. Decreased sales in 2008 were due to lower shipments, primarily as a result of weaker market demand for premium writing, text and cover papers. Operating income was $1.2 million in the fourth quarter of 2008 and $11.7 million in the fourth quarter of 2007. The decline in 2008 is due to lower volumes, $3 million of higher raw material and energy prices, and approximately $4 million of additional costs for mill downtime. These items were partly offset by increased selling prices, reductions in spending and other operational efficiencies.
Technical Products net sales of $74 million in the fourth quarter of 2008 decreased from $98 million in the fourth quarter of 2007. The decline in sales resulted primarily from lower volumes due to weaker end-use demand and reductions in customer inventory levels. A three percent decline in sales due to currency translation from a weaker Euro was more than offset by higher global selling prices and an improved sales mix. The reported fourth quarter 2008 operating loss of $60.5 million included the $54.5 million impairment charge. Without this charge, the adjusted operating loss of $6.0 million compared with operating income of $2.6 million in 2007. In addition to the impairment charge, reasons for the decline in 2008 include more than $6 million of additional costs for market-related downtime, $3 million of higher input costs, lower volumes and one-time write-offs. These items were partly offset by higher selling prices, increased manufacturing efficiencies in North America and reductions in spending.
Consolidated selling, general and administrative (SG&A) expense of $19.8 million in the fourth quarter 2008 was below the prior year level of $21.0 million due to targeted spending reductions. Unallocated corporate expense was $4.4 million in the fourth quarter of 2008 and $8.3 million in the fourth quarter of 2007. Unallocated expense included $0.5 million in 2008 for long- term disability costs related to Terrace Bay retirees and $5.3 million charged to Other (Income)/Expense in 2007 for settlement of litigation associated with Terrace Bay retirees.
Net interest expense of $6.4 million in the fourth quarter of 2008 was similar to $6.3 million in the prior year, as lower interest rates in 2008 offset higher debt levels. The quarterly and full year effective tax rates reflect the impact of the non deductible goodwill impairment and other charges in 2008 and a reduction in deferred tax expense in 2007 following a German statutory rate decrease.
Stockholders' equity in the fourth quarter of 2008 was reduced by an after-tax adjustment of $17 million to reflect a net increase in the Company's liabilities for pension plans, primarily as a result of a decline in plan assets in 2008. This decline in plan assets resulted from losses incurred on plan investments in global debt and equity markets.
Cash provided by operating activities was $12.9 million in the fourth quarter of 2008, primarily as a result of decreases in working capital generated by reducing operating schedules and the lower sales volumes. Capital spending was $6.4 million in the quarter. The net available cash flows were used to pay down $9 million of debt in the quarter.
Full Year Results
As a result of the decline in the fourth quarter, full year net sales fell from $767 million in 2007 to $732 million in 2008. Excluding the previously mentioned unusual charges for goodwill impairment and tax expense in 2008 and a $0.58 per share benefit from a reduction in deferred tax expense in 2007 following a German statutory rate change, adjusted earnings per diluted common share from continuing operations were $0.73 in 2008 and $1.55 in 2007. For the same periods, GAAP earnings (loss) per diluted common share were $(3.23) in 2008 and $2.13 in 2007. Lower earnings in 2008 resulted from higher input prices, lower volumes and additional costs for downtime that offset benefits from higher selling prices, lower SG&A spending and improved mill efficiencies.
Discontinued operations include results from the Company's divested pulp mills and its remaining timberlands operation. Net losses from discontinued operations in the fourth quarter of 2008 were $0.7 million and $23.9 million for the same period in 2007. Losses in the fourth quarter 2008 were due to adjustments in tax expense; results in 2007 included a noncash charge of $23.9 million for final settlement of the Ontario pension plan.
For the full year, net losses from discontinued operations were $111.2 million in 2008 and included $107.6 million of primarily noncash charges related to the write-down of assets and recognition of a loss on the sale of the Pictou pulp mill. In 2007, net losses were $22.0 million, primarily as a result of the previously mentioned fourth quarter charge for settlement of the Ontario pension plan.
The company noted certain assumptions for 2009, as follows:
-- Lower net sales and higher costs for downtime in the first half of 2009
-- Significant benefits from input cost deflation for pulp, energy, latex
and other raw materials.
-- Reductions in operating expenses from cost savings initiatives of $10
-- Capital spending decrease to $15 million, following key investments in
capabilities and systems made over the past few years.
-- Increased pension expense of approximately $4 million as a result of
lower asset returns in 2008. Required cash contributions similarly
increase from $7 million in 2008 to $11 million in 2009.
-- No cash tax payments on North American income due to use of existing
operating losses. Cash refund of approximately $11 million tax payments
in prior years.
-- Quarterly dividend of $0.10 per share.
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