What We
Believe
Neenah Paper, Inc. 2009 Annual Report
OUR BELIEFS
GUIDE US
OUR ACTIONS
DEFINE US
2
Neenah Paper, Inc. 2009 Annual Report
Neenah Paper, Inc. is a company of strongly held beliefs.
A belief in our people. A belief in uncompromising service,
product performance and core values including corporate
social responsibility. And a belief that the obstacles of today
can become the opportunities of tomorrow.
In 2009, during a challenging year, we put our beliefs
into action by engaging our employees in implementing
solutions, increasing the value of our services to customers,
and investing in innovative products, processes and
sustainability programs across our global business platform.
These and other decisive actions enabled us to weather
the severe economic downturn and emerge as a company
positioned for the future.
Our results demonstrate that Neenah is not only a company
with strongly held beliefs, but one with the ability and
willingness to act on those beliefs to maintain our value
proposition with both our customers and our shareholders,
despite unprecedented challenges. And those are
qualities in which we can all believe.
Neenah Paper, Inc. 2009 Annual Report
3
We Believe
In Walking
The Walk
4
Neenah Paper, Inc. 2009 Annual Report
Our employees moved quickly to address the challenges of the
past year – demonstrating their responsiveness and flexibility –
resulting in individual actions that made a big collective difference.
SAFE TY FIR ST - AND ALWAYS
Safety remains a core value and primary focus, and a reflection of Neenah’s values.
Working together, our employees contributed to an improvement in the reportable
safety incident rate, to 1.4 incidents per 200,000 hours worked in 2009, down 18% from
1.7 incidents in 2008 and well below the 3.2 average for our industry.
S TEPPING UP
In response to the weak economy, our people suggested and implemented solutions
that enabled us to reduce costs and operate more efficiently while continuing to serve
our customers’ needs. In fact, programs implemented by our teams contributed more
than $20 million in improved year-on-year cash flow. A Suggestion Box program at our
German Technical Products operation resulted in 263 ideas for improvement and initi-
ated teamwork that achieved considerable cost savings. All of our businesses carefully
managed production levels relative to shipping volumes, thus reducing inventory expo-
sure and improving cash flow. In other examples of employee initiative, our sales and
credit personnel worked to accommodate our customers’ cash flow issues while our
purchasing group coordinated payments with suppliers.
HA RD DECI SIONS
In order to achieve a more cost-effi cient fi ne paper manufacturing footprint, we made
the diffi cult decision to shut down our mill in Ripon, California. This resulted in the redis-
tribution and qualifi cation of Ripon grades on our other machines. Our employees across
all of the Fine Paper mills showed their adaptability and determination in this transition
by successfully absorbing the new grades into their product portfolio while maintaining
the quality, service and supply our customers have come to expect of Neenah.
Neenah Paper, Inc. 2009 Annual Report
5
BR IDGETT BELIEVES
IN S OLID LIQUIDITY
B R I D G E T T G E R M A N
A L P H A R E T TA O F F I C E , G A
Knowing that a strong liquidity position is the
lifeblood of any company in a tough year,
Bridgett did a great job of cash forecasting,
modeling various scenarios, enabling us
to anticipate and respond to liquidity needs
and significantly improve our overall
financial metrics.
JIM BELIEVES
IN PLAYING IT SAFE
J I M M A XO N
M U N I S I N G M I L L , M I
Jim brings 31 years of experience at Neenah to his
role as Safety Coordinator. Attentive to his
co-workers’ safety issues, Jim has been a major
force in such advances as lockout systems,
ergonomic improvements in maintenance storage
areas, enhanced training and better fall
protection, to name a few.
6
Neenah Paper, Inc. 2009 Annual Report
JÜRGEN BELIEVES
IN GETTING HI S HANDS DIRTY
MARK BELIEVES
IN THE POWER O F INFO RMATI ON
J Ü R G E N N I E N T I E DT
N E E N A H G E R M A N Y
R&D experts like Jürgen contributed
to the development of a large-scale air filter with
nanofibers, expanding our opportunities in
markets such as construction and mining where
extensive dirt, dust or sand conditions make
heavy duty filters essential.
M A R K B A L KO
M U N I S I N G M I L L , M I
Finding new applications for the
Enterprise Resources Planning (E R P)
system in our operations,
Mark has contributed to improved
efficiencies and reduced costs.
Neenah Paper, Inc. 2009 Annual Report
7
T OM , TODD AND CHRIS BELIEVE
IN A STRONGER CHAI N
TO M L E E – A L P H A R E T TA O F F I C E , G A ,
TO D D O L S O N A N D C H R I S S C H N E I D E R –
N E E N A H S E R V I C E C E N T E R , W I
Contributing to Neenah’s leadership
in supply chain capabilities, Tom, Todd and
Chris helped develop our S P OT
(Strategic Planning and Optimization Tool)
program, scorecards, working
capital guarantee and other customer-
specific programs.
8
Neenah Paper, Inc. 2009 Annual Report
KATHY BELIEVES
THAT FURNITURE IS GO ING
PLACES
K AT H Y J ACO B S O N
M U N I S I N G M I L L , M I
Helping to exploit new market opportunities,
Kathy and the marketing team helped
expand our furniture backing products into
the fast growing Asian market.
Neenah Paper, Inc. 2009 Annual Report
9
JULIE BELIEVES
T HAT LESS IS MORE
J U L I E N E T T
N E E N A H F I N I S H I N G C E N T E R , W I
Julie was instrumental in our effort
to improve our Bill of Materials information,
vendor interaction and quality tracking,
contributing to a 25% reduction
in our finishing supplies inventory.
MICHAEL BELIEVES
IN CUTTING IT CLOSER
M I C H A E L J AG E N T E U F E L
N E E N A H G E R M A N Y
On his own initiative and time,
Michael wrote a software program that allowed
us to reduce setup time for slitter knives
used in the production of filter media; his sharp
thinking led to annual cost savings
of €39,000.
10
Neenah Paper, Inc. 2009 Annual Report
JO HN BELIEVES
IN A TIGHTER SHIP
J O H N R O M
A P P L E TO N / N E E N A H , W I
A detailed analysis of planned
maintenance activities at our Appleton and
Neenah locations, provided by
John and the facilities maintenance team,
was critical in reducing costs while
properly servicing equipment and avoiding
unplanned downtime.
Neenah Paper, Inc. 2009 Annual Report
11
We Believe
Our Name Is
A Promise
12
Neenah Paper, Inc. 2009 Annual Report
Leadership in our categories requires a commitment to making the
best brands and products even better – by ensuring that our
performance and service quality exceed customer expectations and
by continually investing in building a portfolio of strong brands.
COTT ON C ONNEC TION
In 2009, Neenah solidified its lead in premium papers and built its product portfolio
with an agreement to manufacture, market and distribute fine business papers for
Crane & Co. Respected brands such as C R A N E’ S C R E S T ®, C R A N E’ S B O N D ® and C R A N E’ S
L E T T R A® are now sold through Neenah Paper. As a result of our ability to make the high-
est quality cotton papers, we had already been manufacturing for Crane & Co. since
2007. The new agreement was a natural extension of that successful partnership and
secured Neenah’s position as the destination supplier for premium cotton papers.
MAKI NG TH E GRADIENT
Demonstrating its technical proficiency, our Technical Products group is introducing
products using gradient density processes. Gradient density products use a special
sheet formation technology that allows us to employ a different density of fibers from
one side of a sheet to the other to achieve specialized performance characteristics. In
addition, we can use a paper sheet in combination with synthetic materials such as
meltblown nonwovens to build a gradient layer construction. The resulting products
have increased filtration capabilities and bring exciting potential applications to exist-
ing and new markets.
CHANGING T HE CONVERSAT ION
A groundbreaking new micro Web site, www.ColorUnleashed.com, allows customers to
build custom palettes, explore color meanings and find the Neenah papers best-suited
to showcasing their color preference. Another Web site, doyoulovelinen.com, lets cus-
tomers view their images on the background color and texture of C L A S S I C ® Linen
papers, and then order a Personal ProofSM of their work to try before they buy. Both
sites demonstrate fresh thinking on how to reach customers in an ever-changing envi-
ronment, allowing customers to view, experiment with and work with paper online,
then order samples from art they have created – and even see a proof shipped right to
their door.
COAT ING C OMPET ENCY
At our Munising mill, the team improved coating competencies in the area of print coat
dispersion capabilities. Using existing assets, the group expanded and improved its
capability to produce and control our own print coat dispersions. This resulted in sig-
nificantly better quality and performance of coated products, a streamlined and quicker
supply chain and substantial savings from eliminating external processing costs.
Neenah Paper, Inc. 2009 Annual Report
13
T HE NE ENAH
W ISCONSIN MI LL
Paper making is an exacting process –
and no one holds that process to
a higher standard than Neenah Paper.
At our Neenah mill, we combine
the traditional tools of paper making
with technical expertise and
rigorous quality assurance to produce
fine papers worthy of our brand
leadership position.
14
Neenah Paper, Inc. 2009 Annual Report
Neenah Paper, Inc. 2009 Annual Report
15
16
Neenah Paper, Inc. 2009 Annual Report
Neenah Paper, Inc. 2009 Annual Report
17
18
Neenah Paper, Inc. 2009 Annual Report
Neenah Paper, Inc. 2009 Annual Report
19
We Believe
In Pushing
Paper
20
Neenah Paper, Inc. 2009 Annual Report
Neenah invests in innovation to “push” the performance of
our products beyond current limits or to take advantage
of new channels such as social media, increasing our value for
customers and potential market opportunities.
PAP ER ON T HE G O
Neenah leads the way in carrying paper solutions to a mobile environment. Our Think
Ink app lets fine paper customers create custom color palettes by identifying a specific
color within a photo saved to their iPhone or iPod Touch. The Neenah Eco-Calculator
for Blackberry or iPhone allows users to estimate the environmental savings generated
by our papers made with recycled fibers and renewable energy. Other Blackberry apps
include the Neenah Stock List Guide, which provides mobile access to our complete
stocking list of product specifications, carton counts and S K U numbers.
