Wausau Paper Announces Second-Quarter Results

MOSINEE, Wis.–(BUSINESS WIRE)–July 28, 2008–Wausau Paper (NYSE:WPP) today reported a net loss for the second quarter of $9.6 million, or $0.20 per share, compared with net earnings of $4.8 million, or $0.09 per share, in the previous year. Net sales declined 4 percent to $305.2 million, as shipments decreased 14 percent to 205,000 tons due primarily to anticipated volume reductions at Printing & Writing associated with the December 2007 closure of the Groveton, New Hampshire paper mill.

This year’s second-quarter results include after-tax charges of $8.8 million, or $0.18 per share, related to the closure of the Groveton mill and Specialty Products’ roll wrap operations in Columbus, Wisconsin and Jackson, Mississippi; and timberland sales gains of $0.8 million, or $0.02 per share. Prior-year second-quarter results included an after-tax gain of $1.8 million, or $0.04 per share, from the sale of timberlands. Excluding these items, adjusted second-quarter 2008 operating losses were $1.6 million, or $0.03 per share, compared with earnings of $2.9 million, or $0.06 per share last year.

For the first half of 2008, Wausau Paper reported a net loss of $16.4 million, or $0.33 per share, compared with net earnings of $19.7 million, or $0.39 per share, during the comparable period in 2007. Results for the current year included after-tax timberland sales gains of $2.1 million, or $0.04 per share, and after-tax charges of $13.7 million, or $0.28 per share, related to the closure of the Groveton mill and roll wrap operations in Columbus and Jackson. Year-ago six-month results included after-tax timberland sales gains of $2.2 million, or $0.04 per share, and one-time state tax benefits of $11.6 million, or $0.23 per share, related to the January 1, 2007 restructuring of the company’s subsidiaries. Excluding these items, adjusted losses for the first half of 2008 were $4.7 million, or $0.10 per share, compared with earnings of $5.8 million, or $0.11 per share, last year. Adjusted earnings are a non-GAAP measure and are reconciled to GAAP earnings below.

                                        3 Months Ended  6 Months Ended                                            June 30         June 30                                        --------------- ---------------                                         2008    2007    2008    2007                                        ------- ------- ------- -------  GAAP Net (Loss) Earnings Per Share     ($0.20) $ 0.09  ($0.33) $ 0.39    Gain on Sale of Timberlands          (0.02)  (0.04)  (0.04)  (0.04)    Facility Closure Charges              0.18       -    0.28       -    Tax Restructuring Benefit                -       -       -   (0.23)                                         ------- ------- ------- ------- Adjusted Operating (Loss) Earnings Per  Share                                 ($0.03) $ 0.06  ($0.10) $ 0.11                                        ======= ======= ======= =======  Note: Adjusted Operating EPS may not foot due to rounding differences. 

“The economic weakness that became notable late last year accelerated over the first half of 2008, adversely affecting demand in several key markets,” said Thomas J. Howatt, president and CEO. “At the same time, record-high energy and near-record fiber costs pressured margins with those costs rising a combined $37 million through the first half of 2008 over year-ago levels. Nevertheless, progress was evident in the second quarter with results from ongoing operations improving from the first quarter in both our Towel & Tissue and Printing & Writing business segments. This sequential improvement reflected pricing leverage, focused product mix enhancement initiatives in each business, and expected results from the profit recovery plan put into motion late last year by our Printing & Writing unit. These efforts, in combination with strategic investment such as the $31 million machine rebuild at Towel & Tissue’s Middletown, Ohio mill, are expected to drive improved profitability in the quarters ahead and enable us to ultimately achieve targeted profitability.”

