ALPHARETTA, Ga., Aug. 11 -- Neenah Paper, Inc. today reported income from continuing operations for the second quarter 2008 of $6.2 million, or $0.42 per diluted common share, compared with income from continuing operations of $7.4 million, or $0.49 per diluted common share, for the second quarter of 2007. Consolidated net sales of $195 million in the second quarter of 2008 decreased six percent compared with the second quarter of 2007, as increased sales in Technical Products were offset by a decline in Fine Paper revenues.

Results for discontinued operations include the company's Pictou pulp mill, which was sold on June 24, 2008, and the company's timberlands holdings. In the second quarter of 2008, the loss from discontinued operations was $30.6 million, including an after-tax loss on disposal of $27.1 million, primarily for a non-cash charge to recognize deferred costs related to pensions. Excluding the loss on disposal, losses from discontinued operations were $3.5 million in the second quarter of 2008 and $4.8 million in the second quarter of 2007.

Commenting on results, Sean Erwin, Chairman and Chief Executive Officer said, "While combined costs for raw materials and energy in the quarter increased $9 million compared with last year, we were able to offset more than half of this through higher pricing across our entire portfolio and improved mill efficiencies, including important benefits realized from the Fox River acquisition. We also continue to achieve significant volume growth in key products, such as filtration, abrasives and environmental fine papers, the last despite an unusually large decline in the uncoated free sheet market. With the sale of Pictou in June, we have essentially exited pulp and expect benefits from improved cash flows and return on capital. We have now turned our attention to realizing the substantial value from our timberland holdings in Nova Scotia."

Fine Paper second quarter net sales of $85 million in 2008 declined from $104 million in 2007, primarily due to a decrease in shipments. The lower volume reflected a double digit decline in market demand for premium uncoated free sheet products and intentional elimination of marginal business following the March 2007 Fox River acquisition. Fox River integration activities were completed in the quarter with the consolidation of finishing and distribution operations in Wisconsin. Operating income was $11.7 million in the second quarter of 2008 and $13.2 million in the second quarter of 2007. The reduction in income was primarily due to lower volumes. Input cost increases of approximately $6 million were largely offset by improved manufacturing efficiencies and higher net prices. Operating results in the quarter also included a gain on the sale of the Urbana, Ohio mill and costs of an unplanned maintenance down.

Technical Products net sales of $110 million in the second quarter of 2008 compared to second quarter 2007 net sales of $102 million. The increase was due to the impact of foreign currency translation and higher net prices that were partly offset by lower overall volumes. While volumes grew significantly in filtration and abrasives, these gains were offset by lower export sales of tape due to the strong Euro and declines in other categories resulting from deliberate reductions of unprofitable grades and timing of certain orders. Operating income for the second quarter of 2008 was $6.0 million, compared to $8.7 million in the second quarter of 2007. Manufacturing input price increases of almost $3 million were partly offset by higher selling prices. Other manufacturing costs were higher in the quarter, as significantly improved operations at the Munising, Michigan mill were more than offset in Germany as a result of planned downtime and start up costs following capital investments.

Unallocated corporate and other expenses were $3.5 million in the second quarter of 2008 and $3.7 million in the second quarter of 2007. Total selling, general and administrative expense was $17.6 million in the second quarter of 2008 and $21.1 million in the second quarter of 2007, reflecting targeted reductions in spending in most areas.

Net interest expense of $6.1 million in the second quarter of 2008 decreased from $6.6 million in the second quarter of 2007 as a result of lower interest rates. Effective tax rates in the second quarter were 23 and 36 percent in 2008 and 2007, respectively. The lower rate in 2008 reflects a reduction in statutory rates in Germany following a tax law change.

Discontinued Operations

Net sales for discontinued operations in the second quarter of 2008 were $48 million, compared with $52 million in the same period of 2007. Lower sales volumes were partially offset by higher market prices for softwood pulp. Pre- tax losses of discontinued operations were $52.8 million of which $43.9 million was for losses related to the sale of the mill, primarily for a non- cash charge to recognize deferred pension costs. Second quarter losses from operations were $8.9 million in 2008 and $7.8 million in 2007. Both periods included costs for the Pictou mill annual maintenance down.

Year to Date

For the first six months, consolidated net sales from continuing operations were $400 million in 2008 and $379 million in 2007. Increased revenues in 2008 resulted from the Fox River acquisition in March 2007, increased Technical Products sales due to the impact of foreign currency translation and an improved mix, and higher selling prices in all segments. Earnings from continuing operations were $0.99 per diluted common share in the first six months of 2008, compared to $1.16 per diluted common share in the prior year. Lower earnings in 2008 reflect significantly higher input costs that were partly offset by selling price increases, manufacturing efficiencies and reductions in other expenses.

Year to date net sales from discontinued operations were $99 million in 2008 and $104 million in 2007. Losses from discontinued operations were $112 million in 2008 and $0.2 million in 2007. In 2008, losses included $108 million to write down the assets to net realizable value and recognize the loss on the disposal of the mill. Excluding this charge, higher losses in 2008 resulted primarily from increased costs of fiber, energy and other raw materials, partly offset by lower taxes.