HIGH P ERFO RMANC E PAP ER
Our Technical Products business continues to be known as an innovation leader. For
example, we have combined paper and nonwoven products, or used our state-of-the-art
chemical saturation operations, to deliver specialized features for transportation filter
applications. To ensure that all new products meet or exceed our customers’ stringent
performance requirements, we also maintain advanced internal testing operations.
THE HEAT IS ON
New, specialized applications for heat transfer include I M AG E C L I P ® Laser Dark, which
allows for high quality laser printing on dark or brightly colored surfaces. We also intro-
duced J E T- P R O ®, a process for ink-jet printers that makes it possible to print durable
images on activewear – even stretchable performance fabrics.
HOSPI TAL C ORNERS
Our growing medical packaging business is based on products that meet the stringent
requirements of medical device manufacturers. We have to operate in a tight perfor-
mance window to ensure that our products provide barrier protection, while also
satisfying the needs of rigorous sterilization processes. We are investing in this busi-
ness to develop a growing portfolio of products that meet the ever-increasing
performance requirements in this market.
J EA N POOL
The label on a pair of jeans is the brand’s global billboard, conveying a “brand message”
that may range from toughness to trend-setting. This year, we expanded the availability
of our jeans labels into new geographies and extended the product line with new colors
and weights, responding to jeans manufacturers’ evolving needs.
Neenah Paper, Inc. 2009 Annual Report
21
Liquified Polymer
Meltblown Die
W E BE LIEVE
IN ME LTBLOWN
T ECH NOLOGY
In the meltblown process, heated, high-
velocity air is used to deposit
molten polymer resins onto a substrate
in extremely fine filaments. Neenah’s
Technical Products team has mastered
the use of meltblown technology
to produce filter media with exceptional
performance characteristics.
Substrate
22
Neenah Paper, Inc. 2009 Annual Report
Finished Filter Media
Ultrasonic Bonding
Neenah Paper, Inc. 2009 Annual Report
23
WE BELIEVE THAT
NEW MEDIA CAN BE GOOD
FOR OLD MEDIA
Neenah uses smart technology to deliver
smart paper solutions. By scanning
a barcode with their iPhone, customers
can access our Think Ink app – enabling
them to create custom color palettes
from photos and coordinate their colors
with our fine papers.
Neenah also has over 4,000 followers
on Twitter, who look to our tweets to
keep on top of paper trends.
24
Neenah Paper, Inc. 2009 Annual Report
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We Believe
Sustainability
Is For
The Birds
(and the rest of us, too)
28
Neenah Paper, Inc. 2009 Annual Report
At Neenah, good environmental policies are good business.
As customers demand more eco-friendly solutions, our extensive range
of environmentally responsible products made from sustainably
managed forests, recycled fibers, green-e certified renewable energy,
and carbon neutral papers are a competitive advantage and
sound business practice.
F INE FEAT HER ED F RIEN DS
In 2009, Neenah undertook an initiative to help protect migrating Wisconsin birds wintering
in Costa Rica’s Osa Peninsula by partnering with Friends of the Osa and the Natural
Resources Foundation of Wisconsin to help reforest the peninsula, one of the world’s most
biologically diverse regions. The project will preserve forests and provide a critical habitat
for Costa Rica’s unique wildlife – including Wisconsin birds that winter there. This is just the
latest in Neenah’s history of initiatives to conserve green spaces, which also have included
donations of properties for greenways, nature preserves and other public uses.
MORE (CARB ON NEU TRA L ) IS L ESS (GREE NH OUSE GASE S)
We sell more carbon neutral premium writing, text and cover papers than anyone else
in our industry. Our C L A S S I C ®, E N V I R O N M E N T ® and S TA R W H I T E ® Papers are made with
100% renewable energy and are Green-e certified, as well as Carbon Neutral Plus, with
emissions of CO2 offset with CC X Carbon Financial Instruments and sequestration from
our rainforest reforestation project. In addition, these Papers are F S C Certified, and we
have recently extended that distinction to our S U N DA N C E ® Paper offerings.
RAI SING THE BAR, LOW ERING EMISSIONS
Neenah adopted challenging standards to drive continual improvement in environmental
areas relevant to our operations. We measure our progress in responsible procurement,
reduction in water usage, increased energy efficiency, reduction in greenhouse gas
emissions, waste water treatment and effluent quality, and other tangible areas. Our
manufacturing operations make extensive use of renewable energy sources such as
hydroelectric, wind power and biomass. In 2009, Neenah received a national Green
Power Leadership Award from the U.S. Environmental Protection Agency (EPA), recog-
nizing our achievements in the use of green power. Our participation in the Chicago
Climate Exchange, North America’s only voluntary, legally binding compliance regime,
backs up our commitment to achieving verified reductions in our direct emissions.
Neenah Paper, Inc. 2009 Annual Report
29
We Believe
Leaders
Put Their
Customers
First
36
Neenah Paper, Inc. 2009 Annual Report
Neenah’s customer-fi rst focus is supported by well-choreographed
supply chain management processes. To be able to meet and
exceed commitments to customers, it is essential to have systems that
not only deliver products, but also deliver exceptional value.
S EE SP OT RUN
Our S P OT (Strategic Planning and Optimization Tool) program, introduced in 2009, is a
clear example of how Neenah uses supply chain strength to benefit customers. S P OT
aggregates data on local purchasing patterns in a highly targeted manner so that our
customers have insight into the products their customers are most likely to purchase.
This allows our customers to buy what the market needs – when it’s needed – thus
reducing inventory and working capital.
W E GUARANT EE I T
Service guarantees in Fine Paper have helped to ensure that customers see us as a
leader, which incentivizes them to consolidate their paper needs with Neenah. In recent
years, we have offered guarantees on print quality and delivery dates for our C L A S S I C ®
and E N V I R O N M E N T ® brands. In addition, we now offer a “working capital guarantee,”
assuring customers that our logistics capabilities can help them manage inventory to
reduce working capital requirements.
CL OS E TO T HE C UST OME R
In Technical Products, we work closely with customers to ensure a consistent supply of
products according to their needs, while maintaining optimal production sequences for
many different product lines on our paper machines, saturators and coaters. We use a
range of offerings and tools, depending on individual customer needs, including inven-
tory programs at their locations or ours, production time reservations and custom
freight programs.
R ES PONSIVE AND RESPONSI BL E
The challenging business conditions of 2009 required a greater level of responsiveness
to customer issues than we have seen in many years. In this environment, we recognized
the need to “go the extra mile” to demonstrate the value we bring to customers.
Whether that meant showing flexibility in cash management, responding to short order
lead times, or quickly qualifying new raw materials, Neenah proved itself to be a reli-
able partner for our customers.
Neenah Paper, Inc. 2009 Annual Report
37
HIGHLY TARGETED
INFORMATION GATHERING
38
Neenah Paper, Inc. 2009 Annual Report
SERVICE AND
QUALITY GUARANTEES
Neenah Paper, Inc. 2009 Annual Report
39
RESPONSIVENESS AND
FLEXIBILITY
40
Neenah Paper, Inc. 2009 Annual Report
COLLAB ORATIVE
PARTNERSHIPS
Neenah Paper, Inc. 2009 Annual Report
41
We Believe
In Finding Our
Place(s)
In The World
42
Neenah Paper, Inc. 2009 Annual Report
Neenah sees opportunity in a range of global markets, and we’re
able to meet customers’ needs whether they’re in North America,
Europe, Asia, Africa or South America. We sell our products in more
than 35 countries, and approximately 45% of our 2009 revenues were
generated outside of North America. And, we see additional ways
to extend our presence in both Fine Paper and Technical Products
global markets.
W ELL POSI TIONED IN EUR OP E
With a large part of our Technical Products segment based in Germany, Europe is an
important geographic region. In addition to being well positioned to serve European
customers and highly regarded for our ability to respond rapidly to their changing
needs, Europe also serves as a base for exports to Asia, North and South America and
Africa. Approximately 25% of the production of our European operations is already
exported to other regions, and we expect to continue to grow with existing and new
customers around the world.
LEAD ING IN NO RTH AM ERICA
Neenah’s premier position in the North American fine paper market is unsurpassed.
With a history dating back to 1873, we were the first to establish the brand watermark
as a sign of authenticity. As a result of our heritage, coupled with a constant drive for
innovation, our CL A SSIC ® and ENVIRONMENT ® brands are two of the most widely recognized
premium uncoated papers in North America.
EX PANDI NG IN ASIA AND E LSEW HERE
Southeast Asia has emerged as a major site of high end furniture manufacturing as
home to a growing number of designer brand and wholesale producers. Neenah, which
had only limited presence in that region, has penetrated the market by bringing
innovative solutions to challenges these manufacturers were encountering in handling
exotic veneers. As a result, we have been able to build a loyal base of OEM furniture
manufacturer customers who now use our products to help make theirs better. Our
filtration and tape businesses are also growing in Asia, and Fine Paper is also better
positioned for international growth following our acquisition of the trademark rights to
CLASSIC® papers in key international markets.
Neenah Paper, Inc. 2009 Annual Report
43
44
Neenah Paper, Inc. 2009 Annual Report
Neenah Paper, Inc. 2009 Annual Report
45
LETTER TO SHAR EH OLD ERS
TO NEENAH PAPER
SHAREHOLDERS
In last year’s letter to shareholders, we said that business
conditions would be harsh in 2009, but we felt that Neenah
was well positioned and ready to deal with the tough eco-
nomic situation, and we were. We said we were implementing
important cost reduction programs and limiting capital spend-
ing, and we did. We said that due to the uncertainty, we would
focus on cash management and liquidity, which we did. We
said that in spite of the uncertainty, our leadership position in
our markets and our transformation out of pulp was the right
strategy to deliver value to our shareholders, and it was. We
are pleased to report to you on our progress last year. It is safe
to say that 2009 was the least amount of “fun” that most of
us have had in our careers, yet we are proud of the way we
addressed our challenges. The actions we took allowed us to
improve our performance in most key metrics every quarter of
the year. As a result, we believe we are now in a stronger posi-
tion than at any time in our fi ve years as a public company, and
we’re well prepared operationally, fi nancially and competitively
to take advantage of opportunities for profi table growth as the
global economy continues to improve.