Specialty Products reported a second-quarter operating loss of $1.9 million compared with an operating profit of $2.2 million last year. Second-quarter results included $0.1 million of pre-tax facility closure charges related to the fourth-quarter sale of the roll wrap business. Net sales were flat with prior year while shipments declined 7 percent with much of the decline due to reduced roll wrap volumes as the company exits that business and a temporary reduction in operations at the Otis mill in response to demand weakness. “While escalating input costs are the single largest factor impacting this unit’s performance, weak economic conditions in the manufacturing and housing sectors continue to limit overall shipments and mask the growth achieved in targeted product categories such as food service and food packaging papers,” Mr. Howatt commented. “And while recent pricing initiatives are expected to improve operating margins in the near term, our long-term profitability will be driven by new product introductions and our continuing refocus of the business on more profitable growth oriented markets.”

Printing & Writing reported a second-quarter operating loss of $16.6 million compared with a loss of $2.3 million last year while net sales and shipments declined 16 percent and 29 percent, respectively, due primarily to the Groveton closure. Second-quarter results included pre-tax Groveton mill closure charges of $13.8 million, consisting primarily of expenses related to utility agreements at the now-closed facility. “The improvement in results at Printing & Writing is in line with the timetable we established with our profit recovery plan as losses in the second-quarter, excluding Groveton closure charges, narrowed considerably from first-quarter levels,” Mr. Howatt said. “We remain on pace to return Printing & Writing to profitable levels in the third quarter despite a significant decline in uncoated free sheet demand and a further escalation of input costs. Our move to a two-mill manufacturing system has allowed us to focus on core color and premium products while the recently announced $15 million capital investment in our Brokaw, Wisconsin mill will significantly improve its efficiency and cost structure. These initiatives are important components of our recovery plan and essential to achieving cost-of-capital returns by the end of 2009.”

Towel & Tissue reported second-quarter operating profits of $8.3 million compared with operating profits of $11.3 million last year, reflecting the impact of sharp year-over-year increases in fiber and energy costs. Net sales and shipments increased 9 percent and 4 percent, respectively. “Although second-quarter profitability fell below prior-year levels, operating margins improved from the first quarter as selling price increases offset rising input costs,” Mr. Howatt noted. “The ‘away-from-home’ market remains in balance and widely supported third-quarter price increases add to our expectation that we’ll achieve additional margin improvement in the second half of 2008. The fundamentals of our business remain strong with higher-margin, value-added product shipments increasing 8 percent through the first half of the year despite flat market demand. Additionally, the rebuild of our towel machine in Middletown is on schedule for completion in the first quarter of 2009 and will increase annual production capacity by 16,000 tons while reducing overall costs.”

The company sold approximately 900 acres of timberlands in the second quarter, continuing progress on its program to sell 42,000 acres of non-strategic timberlands. A total of 19,500 acres remains in the sales program. Also during the second quarter the company repurchased 480,000 shares of common stock at a cost of $4.0 million, and has approximately 2 million shares remaining under a February 12, 2008 board authorization.

Discussing the third-quarter outlook, Mr. Howatt said, “We expect the economic weakness experienced in the first half of 2008 to extend into the second half of the year while fiber and energy prices are likely to remain at elevated levels. Even so, recent pricing initiatives, progress with Printing & Writing’s profit recovery plan, and mix initiatives within Specialty Products and Towel & Tissue are creating a measure of earnings momentum. As a result, we expect third-quarter results to improve meaningfully over the second quarter with earnings in the range of $0.06 – $0.08 per share excluding timberland sales gains and charges related to the Groveton mill closure. On the same basis, third-quarter 2007 earnings were $0.09 per share.”

Wausau Paper’s second-quarter conference call is scheduled for 11:00 a.m. EDT on Tuesday, July 29, and can be accessed through the company’s Web site at www.wausaupaper.com under “Investor Information.” A replay of the webcast will be available at the same site through August 5.

About Wausau Paper:

Wausau Paper, with record revenues of more than $1.2 billion in fiscal 2007, produces and markets fine printing and writing papers, technical specialty papers, and “away-from-home” towel and tissue products. To learn more about Wausau Paper visit: http://www.wausaupaper.com.

