ALPHARETTA, Ga., March 12 -- Neenah Paper, Inc. 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.
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