A TEAM EFFORT
It would be hard to imagine a more challenging business envi-
ronment than the one facing our industry early last year. The
worldwide recession sharply reduced demand beginning in the
fourth quarter of 2008, and this impact was magnifi ed by inven-
tory destocking by most companies. We started the year with
most of our businesses operating at roughly half of capacity.
Extensive downtime was taken at our mills and refl ected in our
results. Cash became king.
At Neenah, we were determined not to be the vic-
tim of adverse economic circumstances. We anticipated the
signifi cant decline in volumes and developed plans to sharply
reduce expenses and build our cash fl ow. While major initia-
tives, such as the closure of our fine paper mill in Ripon,
California, resulted in significant cost savings, it was the
many measures developed and implemented by our teams
company wide that largely contributed to our improved cost
structure and strengthened cash flow. Ultimately, our cost
reduction programs produced over $20 million in incremental
savings – substantially above our original target.
46
Neenah Paper, Inc. 2009 Annual Report
S TAYING C LO SE T O CUS T OM ER S
STRENGTHENED BALANCE SHEET
Cost savings alone cannot ensure any company’s ability to
weather a harsh economic climate. We recognized that it was
also critically important to make Neenah even more valu-
able to our customers – working in close partnership to help
them during the downturn, and in that way reinforcing our
relationship. We believe that customers will long remember
2009 – and how we chose to work with them to strengthen
our relationships. For example, we worked to accommodate
shorter order lead times across all of our businesses to help
our customers with their cash conservation efforts. Although
customers found it challenging to forecast demand, our
Technical Products team was quickly able to ramp up opera-
tions to meet customer needs, allowing us to both recover
sooner and gain share with key customers. With our advan-
tages in supply chain management, we were able to offer
service guarantees on key Fine Paper brands – something
no one else in the industry has been able, or willing, to do –
as another strong incentive to consolidate business with
Neenah. In addition, we continued to expand our Fine Paper
market model and shared this information with customers,
enabling them to understand SKU-specifi c sales results to bet-
ter plan their purchases and align their inventory to specifi c
market demand and to work closely with Neenah.
IMPORTAN T FINANC IAL P RO GRE SS
As a result of our actions, Neenah made important progress in
many areas during 2009. Earnings per share, after adjusting for
non-recurring costs such as the Ripon mill closure and the 2008
goodwill impairment charge, nearly tripled. The improved
results refl ected better operating margins, and a leaner cost
position that we will leverage further as volumes continue to
recover. Return on Capital, which measures after-tax profi ts
divided by net asset values, also increased signifi cantly as a
result of improved profi tability, asset effi ciencies and the dives-
titure of our pulp operations.
While our top line showed the effects of reduced mar-
ket demand and global economic weaknesses, the fi scal health
of Neenah’s businesses strengthened noticeably as the year
progressed. Looking at our fi nancial performance for 2009,
consolidated net sales from continuing operations totaled
$574 million, compared with $732 million in 2008. However,
sales rose sequentially in each quarter of 2009, growing from
$134 million in the fi rst quarter to $155 million in the fourth
quarter. Operating income, after adjusting for non-recurring
items, also trended upward sharply throughout the year, more
than doubling from around $5 million in the fi rst quarter to over
$11 million in the fourth quarter, refl ecting the success of our
teams in reducing costs and improving margins.
Our focus on cash generation enabled us to reduce net debt
by almost $50 million during 2009. Careful control over spend-
ing and working capital, as well as higher earnings, were key
contributors to these results. Our businesses have the capa-
bility to generate strong cash fl ows, and our combination of
newer, well-maintained assets and a favorable cash tax position
helps ensure that we will continue to do so.
We maintained a sound fi nancial structure through-
out the year, with adequate access to liquidity despite the
external market conditions. In the fourth quarter, we renewed
our North American senior secured credit facility, extending
the maturity date until November 2013, and also easing cov-
enant triggers in recognition of the improved fi nancial profi le
of our business. Our fi scal position was improved even further
with the March 2010 sale of our remaining timberlands.
RETURNS TO SHAREHOLDERS
We are pleased to note that Neenah’s share price refl ected
the improved performance of our business during the year,
rising 58% in 2009 and greatly exceeding broader market
returns, as well as returns of our peer group. In addition, we
paid four quarterly cash dividends totaling $0.40 per share
during 2009. Our dividend provides a very attractive yield,
well ahead of market and peer averages, and we remain
committed to maintaining an attractive dividend as a key
component of shareholder value. We take our obligation to
increase shareholder value very seriously.
FINE PAPER: REINFORCING LEADERSHIP
In our Fine Paper business, we focused on enhancing our lead-
ership position in the industry by expanding the depth and
breadth of our product range, becoming an increasingly valu-
able partner to our customers by leveraging our supply chain
expertise, and improving the effi ciency of our operations and
cost structure. At the same time, we have kept our eyes open
for niche growth opportunities.
A major initiative was the expansion of our agreement
with Crane & Co. to manufacture, market and distribute their
well-known line of fi ne business papers, including CRANE’S
CREST ®, CRANE’S BOND ®, CRANE’S LETTRA ®, CRANE’S PALETTE ®
and CRANE’S ® CHOICE papers. Neenah had been manufac-
turing 100% cotton paper for Crane for more than two years;
expanding the scope of our partnership solidifi es our position
as the pre-eminent source for fi ne cotton business papers and
makes efficient use of our manufacturing, distribution and
marketing resources.
Neenah Paper, Inc. 2009 Annual Report
47
To make Neenah more valuable to its customers, we
introduced our SPOT (Strategic Planning and Optimization Tool)
program in early 2009. Building on our earlier investment in a
new Enterprise Resource Planning (ERP) system, and using data
available in our extensive supply chain management system,
SPOT allows us to share information with customers on local
sales patterns by individual SKU, down to the zip code level.
This enables a customer to make better purchasing decisions,
control inventory and reduce the need for working capital.
Reinforcing Neenah’s brand and supply chain leader-
ship, we continued our successful Service Guarantee program
on CLASSIC ® papers, giving customers a 25% discount on any
order that is not delivered on time or in the quantity ordered.
We have seen a strong correlation between the introduction
of the guarantee and the sales performance of the brand. In
other brand-related initiatives, we repositioned SUNDANCE ®
papers as a value brand and consolidated EVERGREEN® into our
ENVIRONMENT® brand, strengthening our overall brand portfolio.
Innovative marketing programs were introduced, some
using electronic media to reach expanded customer audiences.
Our ThinkInk app enables designers to use photos taken with
their iPhone to create a custom color palette, and then order
coordinating product samples. The www.doyoulovelinen.com
Web site permits customers to preview images on CLASSIC®
Linen and order a Neenah Personal ProofSM to see how linen can
enhance the look of their project.
Net sales for the Fine Paper segment were $256 mil-
lion in 2009, down 24% from the prior year. Results refl ected
lower market demand for premium printing papers. The
changes in market demand necessitated difficult actions in
2009, notably the closure of our mill in Ripon, California. As a
result of our efforts to control costs, operating income (adjusted
to exclude onetime costs for the Ripon mill closure and gains
on asset sales) was $35 million, up almost 25% versus oper-
ating income of $28 million in 2008, despite the lower sales.
Consequently, operating margins reached nearly 14% in the
second half of the year, the highest levels since early 2007.
Going forward, Fine Paper will continue to pursue
opportunities to grow market share in premium writing, text and
cover papers by building on our competitive advantage in prod-
uct quality and service, by continually reinventing our brands
to keep them relevant to our customers’ needs, and by innova-
tion and process improvements. At the same time, recognizing
the secular challenges in this market, we are moving forward
with plans to fi nd growth opportunities in other markets where
our quality, color, texture or surface treatment advantages are
critical. These include expanding internationally and in selected
label and luxury package markets.
48
Neenah Paper, Inc. 2009 Annual Report
TECHNICAL PRODUCTS: INNOVATION AND SPECIALIZATION
Technical Products has distinguished itself by targeting mar-
ket niches where its process capabilities, including saturation,
coating and nonwovens, provide unique solutions. So while we
reduced spending in many areas, one place where we contin-
ued to invest was in research and new business development,
helping to expand our ability to meet the needs of customers
for highly specialized applications. Known for our rapid turn-
around in responding to customers’ exacting performance
requirements, we built upon our capabilities and continued to
partner closely with customers to identify unmet needs for per-
formance and service.
Our Technical Products group continued to expand
the range of its capabilities, particularly in filtration. The
prior investments in a saturation line and the rebuild of our
nonwoven line in Germany increased our capabilities and
reduced costs. One outcome of this R&D focus was the abil-
ity to manufacture gradient density products, in which the
fi ber structure within the substrate sheet varies, helping to
fi lter particles of varying sizes. We are also leaders in develop-
ing products that combine paper and nonwovens to achieve
advanced client-specifi ed characteristics. We are using our
technical knowledge and process capabilities to expand into
adjacent fi ltration markets, including health applications. Our
Technical Products group also improved its coating compe-
tency, with a fast-track print coat dispersion upgrade at the
Munising, Michigan plant. Using existing assets, the group
expanded and improved its capability to produce print coat
dispersions, eliminating external toll processing. This enabled
us to produce and control our own print coat dispersions,
resulting in signifi cantly better quality and performance of
coated products and a quicker supply chain, along with sub-
stantial savings.