Safe Harbor under the Private Securities Litigation Reform Act of 1995: The matters discussed in this news release concerning the company’s future performance or anticipated financial results are forward-looking statements and are made pursuant to the safe harbor provisions of the Securities Reform Act of 1995. Such statements involve risks and uncertainties which may cause results to differ materially from those set forth in these statements. Among other things, these risks and uncertainties include the strength of the economy and demand for paper products, increases in raw material and energy prices, manufacturing problems at company facilities, and other risks and assumptions described under “Information Concerning Forward-Looking Statements” in Item 7 and in Item 1A of the company’s Form 10-K for the year ended December 31, 2007. The company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events.

                                Wausau Paper               Interim Report - Quarter Ended June 30, 2008    (in thousands, except per share amounts)     Condensed Consolidated    Statements of Operations    Three Months           Six Months    (unaudited)                Ended June 30,        Ended June 30,                             ------------------- ----------------------                               2008      2007      2008        2007                             --------- --------- --------- ------------   Net sales                 $305,211  $317,235  $603,929     $616,628   Cost of sales              283,442   285,230   568,225      556,537                             --------- --------- --------- ------------   Gross profit                21,769    32,005    35,704       60,091   Selling & administrative    expenses                   21,708    21,378    42,663       42,180   Restructuring               12,815         -    13,961            -                             --------- --------- --------- ------------   Operating (loss) profit    (12,754)   10,627   (20,920)      17,911   Interest expense            (2,510)   (2,850)   (5,331)      (5,657)   Other income, net               57       126       241          332                             --------- --------- --------- ------------   (Loss) earnings before    income taxes              (15,207)    7,903   (26,010)      12,586   (Credit) provision for    income taxes               (5,627)    3,150    (9,624)      (7,132)                             --------- --------- --------- ------------    Net (loss) earnings       $ (9,580) $  4,753  $(16,386)    $ 19,718                             ========= ========= ========= ============    Net (loss) earnings per    share (basic and diluted)$  (0.20) $   0.09  $  (0.33)    $   0.39                             ========= ========= ========= ============   Weighted average shares    outstanding-basic          49,020    50,675    49,290       50,710                             ========= ========= ========= ============   Weighted average shares    outstanding-diluted        49,020    51,034    49,290       51,067                             ========= ========= ========= ============    Condensed Consolidated Balance    Sheets (Note 1)                              June 30,  December 31,                                                   2008        2007                                                 --------- ------------   Current assets                                $257,729     $274,350   Property, plant, and    equipment, net                                399,054      413,296   Other assets                                    57,735       56,551                                                 --------- ------------        Total Assets                             $714,518     $744,197                                                 ========= ============    Current liabilities                           $149,854     $161,428   Long-term debt                                 152,300      139,358   Other liabilities                              165,419      162,496   Stockholders' equity                           246,945      280,915                                                 --------- ------------        Total Liabilities and         Stockholders' Equity                    $714,518     $744,197                                                 ========= ============      Condensed Consolidated    Statements of Cash Flow                            Six Months    (unaudited)                                      Ended June 30,                                                 ----------------------                                                   2008        2007                                                 --------- ------------   Net cash provided by    operating activities                         $  8,706     $ 12,461                                                 --------- ------------    Cash flows from investing    activities:        Capital expenditures                      (14,362)     (13,132)   Proceeds from property, plant, and    equipment disposals                             4,093        4,089                                                 --------- ------------   Net cash used in investing    activities                                    (10,269)      (9,043)                                                 --------- ------------    Cash flows from financing    activities:        Net issuances of         commercial paper                          10,350            -        Net borrowings under         credit agreement                           3,000            -   Payments under capital lease    obligation and note payable                       (84)        (114)        Dividends paid                             (8,422)      (8,627)   Excess tax benefits related to    share-based compensation                            -           35        Payments for purchase         of company stock                          (8,496)      (1,733)                                                 --------- ------------   Net cash used in financing    activities                                     (3,652)     (10,439)                                                 --------- ------------         Net decrease in cash         & cash equivalents                      $ (5,215)    $ (7,021)                                                 ========= ============   Note 1. Balance sheet amounts at June 30, 2008, are unaudited. The          December 31, 2007, amounts are derived from audited financial          statements. Note 2. In September 2006, the Financial Accounting Standards Board          ("FASB") issued Statement of Financial Accounting Standards          No. 158, "Employers' Accounting for Defined Benefit Pension          and Other Postretirement Benefit Plans" ("SFAS 158"), which          requires that we recognize in our financial statements the          overfunded or underfunded status of a defined benefit post-          retirement plan as an asset or liability and to recognize          changes in that funded status in the year in which the          changes occur through comprehensive income. SFAS 158 also          requires the measurement date of the funded status of a plan          as of the date of the year end financial statements. The          recognition provisions of SFAS 158 were adopted on December          31, 2006. We adopted the measurement date provisions on          January 1, 2008, which resulted in an increase in our          liabilities for defined benefit pension and post-retirement          plans of $2.9 million, an increase in deferred tax assets of          $1.0 million, an after-tax increase to accumulated other          comprehensive income of $0.4 million, and an after-tax charge          to retained earnings of $2.3 million. Note 3. In December 2007, the roll wrap portion of our Specialty          Products' business was sold to Cascades Sonoco, Inc. We          continued to manufacture roll wrap and related products for          the buyer during a post-closing transition period that          expired on July 2, 2008. Pre-tax restructuring expense          related to severance and benefit continuation costs and other          associated closure costs for the three and six months ended          June 30, 2008, was $0.1 million and $0.4 million,          respectively. At the conclusion of the post-closing          transition period, we have retained and intend to sell the          real property at the roll wrap production facilities.          Additional pre-tax closure charges of approximately $0.1          million are expected to be incurred during the remainder of          2008. Note 4. In October 2007, we announced plans to cease Printing &          Writing's papermaking operations at our Groveton, New          Hampshire mill. Papermaking operations ceased in December          2007, and the majority of the papermaking assets were          abandoned. The closure resulted in the elimination of          approximately 300 permanent jobs. The cost of sales for the          three and six months ended June 30, 2008, includes $1.1          million and $7.9 million, respectively, in pre-tax charges          for depreciation on assets and other associated closure          costs. Pre-tax restructuring expense related to severance and          benefit continuation costs and other associated closure costs          was $12.7 million and $13.5 million, respectively, for the          three and six months ended June 30, 2008. Additional pre-tax          closure charges of approximately $2.1 million are expected to          be incurred during the remainder of 2008. Note 5. On January 1, 2007, we adopted FASB Interpretation No. 48,          "Accounting for Uncertainty in Income Taxes - an          interpretation of FASB Statement 109" ("FIN 48"). FIN 48          defines the threshold for recognizing the benefits of tax          return positions in the financial statements as "more-likely-          than-not" to be sustained by the taxing authority. The          literature provides guidance on the derecognition,          measurement and classification of income tax uncertainties,          along with any related interest and penalties. FIN 48 also          includes guidance concerning accounting for income tax          uncertainties in interim periods and increases the level of          disclosures associated with any income tax uncertainties. The          adoption of FIN 48 did not have a significant impact on our          financial statements. Note 6. Effective January 1, 2007, we reorganized the various          subsidiaries which comprised our operating segments to align          more closely with our operating structure. Each segment is          now organized as a single member limited liability company          and operates as a direct subsidiary of Wausau Paper Corp. The          new structure allowed us to utilize state net operating loss          and credit carryovers of certain subsidiaries for which full          valuation allowances had been previously established due to          the fact that separate state tax returns were filed under our          previous structure. In the first quarter of 2007, we recorded          state income tax benefits of $12.0 million, or $0.24 