Key innovation and performance improvements led
to new product sales. Among the best-performing categories
for Technical Products in 2009 was medical packaging, where
we enjoyed double-digit growth in sales for applications such
as antiseptic packaging of medical instruments. We also pen-
etrated new markets with our veneer backing papers, gaining
orders from a number of furniture manufacturers in Southeast
Asia that had not used our products previously. A new series
of masking tapes was introduced for commercial painting
applications that require especially sharp edges, and we also
introduced a new proprietary IMAGE-CLIP ® heat transfer pro-
cess, which allows for printing on apparel without the transfer
of unnecessary polymers that ruin the look of the garment.
As always, customer service was a strong focus for
Technical Products. The economic turmoil prompted changes
in some raw material vendors. Normally, this entails a lengthy
and costly transition process to ensure that the new materi-
als meet all customer specifi cations. Neenah worked with
customers to produce trial rolls and complete the change-
over on an expedited time-frame. In another example, we
leveraged our ERP system and new Web-based information
tools to reduce lead times.
Net sales of Technical Products were $318 million
for 2009, compared with $397 million a year ago. Revenue
increased through the year, with the fourth quarter actually
exceeding the prior year by 18%. Operating income was
almost $15 million, versus $12 million in 2008 (excluding the
impairment charge). Margins improved over the course of
the year, as cost initiatives and lower input prices offset the
impact of lower volumes. Continued margin improvement, as
well as top-line growth, are key objectives for this business
going forward.
Future opportunities in Technical Products will
be based on our extensive capabilities in specialized
applications. Our filtration business is currently a leader
in European transportation fi ltration. We are active in efforts
to grow this business globally and beyond the transportation
segment. We will also target other markets that are grow-
ing, profi table and can be served with our unique solutions,
which result in more durable, cost-effective and better-
performing products.
SAF ETY AND SUSTAINABI LI TY
At Neenah, the safety of our people has always been a top pri-
ority. In 2009, our reportable safety incident rate improved to
1.4 incidents per 200,000 hours worked from 1.7 incidents in
2008. While this remained well below averages for our industry,
we continue to work toward our goal of less than 1.0, which we
believe is world-class performance.
Our commitment to environmentally responsible
practices remains one of our core operating values. We
continued to make progress against all of our environmen-
tal objectives, including reducing water usage, eliminating
solid waste, and reducing air emissions through improved
energy effi ciency and use of renewable energy. This commit-
ment to sustainability is extended through our supply chain
with responsible procurement. For example, our Fine Paper
business has long been a supporter of sustainable forest
practices through its use of Forest Stewardship Council (FSC)
certifi ed fi ber and our Technical Products business has also
incorporated FSC certifi ed pulps and post-consumer fi ber into
its products. We are also proud of our long history of work-
ing with conservation groups to set aside lands and resources
to protect habitat and biodiversity. In 2009, we partnered
with the Natural Resources Foundation of Wisconsin and
other environmental groups to restore forests in Costa Rica’s
Osa Peninsula, a region that provides critical winter habitat
for Wisconsin birds.
BELIEVING IN AND REALIZING OUR POTENTIAL
In 2010, we are not going to change what we’ve been doing:
focusing on our customers, innovating, controlling costs,
maintaining our lead in quality, product performance and
service, and strengthening our balance sheet and cash fl ow.
Our people clearly have demonstrated their ability to per-
form and their willingness to do whatever it takes – in a variety
of conditions – including the very diffi cult circumstances we
faced in 2009.
While maintaining a cautious view on the rate of any
global economic recovery, Neenah enters the new year with a
sense of confi dence that we can extend our market leadership,
deliver strong fi nancial results, and take advantage of future
opportunities. In our Fine Paper business, we will build on our
platform of strong, high-quality, well-respected, profitable
brands and our increasingly effective supply chain capabilities.
In Technical Products, our specialized capabilities and focus
on innovation and service will facilitate our drive into adjacent
markets and new product categories that exhibit attractive
growth prospects and superior margins.
The recent announcement of our timberlands sale
in Nova Scotia is an important strategic step for Neenah
Paper. The sale for C$82.5 million in March 2010 not only
allows us to significantly deleverage, but also enables
us to focus our attention and resources more sharply on
the business segments we believe have the strongest
future potential. Divesting our unprofi table pulp operations,
which represented more than 50% of our revenue at the
spinoff, was a multi-year, multi-step process. We believe we
accomplished it in a manner that generated the most value
for our shareholders.
Coming off a diffi cult yet successful year, we par-
ticularly appreciate the tremendous dedication and effort of
our employees, the loyalty of our customers and the sound
guidance of our Board of Directors. We are also grateful for
the continued support of our shareholders. All of us believe
in the potential of Neenah Paper. The past year validated
our strategic direction and our ability to execute against it.
We look forward to continuing to build on this success in
2010 and beyond.
Sincerely,
Sean T. Erwin
Chairman, President and
Chief Executive Offi cer
Neenah Paper, Inc. 2009 Annual Report
49
FINANC IAL HIGHLIGHTS
WE BELIEVE IN FINANCIAL
STEWARDSHIP
At Neenah, financial stewardship means safeguarding and employing
our assets to provide stakeholders with a stable, attractive return on
their investment. Toward that goal, we operate our businesses to improve
their return on invested assets and deliver solid cash flow. We work to
maintain a reasonably conservative debt structure and sufficient liquidity
to allow us to grow. And we believe in the importance of a dividend as
a component of shareholder value. As a result of our fiscal discipline and
focus, Neenah made important fi nancial progress in 2009 despite the
challenging economic environment our industry and customers faced.
50
Neenah Paper, Inc. 2009 Annual Report
AD JUST ED O PERATI NG INCOME* ( IN MI LLION S)
RETURN ON INVESTED CAPITA L
7%
$10.3
7%
$10.8
6%
$7.5
4%
$4.9
Q109
Q209
Q309
Q409
PERCENT OF MARGIN
6%
2009
2%
2008
Through actions taken to control costs and improve price and
mix, and aided by sequential quarterly top-line volume
recovery, we achieved steady increases in adjusted operating
income throughout the past year. We delivered 2009 fourth
quarter adjusted operating income and margins that were the
highest in six consecutive quarters, comparable to levels
before the global recession took hold.
* Adjusted Operating Income excludes onetime costs for restructuring.
With the 2008 divestiture of our remaining capital-intensive
pulp operation and deployment of our capital in a prudent
manner to support our business in 2009, we significantly
increased our return on invested capital and continue to tar-
get further improvement over time.
CASH FLOW ( IN MI LLION S)
DEBT ( IN MILLI ONS)
$65
$(8)
2009
0
$13
$(30)
2008
CAS H F ROM OPE RATIONS
CAPITAL SPENDING
$365
$341
$338
$323
$319
Q408
Q109
Q209
Q309
Q409
Cash fl ow improved dramatically in 2009, benefi ting from
tight control over working capital, reduced capital spending
and aggressive cost containment efforts. Our businesses are
able to deliver important cash from operations, aided by core
earning capabilities, a well-maintained, modern asset base
and a favorable cash tax position.
In 2009, we believed it was important to use our cash to
deleverage the balance sheet. In addition to steadily reducing
the level of debt, we were able to extend the maturity on our
North American senior secured credit facility from November
2010 until November 2013, while securing more favorable
covenant terms. We expect debt reduction to continue to be
a priority in 2010 to increase our fi nancial fl exibility both in
terms of leverage and liquidity.
Neenah Paper, Inc. 2009 Annual Report
51
NEENAH PAPER AT A GLANCE
At Neenah Paper, our mission is to be the first choice for premium
branded and customized paper products. Our goal is to create value
for our customers and stockholders through innovation, service
and excellence in execution. It is our employees who drive this value.
FINE PAPER
Neenah’s Fine Paper business is a leader in the North American premium fine paper
market. We are a world-class manufacturer of premium writing, text and cover materi-
als, cotton fiber papers and specialty items. Our signature brands include C L A S S I C ®,
E N V I R O N M E N T ®, S TA R W H I T E ® and S U N DA N C E ® papers. Through an exclusive partner-
ship agreement with Crane & Co., we also manufacture, market and distribute Crane’s
fine business paper brands, such as C R A N E’ S C R E S T ®, C R A N E’ S B O N D ®, C R A N E’ S L E T T R A ®
and C R A N E’ S ® C H O I C E papers. A pioneer in eco-friendly products, our E N V I R O N M E N T ®
brand is the premier offering of post-consumer content papers in the market. Neenah’s
leadership role in fine paper is supported by our broad range of colors, textures and
other product features, as well as our superior customer service and supply chain capa-
bilities. Our products are in demand wherever image counts: for letterhead, business
cards, private watermark stationery, annual reports, brochures and such specialized
uses as luxury retail packaging and beverage labels. Our Fine Paper business serves its
markets through three mills located centrally in Wisconsin.
TECHNICAL PRODUCTS
Neenah’s Technical Products business is a leading producer of specialty papers and
substrates for complex commercial applications that require saturating, coating and
other engineered solutions. The segment consists of fi ve global business units: Filtration,
Specialty Tape, Component Materials, Graphics & Identifi cation and Wall Covering.
Our products might be found in the car you drive, the wall covering in your offi ce, the
personalized t-shirt you wear, or the tapes you use in a painting project. Specifi c uses
include automotive, household and industrial fi lters, masking and industrial tapes,
coated abrasives, medical packaging, heat transfer and book covers. Other graphics
applications include specialty papers and labels that provide printability, durability and
security. The Technical Products group serves customers through manufacturing facilities
in the U.S. and Germany, supported by R&D efforts focused on developing the new
processes and products that will meet customer needs and drive our growth.
52
Neenah Paper, Inc. 2009 Annual Report
FINANCIAL INFORMATION
54 B USI NESS SUMMARY
57 SELECT ED FI NANC IA L DATA
60 MANAGEMENT’S DIS C USSION AND ANALYSIS OF FI NA NCI AL CONDIT ION AND RESULTS OF OPERATIONS
76 MANAGEM ENT’S AN N UAL REPORT ON I NT ERNAL CONTROL OVER FINA NCIA L REPORTING
78 R EPORTS O F I NDEPEN DENT REGISTE RED PUBLIC ACCOUNTI NG FI RM
80 CONSOLIDAT ED STAT EM ENTS OF OPERAT IONS
81 CONSOLIDAT ED BALANCE SHEE TS
82 CONSOLIDAT ED STAT EM ENTS OF CHANGES IN STOCKHOLDE RS’ EQUI TY
83 CONSOLIDAT ED STAT EM ENTS OF CASH FLOWS
84 NOT ES TO C ONS OLI DATED FINANCIAL STAT EMENTS
1 22 LEAD ERSHI P
1 23 SHARE HOLDER INFO RMATI ON
BUSINESS SUMMARY
In this report, unless the context requires otherwise, references
to “we,” “us,” “our,” “Neenah” or the “Company” are intended
to mean Neenah Paper, Inc. and its consolidated subsidiaries.
(Tabular amounts in millions, except as noted.)
OV ER VIEW
We are a leading producer of premium fi ne papers and technical
products. We have two primary operations: our fi ne paper busi-
ness and our technical products business. We also own approxi-
mately 475,000 acres of timberlands in Nova Scotia, Canada.
Our fi ne paper business is a leading producer
of premium writing, text, cover and specialty papers used
in corporate identity packages, corporate annual reports,
invitations, personal stationery and high-end packaging
for point of purchase advertising. Our products include
some of the most recognized and preferred papers in
North America, where we enjoy leading market positions
in many of our product categories. We sell our products
primarily to authorized paper distributors, converters and
specialty businesses. Our fi ne paper manufacturing facilities
are located in Appleton, Neenah and Whiting, Wisconsin.
Our technical products business is a leading inter-
national producer of transportation and other fi lter media,
durable, saturated and coated substrates for a variety of
end uses; and nonwoven wall coverings. Our technical prod-
ucts business is organized into fi ve global strategic business
units (“SBUs”) that sell into 17 product categories. We focus
on categories where we believe we are a market leader
or have a competitive advantage, which include, among
others, transportation and other fi lter media, specialty tape,
label, abrasive, medical packaging, nonwoven wall cover-
ings and image transfer technical products markets. We
are also a global supplier of materials used for customer-
specifi c applications in furniture, book covers and original
equipment manufacturers’ products. Our customers are
located in more than 35 countries. Our technical products
manufacturing facilities are located in Munising, Michigan
and near Munich and Frankfurt, Germany.
Neenah was incorporated in April 2004 in con-
templation of the spin-off by Kimberly-Clark Corporation
(“Kimberly-Clark”) of its fi ne paper and technical products
businesses in the United States and its Canadian pulp
business (collectively, the “Pulp and Paper Business”). We
had no material assets or activities until Kimberly-Clark’s
transfer to us of the Pulp and Paper Business on
November 30, 2004. On that date, Kimberly-Clark com-
pleted the distribution of all of the shares of our common
stock to the stockholders of Kimberly-Clark (the “Spin-
Off”). Following the Spin-Off, we are an independent
public company and Kimberly-Clark has no ownership
interest in us.
PRODUCTS
FINE P APER. The fi ne paper business manufactures and
sells world-class branded premium writing, text, cover
and specialty papers used in corporate identity packages,
corporate annual reports, invitations, personal stationery
and high-end packaging for point of purchase advertising.
Our fi ne paper business had net sales of approximately
$256 million, $336 million and $367 million in 2009, 2008
and 2007, respectively.
Premium writing papers are used for business
and personal stationery, corporate identity packages,
envelopes and similar end-use applications. Market leading
writing papers are sold by the fi ne paper business under the
CLASSIC,® ENVIRONMENT,® NEENAH,® CAPITOL BOND®
and NEUTECH® trademarks, which are denoted by a brand
watermark in each sheet of writing paper. The fi ne paper
business also sells private watermarked paper and other
specialty writing papers.
Text and cover papers are used in applications
such as corporate brochures, pocket folders, corporate
annual reports, advertising inserts, direct mail, business
cards, hang tags, scrapbooks, and a variety of other uses
where colors, textured fi nishes or heavier weight papers
are desired. Our brands in this category include CLASSIC,®
CLASSIC CREST,® STARWHITE,® SUNDANCE,® ESSE® and
ENVIRONMENT.® We also sell a variety of custom colors,
paper fi nishes, and duplex/laminated papers.
The fi ne paper business produces and sells other
specialty papers, including translucent papers, art papers,
papers for optical scanning and other specialized applica-
tions, under the UV/ULTRA® II translucent paper trademark
and other brands.
In 2009, we signed an exclusive licensing
agreement with Crane & Co. Inc. (“Crane”) for Neenah
to manufacture, market and distribute Crane’s business
paper brands.
54
Neenah Paper, Inc. 2009 Annual Report
B U S I N E S S S U M M A R Y
TECH NICAL PRODUCTS. The technical products busi-
ness is a leading producer of fi ltration media and durable,
saturated and coated substrates for a variety of end uses,
including tapes, premask, abrasives, labels, medical pack-
aging, decorative components, wall covering, and image
transfer papers. Our technical products business had
net sales of approximately $318 million, $397 million and
$401 million in 2009, 2008 and 2007, respectively. JET-PRO,®
SOFSTRETCH,™ KIMDURA,® MUNISING LP,® PREVAIL,™
NEENAH,® GESSNER® and VARITESS® are brands of our
tech nical products business.
In general, the products of our technical products
business are sold to other manufacturers as key compo-
nents for their fi nished products. The technical products
business is organized into fi ve SBUs: Filtration; Tape;
Component Materials, which includes our abrasives busi-
ness; Graphics and Identifi cation; and Wall Covering to sell
its products into major market segments. Several of the key
market segments served, including tape and abrasives, are
global in scope.
The Filtration SBU produces fi ltration media for
induction air, fuel, oil, and cabin air applications in automo-
tive transportation and for vacuum cleaner bags and fi lters.
Transportation fi ltration media are sold to suppliers of auto-
motive companies as original equipment on new cars and
trucks as well as to the automotive aftermarket. This busi-
ness is primarily in Europe.
The Tape SBU produces both saturated and
unsaturated crepe and fl at papers and sells them to manu-
facturers to produce fi nished pressure-sensitive products
for sale in automotive, automotive aftermarket, transporta-
tion, manufacturing and building construction, and indus-
trial general purpose applications.
allows sterilization from steam, ethylene oxide, or gamma
radiation and at the same time provides unique barrier
properties. The Component Materials SBU also produces a
line of release papers and furniture backers.
The Graphics and Identifi cation SBU produces
label and tag products from saturated (latex-impregnated)
base label stock and purchased synthetic base label stock.
Top coatings are applied to the base label stock to allow
for high-quality variable and digital printing. The synthetic
label stock is recognized as a high quality, UV (ultraviolet)
stable product used for outdoor applications. The busi-
ness sells its label and tag stock to pressure-sensitive coat-
ers, who in turn sell the coated label and tag stock to the
label printing community. Image transfer papers are used
to transfer an image from paper to tee shirts, hats, coffee
mugs, and other surfaces. The Graphics and Identifi cation
SBU produces and applies a proprietary imaging coating to its
image transfer papers for use in digital printing applications.
Image transfer papers are primarily sold through large retail
outlets and through master distributors. Decorative com-
ponents papers are made from light and medium-weight
latex saturated papers that can then be coated for print-
ability. Decorative components papers are primarily sold
to coater converters, distributors, publishers and printers
for use in book covers, stationery and fancy packaging. The
Graphics and Identifi cation SBU also produces and sells
clean room papers and durable printing papers into their
respective markets.
The Wall Covering SBU produces a line of sub-
strates made from saturated and coated wet-laid nonwo-
vens and markets to converters serving primarily European
commercial and do-it-yourself markets.
The Component Materials SBU is a leading pro-
MARKETS AND CUS TO MERS
ducer of latex saturated and coated papers for use by a
wide variety of manufacturers. Finished lightweight sand-
paper is sold in the automotive, automotive aftermarket,
construction, metal and woodworking industries for both
waterproof and dry sanding applications. Premask paper
is used as a protective overwrap for products during the
manufacturing process and for applying signs, labeling
and other fi nished products. Medical packaging paper is a
polymer -impregnated base sheet that provides a breath-
able sterilization barrier. When sealed together with fi lm,
this paper becomes a medical packaging material that
FINE P APER. Premium writing, text and cover papers rep-
resent approximately three percent of the North American
uncoated free sheet market. The uncoated free sheet mar-
ket has been declining two to four percent annually due to
the increasing use of electronic media for communication.
For 2009, the American Forestry and Paper Associations
(the “AF&PA”) reported a 27 percent year-over-year indus-
try decline in the premium writing, text and cover uncoated
free sheet paper category. Lower industry volume refl ected
a sharp decline in consumption for a number of key end use
Neenah Paper, Inc. 2009 Annual Report
55
B U S I N E S S S U M M A R Y
market segments, including advertising, fi nancial institu-
tions and transportation. The stationery segment of the
uncoated free sheet market is divided into cotton and
sulfi te grades. The text and cover paper segment of the
market, used in corporate identifi cation applications, is split
between smooth papers and textured papers. Text papers
have traditionally been utilized for special, high-end col-
lateral material such as corporate brochures, annual reports
and special edition books. Cover papers are primarily used
for business cards, pocket folders, brochures and report
covers including corporate annual reports.
The fi ne paper business sells its products through
our sales and marketing organizations primarily in three
channels: authorized paper distributors, converters and
direct sales. Sales to distributors, including distributor-
owned paper stores, account for approximately 70 percent
of revenue in the fi ne paper business. Less than fi ve percent
of the sales of our fi ne paper business are exported to
international distributors. Sales to the fi ne paper business’s
two largest customers (both of which are distributors) rep-
resented approximately 30 percent of its total sales in 2009.
We practice limited distribution to improve our ability to
control the marketing of our products. Although a complete
loss of either of these customers would cause a temporary
decline in the business’s sales volume, the decline could be
partially offset by expanding sales to existing distributors,
and further offset over a several month period with the
addition of new distributors.