per          basic and diluted share, primarily as a result of the          reversal of these valuation allowances. In the second quarter          of 2007, we recorded state income tax charges of $0.4          million, or $0.01 per basic and diluted share, as a result of          the recognition of a change in our effective state tax rate          from our previous tax structure to our single member limited          liability company tax structure. Note 7. Interim Segment Information         Our operations are classified into three principal reportable          segments: Specialty Products, Printing & Writing, and Towel &          Tissue, each providing different products. Separate          management of each segment is required because each business          unit is subject to different marketing, production, and          technology strategies.          Specialty Products produces specialty papers at its          manufacturing facilities in Rhinelander, Wisconsin; Mosinee,          Wisconsin; and Jay, Maine. Specialty Products also includes          two converting facilities that produce laminated roll wrap          and related specialty finishing and packaging products (see          Note 3). Printing & Writing produces a broad line of premium          printing and writing grades at manufacturing facilities in          Brokaw, Wisconsin; and Brainerd, Minnesota. The Printing &          Writing 2007 interim segment information also includes a          manufacturing facility in Groveton, New Hampshire, which          ceased papermaking operations in December 2007 (see Note 4).          Printing & Writing also includes a converting facility that          converts printing and writing grades. Towel & Tissue produces          a complete line of towel and tissue products that are          marketed along with soap and dispensing systems for the          "away-from-home" market. Towel & Tissue operates a paper mill          in Middletown, Ohio and a converting facility in Harrodsburg,          Kentucky.     Asset information, sales, operating profit, and other significant    items by segment is as follows:    (in thousands, except ton    data)                                        June 30,  December 31,                                                   2008        2007                                                 --------- ------------   Segment assets (Note 1)         Specialty Products                      $304,086     $305,083         Printing & Writing                       183,328      205,349         Towel & Tissue                           178,073      178,214         Corporate &          Unallocated(a)                           49,031       55,551                                                 --------- ------------                                                 $714,518     $744,197                                                 ========= ============                                 Three Months           Six Months                               Ended June 30,        Ended June 30,                               2008      2007      2008        2007                             --------- --------- --------- ------------    Net sales external     customers (unaudited)         Specialty Products  $125,414  $125,950  $251,609     $249,905         Printing & Writing    95,590   114,159   193,519      220,073         Towel & Tissue        84,207    77,126   158,801      146,650                             --------- --------- --------- ------------                             $305,211  $317,235  $603,929     $616,628                             ========= ========= ========= ============     Operating (loss) profit     (unaudited)         Specialty Products  $ (1,879) $  2,195  $ (2,240)    $  4,868         Printing & Writing   (16,583)   (2,316)  (29,067)      (4,108)         Towel & Tissue         8,315    11,341    14,409       21,034         Corporate &          Eliminations         (2,607)     (593)   (4,022)      (3,883)                             --------- --------- --------- ------------                             $(12,754) $ 10,627  $(20,920)    $ 17,911                             ========= ========= ========= ============    Depreciation, depletion, and    amortization (unaudited)        Specialty Products   $  5,341  $  5,613  $ 10,732     $ 11,274        Printing & Writing      2,360     2,993     9,848        6,064        Towel & Tissue          6,799     5,893    13,549       11,620        Corporate &         Unallocated              213       159       410          321                             --------- --------- --------- ------------                             $ 14,713  $ 14,658  $ 34,539     $ 29,279                             ========= ========= ========= ============    Tons sold (unaudited)       Specialty Products      93,388   100,310   187,850      200,229       Printing & Writing      66,120    93,745   138,683      179,846       Towel & Tissue          45,685    43,798    87,093       84,371                             --------- --------- --------- ------------                              205,193   237,853   413,626      464,446                             ========= ========= ========= ============     (a) Segment assets do not include intersegment accounts receivable,    cash, deferred tax assets, and certain other assets which are not    identifiable with the segments. 
      CONTACT: Wausau Paper              Investor and Media Contact:              Perry Grueber, 715-692-2056              Director Investor Relations              FAX: 715-692-2020              pgrueber@wausaupaper.com      SOURCE: Wausau Paper