TECH NICAL PRODUCTS. The technical products
business relies on fi ve SBUs to sell its products globally into
17 product categories. Such categories, broadly defi ned as
polymer impregnated and synthetic paper, include papers
used as raw materials in the following applications: fi ltration,
tape, component materials for manufactured products,
graphics and identifi cation, and wall covering.
Several products (fi ltration media, wall coverings,
abrasives, tapes, labels) are used in markets that are directly
affected by economic business cycles. Other market seg-
ments such as image transfer papers used in small/home
offi ce and consumer applications are relatively stable. Price
competition is common in most of the segments served by
the technical products business and has increased due to a
trend of using fi lm and other lower cost substrates instead
of paper in some applications.
The technical products business relies on a team
of direct sales representatives and customer service repre-
sentatives to market and sell approximately 95 percent of
its sales volume directly to customers and converters. Less
than fi ve percent of the sales of the technical products busi-
ness are sold through industrial distributors.
The technical products business has over 500 cus-
tomers worldwide. The distribution of sales in 2009 was
approximately 55 percent in Europe, 25 percent in
North America and 20 percent in Latin America and Asia.
Customers typically convert and transform base papers
and fi lm into fi nished rolls and sheets by adding adhesives,
coatings, and fi nishes. These transformed products are then
sold to end-users.
CO NCENTRATION. For the years ended
December 31, 2009, 2008 and 2007, no customer accounted
for more than 10 percent of our consolidated net sales.
GEOGRAPHIC INFO RMATION
The following tables present further information
about our businesses by geographic area:
Net sales
United States
Europe
Intergeographic items
Consolidated
Total assets
United States
Canada
Europe
Total
Year Ended December 31,
2009
2008
2007
$360.9
213.0
–
$573.9
$467.3
265.0
–
$732.3
$502.9
264.4
(0.3)
$767.0
December 31,
2009
2008
2007
$330.9
5.4
301.2
$637.5
$371.8
3.3
314.9
$690.0
$337.5
201.6
398.7
$937.8
Net sales and total assets are attributed to geo-
graphic areas based on the physical location of the selling
entities and the physical location of the assets. See Note 14,
“Business Segment and Geographic Information” of Notes
to Consolidated Financial Statements for information with
respect to net sales, profi ts (losses) and total assets by busi-
ness segment.
56
Neenah Paper, Inc. 2009 Annual Report
SELECTED FINANCIAL DATA
The following table sets forth our selected historical fi nancial
and other data. You should read the information set forth
below in conjunction with “Management’s Discussion and
Analysis of Financial Condition and Results of Operations”
and our historical consolidated fi nancial statements and the
notes to those consolidated fi nancial statements included
elsewhere in this annual report. The statement of operations
data for the years ended December 31, 2009, 2008 and 2007
and the balance sheet data as of December 31, 2009 and
2008 set forth below are derived from our audited historical
consolidated fi nancial statements included elsewhere in this
annual report. The balance sheet data as of December 31,
2007, 2006 and 2005 and the statement of operations data
for the years ended December 31, 2006 and 2005 set forth
below are derived from our historical consolidated fi nancial
statements not included in this annual report.
Consolidated Balance Sheet Data
Working capital
Total assets
Total liabilities
Total stockholders’ equity
During the three months ended September 30,
2009, we identifi ed and restated the December 31, 2008,
2007, 2006 and 2005 consolidated balance sheet data for the
following errors: (i) an overstatement of Canadian deferred
tax assets and unrealized foreign currency translation gains
within stockholders’ equity and (ii) an understatement of
the liability for uncertain tax positions and deferred tax
assets as a result of errors identifi ed in prior year income
tax returns. Interest associated with the uncertain tax posi-
tions noted above was immaterial for all historical years. We
believe the effects of these prior year corrections individu-
ally and in the aggregate are immaterial to any prior year
consolidated fi nancial statements. The net effect of these
corrections on the consolidated balance sheet data is pre-
sented in the following table. See Note 1, “Background
and Basis of Presentation” of Notes to Consolidated
Financial Statements.
2009
2008
2007
2006
2005
As of December 31,
$ –
–
–
–
$ (0.6)
5.4
12.7
(7.3)
$ 0.2
5.0
12.3
(7.3)
$ –
(2.2)
–
(2.2)
$ –
(2.2)
–
(2.2)
Neenah Paper, Inc. 2009 Annual Report
57
S E L E C T E D F I N A N C I A L D A T A
(Dollars in millions, except per share data)
2009
2008
2007(e)
2006(f)
2005
Year Ended December 31,
Consolidated Statement of Operations Data
Net sales
Cost of products sold
Gross profi t
Selling, general and administrative expenses
Other (income) expense – net
Restructuring costs(a)
Goodwill and other intangible asset impairment charge(b)
Operating income (loss)
Interest expense – net
Income (loss) from continuing operations before income taxes
Provision (benefi t) for income taxes
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of taxes(c)(d)(i)
Net income (loss)
$573.9
472.3
101.6
69.1
(1.0)
17.1
–
16.4
23.2
(6.8)
(5.0)
(1.8)
0.6
$ (1.2)
$ 732.3
633.2
99.1
75.2
(11.3)
–
54.5
(19.3)
25.0
(44.3)
3.0
(47.3)
(111.2)
$(158.5)
$767.0
635.5
131.5
79.3
(1.7)
–
–
53.9
25.4
28.5
(3.7)
32.2
(22.0)
$ 10.2
$ 405.0
305.4
99.6
54.4
(0.5)
–
–
45.7
16.9
28.8
9.4
19.4
43.1
$ 62.5
$352.8
250.0
102.8
40.9
0.1
–
–
61.8
18.4
43.4
16.3
27.1
(56.8)
$ (29.7)
Earnings (loss) from continuing operations per basic share
$ (0.12)
$ (3.24)
$ 2.15
$ 1.31
$ 1.84
Earnings (loss) from continuing operations per diluted share
$ (0.12)
$ (3.24)
$ 2.11
$ 1.31
$ 1.83
Cash dividends per common share
$ 0.40
$ 0.40
$ 0.40
$ 0.40
$ 0.40
Other Financial Data
Net cash fl ow provided by (used for):
Operating activities
Capital expenditures
Other investing activities(c)(e)(f)
Financing activities(e)(f)
Ratio of earnings to fi xed charges(g)(h)
Consolidated Balance Sheet Data
Working capital
Total assets
Long-term debt
Total liabilities
Total stockholders’ equity
$ 64.9
(8.4)
0.1
(54.2)
–
$ 13.1
(30.0)
(0.4)
18.2
–
$ 69.5
(58.3)
(55.1)
43.8
2.1x
$ 65.8
(25.1)
(102.6)
50.8
2.5x
$ 22.8
(25.7)
(0.1)
(3.6)
3.3x
2009
2008
2007
2006
2005
As of December 31,
$ 96.0
637.5
263.6
529.8
107.7
$144.3
690.0
340.5
586.9
103.1
$120.5
937.8
321.2
657.1
280.7
$ 92.9
742.5
282.3
559.8
182.7
$123.9
534.8
226.3
371.7
163.1
58
Neenah Paper, Inc. 2009 Annual Report
(a) In May 2009, we closed our fi ne paper mill in Ripon, California (the “Ripon
Mill”). The closure resulted in a pre-tax charge of $17.1 million comprised
of approximately $5.8 million in non-cash charges primarily for losses
related to the carrying value of property, plant and equipment, a curtail-
ment loss of $0.8 million related to postretirement benefi t plans in which
employees of the Ripon Mill participated and cash payments for contract
terminations, severances and other employee costs of approximately
$10.5 million.
(b) In October 2006, the Company purchased the stock of FiberMark Services
GmbH & Co. KG and the stock of FiberMark Beteiligungs GmbH (col-
lectively, “Neenah Germany”) from FiberMark, Inc. (“FiberMark”) and
FiberMark International Holdings LLC. For the year ended December 31,
2008, we recognized a pre-tax loss of $52.7 million (we did not recognize a
tax benefi t related to the non-tax-deductible loss) to write off the excess of
the carrying value of goodwill assigned to Neenah Germany over the esti-
mated fair value of goodwill. In addition, for the year ended December 31,
2008, we recognized a non-cash pre-tax charge of approximately $1.8 mil-
lion for the impairment of certain trade names and customer based intan-
gible assets acquired in the Neenah Germany acquisition.
(c) In February 2008, we committed to a plan to sell our pulp mill in Pictou,
Nova Scotia (the “Pictou Mill”) and approximately 475,000 acres of wood-
land assets in Nova Scotia, Canada (the “Woodlands”). In June 2008, our
wholly owned subsidiary, Neenah Paper Company of Canada (“Neenah
Canada”) sold the Pictou Mill to Northern Pulp Nova Scotia Corporation
(“Northern Pulp”), a new operating company jointly owned by Atlas
Holdings LLC and Blue Wolf Capital Management LLC. Neenah Canada
made a payment of approximately $10.3 million to Northern Pulp in con-
nection with the sale of the Pictou Mill. In addition, we paid approximately
$3.3 million of transaction costs. In August 2006, we transferred our pulp
mill in Terrace Bay, Ontario (“Terrace Bay”) and related woodlands opera-
tions to certain affi liates of Buchanan Forest Products Ltd. (“Buchanan”) in
exchange for a payment of approximately $18.6 million.
(d) For the years ended December 31, 2009 and 2008, the results of opera-
tions of the Pictou Mill and the Woodlands and the loss on disposal of the
Pictou Mill are reported as discontinued operations in the Consolidated
Statement of Operations Data. The consolidated results of operations for
all other periods presented have been restated to refl ect the results of
operations of the Terrace Bay mill, the Pictou Mill and the Woodlands and
the loss on transfer of the Terrace Bay mill as discontinued operations.
(e) In March 2007, we acquired the stock of Fox Valley Corporation and its
subsidiary, Fox River Paper Company, LLC (collectively, “Fox River”) for
approximately $54.7 million in cash. We fi nanced the acquisition through
a combination of cash and debt drawn against our existing revolving
credit facility. The results of Fox River are being reported as part of our
Fine Paper segment and have been included in our consolidated fi nancial
results since the acquisition date.
(f)
In October 2006, we purchased the purchased the stock of Neenah
Germany for approximately $220.1 million in cash. We fi nanced the acqui-
sition through a combination of cash and debt drawn against our existing
revolving credit facility. The results of Neenah Germany are being reported
as part of our Technical Products segment and have been included in our
consolidated fi nancial results since the acquisition date.
(g) For purposes of determining the ratio of earnings to fi xed charges, earn-
ings consist of income before income taxes (less interest) plus fi xed
charges. Fixed charges consist of interest expense, including amor-
tization of debt issuance costs, and the estimated interest portion of
rental expense.
(h) For the years ended December 31, 2009 and 2008, the defi cit of earnings
to fi xed charges was $6.8 and $44.3 million, respectively.
(i) The following table presents the results of discontinued operations:
Discontinued operations:
Income (loss) from
operations(1)(3)(4)(5)(6)
Income (loss) on disposal –
Terrace Bay
Income (loss) on disposal –
Pictou Mill(1)
Loss on settlement of
post-employment
benefi t plans(2)
Loss on disposal
Income (loss) before
income taxes
(Provision) benefi t for
income taxes
Year Ended December 31,
2009
2008
2007
2006
2005
$ 2.8 $ (97.8) $(31.6) $ 76.3
$(92.4)
–
–
(0.3)
(29.4)
–
(53.7)
(0.3)
(83.1)
–
–
–
–
(6.5)
–
–
(6.5)
–
–
–
–
2.5
(180.9)
(31.6)
69.8
(92.4)
(1.9)
69.7
9.6
(26.7)
35.6
Income (loss) from discontinued
operations, net of
income taxes
$ 0.6 $(111.2) $(22.0) $ 43.1
$(56.8)
(1) During the fi rst quarter of 2008, we determined that the estimated
value we would receive from a sale of the Pictou Mill indicated that we
would not recover the carrying value of the mill’s long-lived assets. As
a result, for the year ended December 31, 2008, we recognized aggre-
gate non-cash, pre-tax impairment charges of $91.2 million to write
off the carrying value of the Pictou Mill’s long-lived assets. In addition,
for the year ended December 31, 2008, we recorded a pre-tax loss of
$29.4 million to recognize the loss on disposal of the Pictou Mill.
(2) In conjunction with the sale of the Pictou Mill, Northern Pulp assumed
responsibility for all pension and other postretirement benefi t obli-
gations for active and retired employees of the mill. We accounted
for the transfer of the Nova Scotia, Canada defi ned benefi t pension
plan (the “Nova Scotia Plan”) to Northern Pulp as a settlement of
postretirement benefi t obligations pursuant to Accounting Standards
Codifi cation (“ASC”) Topic 715, Compensation – Retirement Benefi ts
(“ASC Topic 715”). For the year ended December 31, 2008, we rec-
ognized a non-cash, pre-tax settlement loss of $53.7 million for the
reclassifi cation of deferred pension and other postretirement benefi t
adjustments related to the Nova Scotia Plan from accumulated other
comprehensive income to the loss on disposal of the Pictou Mill.
(3) In December 2007, we terminated our Ontario, Canada defi ned ben-
efi t pension plan (the “Ontario Plan”) and settled all outstanding pen-
sion obligations for active employees through the purchase of annuity
contracts or lump-sum payments pursuant to participant elections. For
the year ended December 31, 2008, Neenah Canada recognized a
non-cash pre-tax settlement loss of $38.7 million upon termination of
the Ontario Plan.
(4) In August 2006, Neenah Canada made a payment to the pension trust
of approximately $10.8 million for the purchase of annuity contracts
to settle its pension liability for current retirees. As a result, Neenah
Canada recognized a pension curtailment and settlement loss of
approximately $26.4 million in the year ended December 31, 2006.
(5) In June 2006, Neenah Canada sold approximately 500,000 acres of
woodlands in Nova Scotia for gross proceeds of $139.1 million. The
transaction resulted in a net pre-tax gain of $131.7 million. Neenah
Canada immediately recognized approximately $122.6 million of such
gain and deferred approximately $9.1 million, which was recognized
in income pro-rata through December 2007. For the years ended
December 31, 2007and 2006, Neenah Canada recognized $6.2 million
and $2.9 million, respectively, of such deferred gain in income.
(6) In 2005, we recorded a $53.7 million non-cash pre-tax impairment
loss to write off the carrying value of Terrace Bay’s tangible long-lived
assets. In addition, we recorded a $6.1 million pre-tax charge for exit
costs in connection with the closure of the smaller of the two single-
line pulp mills at Terrace Bay.
Neenah Paper, Inc. 2009 Annual Report
59
MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis presents the factors
that had a material effect on our results of operations dur-
ing the years ended December 31, 2009, 2008 and 2007.
Also discussed is our fi nancial position as of the end of those
periods. You should read this discussion in conjunction
with our consolidated fi nancial statements and the notes to
those consolidated fi nancial statements included elsewhere
in this annual report. This Management’s Discussion and
Analysis of Financial Condition and Results of Operations
contains forward-looking statements. See “Forward-Looking
Statements” for a discussion of the uncertainties, risks and
assumptions associated with these statements.
INT R ODU CTION
This Management’s Discussion and Analysis of Financial
Condition and Results of Operations are intended to
provide investors with an understanding of the historical
performance of our business, its fi nancial condition and its
prospects. We will discuss and provide our analysis of the
following:
• Overview of Business;
• Business Segments;
• Results of Operations and Related Information;
• Liquidity and Capital Resources;
• Adoption of New Accounting Pronouncements; and
• Critical Accounting Policies and Use of Estimates.
OV ER VIEW OF BUSINESS
We are a leading producer of premium fi ne papers and
technical products. We have two primary operations: our
fi ne paper business and our technical products business.
We also own approximately 475,000 acres of timberlands
in Nova Scotia, Canada. On March 1, 2010, we announced
that Neenah Canada had signed a defi nitive agreement to
sell the Woodlands for C$82.5 million ($78.6 million). See
Note 17, “Subsequent Event” of Notes to Consolidated
Financial Statements.
In managing our businesses, we believe that
achieving and maintaining a leadership position in our
markets, responding effectively to competitive challenges,
employing capital optimally, controlling costs and managing
risks are important to long-term success. Changes in input
costs and general economic conditions also impact our
results. In this discussion and analysis, we will refer to these
factors.
• MA RKET LEADERSHIP. Achieving and maintaining
market leadership through strong brands, product
quality and performance, innovation and supply chain
60
Neenah Paper, Inc. 2009 Annual Report
management is an important factor in our results. Our
fi ne paper business, with its well-known brands, has long
been recognized as a leading manufacturer of world-
class premium writing, text and cover papers used in
corporate identity packages, corporate annual reports,
invitations, personal stationery and high-end packaging.
Our technical products business is also recognized as a
leading international supplier in the tape, fi ltration, com-
ponent materials, graphics and identifi cation and wall
covering markets with products that meet unique and
exacting customer requirements.
• CO MPET ITIVE E NVIRONME NT . Our past results
have been and our future prospects will be signifi cantly
affected by the competitive environment in which we
operate. In most of our markets, our businesses compete
directly with well-known competitors, some of which are
larger and more diversifi ed. Our businesses also face
competitive pressures from lower value products.
• ECONOMIC CONDITIO N AND INPUT COS TS. The
markets for all of our products are affected to a signifi -
cant degree by economic conditions, including fl uctua-
tions in exchange rates, particularly for the Euro. Rapid
changes in input costs, particularly for pulp, latex and
natural gas, also affect our results.
BUSINESS SEGMENTS
Our fi ne paper business is a leading producer of premium
writing, text, cover and specialty papers used in corporate
identity packages, corporate annual reports, invitations,
personal stationery and high-end packaging. Our products
include some of the most recognized and preferred papers
in North America, where we enjoy leading market posi-
tions in many of our product categories. We sell our prod-
ucts primarily to authorized paper distributors, converters
and specialty businesses, with sales to distributors and
distributor-owned paper stores accounting for more than
two-thirds of sales. We believe that our fi ne paper manufac-
turing facilities located in Appleton, Neenah and Whiting,
Wisconsin are among the most effi cient in their markets and
make us one of the lowest cost producers in the product
categories in which we compete.
Our technical products business is a leading inter-
national producer of transportation and other fi lter media;
durable, saturated and coated base papers for a variety of
end uses and nonwoven wall coverings. We sell our techni-
cal products globally in 17 product categories through fi ve
SBUs. We focus on categories where we believe we are, or
can be, a market leader, which include, among others, the
tape, abrasive, transportation and other fi ltration media,
nonwoven wall coverings, medical packaging and image
transfer technical products markets. We are also a global
supplier of materials used for customer-specifi c applications
in furniture, book covers and original equipment manufac-
turers’ products. Our customers are located in more than
35 countries. Our technical products manufacturing facili-
ties are located in Munising, Michigan and near Munich and
Frankfurt, Germany.
RESU LTS OF OPER ATIONS AND
RELAT ED IN FOR MATION
In this section, we discuss and analyze our net sales, income
before interest and income taxes (which we refer to as
“operating income” in this Management’s Discussion and
Analysis of Financial Condition and Results of Operations)
and other information relevant to an understanding of our
results of operations.
EXECUTIVE SUM MARY
S T R A T E G I C I N I T I A T I V E S
Since the Spin-Off in 2004, we have completed several
initiatives that have allowed us to succeed in our strategy
to transform the Company into a more focused and larger
premium fi ne paper and technical products company.
In 2006, we divested our Terrace Bay pulp operations,
acquired the German technical and specialty paper busi-
ness of FiberMark and sold 500,000 acres of woodlands in
Nova Scotia. In 2007, we purchased Fox River to expand
our fi ne paper business. In June 2008, Neenah Canada sold
our remaining pulp mill located in Pictou, Nova Scotia to
Northern Pulp, which assumed responsibility for all of the
assets and liabilities associated with operation of the mill.
On March 1, 2010, we announced that Neenah
Canada had signed a defi nitive agreement to sell the
Woodlands. See Note 17, “Subsequent Event” of Notes
to Consolidated Financial Statements. We expect the
sale of the Woodlands to result in a substantial gain. The
Woodlands operation currently generates revenue through
a stumpage agreement (the “Stumpage Agreement”)
with Northern Pulp that allows them to harvest an aver-
age of approximately 400,000 metric tons of softwood
timber annually from the Woodlands at market prices.
The Stumpage Agreement will be terminated in con-
junction with the sale of the Woodlands. For the years
ended December 31, 2009, 2008 and 2007, the results
of the Pictou Mill and the Woodlands are reported as
discontinued operations.
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
R E S U L T S O F C O N T I N U I N G O P E R A T I O N S
For the year ended December 31, 2009, consolidated net
sales decreased approximately 22 percent from the prior
year to $573.9 million. The decrease was primarily due
to lower volume in both businesses as a result of sharply
reduced market demand following severe global economic
weakness, particularly in the fi rst half of 2009. The effect
on demand of the global economic contraction was exac-
erbated in the fi rst half of 2009 by a sharp decline in con-
sumption for a number of key end use market segments,
including advertising, fi nancial institutions and the transpor-
tation and real estate segments and inventory destocking
by our direct customers.
Despite the lower volumes, consolidated operat-
ing income of $16.4 million for the year ended December 31,
2009 increased $35.7 million from the prior year. Operating
results for the year ended December 31, 2009 include
costs of $17.1 million related to the closure of the Ripon
Mill in May 2009. Operating results for the year ended
December 31, 2008, include a charge of $54.5 million
related to the impairment of goodwill and other intangible
assets, and gains of approximately $6.3 million from the
sale of certain Fox River assets and $4.3 million from the
settlement of certain Terrace Bay postretirement benefi ts.
Excluding such items, consolidated operating income as
adjusted in 2009 increased $8.9 million from the prior year
primarily due to reduced spending as a result of initiatives
implemented to control operating costs and also lower
manufacturing input costs. These favorable factors were
only partially offset by the effects of lower volume and
reduced paper mill operating schedules.
R E S U L T S O F D I S C O N T I N U E D O P E R A T I O N S
For the year ended December 31, 2009, timber sales to
Northern Pulp pursuant to the Stumpage Agreement
resulted in net sales from discontinued operations of
$3.7 million. Net sales of discontinued operations for the
year ended December 31, 2008 were $101.9 million primar-
ily from pulp sales at the Pictou Mill in the fi rst six months
of 2008. For the year ended December 31, 2009, pre-tax
income from discontinued operations was $2.5 million. For
the year ended December 31, 2008, we recorded a pre-tax
loss from discontinued operations of $180.9 million. The
pre-tax loss in 2008 included non-cash charges of $91.2 mil-
lion to write off the long-lived assets of the Pictou Mill and a
loss of $83.1 million on disposal of the Pictou Mill.
Neenah Paper, Inc. 2009 Annual Report
61
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
I N C O M E T A X E S
In general, our effective tax rate differs from the U.S. statu-
tory tax rate of 35 percent primarily due to the benefi ts of
our corporate tax structure and the proportion of pre-tax
income in jurisdictions with marginal tax rates that dif-
fer from the U.S. statutory tax rate. For the year ended
December 31, 2009, we recorded an income tax benefi t
related to continuing operations of $5.0 million, which
resulted in an effective income tax benefi t rate of approxi-
mately 74 percent. For the year ended December 31, 2008,
we recorded an income tax provision related to continuing
operations of $3.0 million, which resulted in an effective
income tax rate of approximately 7 percent. Our effective
tax rate for the year ended December 31, 2008 was also
signifi cantly affected by the non-tax-deductible nature
of the goodwill impairment charge and an increase in the
limitation on available tax benefi ts acquired in the Fox River
acquisition. Excluding such items, our effective income tax
rate for the year ended December 31, 2008 was approxi-
mately 36 percent.
tax benefi t of $8.8 million for the year ended December 31,
2007 in accordance with ASC Topic 740, “Income Taxes”
(“ASC Topic 740”). Excluding the impact of the German tax
law amendment on our deferred tax liabilities and other
tax adjustments, our effective tax rate for the year ended
December 31, 2007 was approximately 17 percent.
A N A L Y S I S O F N E T S A L E S – Y E A R S E N D E D
D E C E M B E R 3 1 , 2 0 0 9 , 2 0 0 8 A N D 2 0 0 7
The following table presents net sales by segment,
expressed as a percentage of total net sales before inter-
segment eliminations:
Fine Paper
Technical Products
Total
Year Ended December 31,
2009
2008
2007
45%
55%
100%
46%
54%
100%
48%
52%
100%
The following table presents our net sales by seg-
For the year ended December 31, 2007, our effec-
ment for the periods indicated:
tive tax rate was approximately 13 percent. Our effective
tax rate for the year ended December 31, 2007 was signifi -
cantly affected by a reduction in German statutory income
tax rates effective as of January 1, 2008. Application of the
new rates to our existing deferred tax assets and liabilities
reduced our net deferred tax liabilities at December 31,
2007. The reduction in our net deferred tax liabilities due
to the benefi t of the tax rate change resulted in an income
Fine Paper
Technical Products
Intersegment sales
Consolidated
Years Ended December 31,
2009
2008
2007
$255.6
318.3
–
$573.9
$335.5
396.8
–
$732.3
$366.5
400.8
(0.3)
$767.0
C O M M E N T A R Y :
Y E A R 2 0 0 9 V E R S U S 2 0 0 8
Fine Paper
Technical Products
Consolidated
For the Year Ended
December 31,
2009
2008
$255.6
318.3
$573.9
$335.5
396.8
$732.3
Change in Net Sales Compared to the Prior Year
Total
Change
$ (79.9)
(78.5)
$(158.4)
Change Due To
Average
Net Price
$ 4.5
(3.0)
$ 1.5
Volume
$ (84.4)
(64.5)
$(148.9)
Currency
$ –
(11.0)
$(11.0)
Consolidated net sales of $573.9 million for the
year ended December 31, 2009 were $158.4 million lower
than the prior year, primarily due to lower volumes. In addi-
tion, results refl ected unfavorable currency translation effects
due to the weakening of the Euro versus the U.S. dollar.
• Net sales in our fi ne paper business of $255.6 million
decreased $79.9 million, or 24 percent, primarily due to
a 25 percent decrease in shipments. We believe that we
were able to improve our market share position based on
the AF&PA report of a 27 percent year-over-year industry
decline in the premium writing, text and cover uncoated
free sheet paper category. Lower sales volume refl ected a
sharp decline in consumption for a number of key end use
market segments, including advertising, fi nancial institu-
tions and the transportation and real estate segments.
Market demand began to decline in late 2008 and contin-
ued throughout 2009. The increase in average net price
refl ected the realization of price increases on branded
62
Neenah Paper, Inc. 2009 Annual Report
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
and nonbranded products that were implemented in
2008. Price increases of approximately three percent on
branded products announced late in 2009 will not mean-
ingfully impact results until 2010.
• Net sales in our technical products business of $318.3 mil-
lion decreased $78.5 million or 20 percent, primarily due
to a 16 percent decrease in shipments. Lower sales vol-
ume refl ected decreased demand in most markets due to
weaker economic conditions and inventory destocking by
our direct customers, particularly in the fi rst half of 2009.
Sales were also lower as a result of unfavorable cur-
rency translation effects due to average Euro/U.S. dollar
exchange rates that were fi ve percent lower in 2009 than
in the prior year. Net sales were also adversely affected by
lower selling prices for certain products in our European
business, particularly Tape and Wall Cover, which were
infl uenced by currency factors for export prices and addi-
tional market capacity, respectively.
Y E A R 2 0 0 8 V E R S U S 2 0 0 7
Fine Paper
Technical Products
Intersegment sales
Consolidated
For the Year Ended
December 31,
2008
2007
$335.5
396.8
–
$732.3
$366.5
400.8
(0.3)
$767.0
Change in Net Sales Compared to the Prior Year
Total
Change
$(31.0)
(4.0)
0.3
$(34.7)
Change Due To
Average
Net Price
$ 0.6
16.3
–
$16.9
Volume
$(31.6)
(40.9)
0.3
$(72.2)
Currency
$ –
20.6
–
$20.6
Consolidated net sales of $732.3 million in the
year ended December 31, 2008 were $34.7 million lower
than the prior year, primarily due to lower volumes and a less
favorable product mix in our fi ne paper business, partially
offset by the realization of price increases and favorable cur-
rency translation effects due to the strengthening of the Euro
versus the U.S. dollar.
• Net sales in our fi ne paper business of $335.5 million
decreased $31.0 million, or 8 percent, primarily due to a
9 percent decrease in shipments. The lower volume was
primarily due to an unusually large market decline in 2008
for premium uncoated free sheet papers as a result of
weaker economic conditions, partially offset by incremen-
tal sales related to the acquisition of Fox River in March
2007. The increase in average net price refl ected higher
selling prices for most products that were partially offset
by a less favorable mix. The less favorable mix was primar-
ily due to the dilutive nature of the relatively lower priced
grades acquired with Fox River.
• Net sales in our technical products business of $396.8 mil-
lion decreased $4.0 million, or 1 percent, primarily due
to lower volumes for certain products that were partially
offset by favorable currency effects and higher net prices.
Average net prices increased approximately 4.1 percent
due to a more favorable mix and higher selling prices. The
mix improvement refl ected an increased proportion of
sales of higher priced products such as fi ltration and abra-
sives. Volumes declined primarily due to weaker economic
conditions and lower export tape sales from Germany as a
result of the strengthening of the Euro.
The following table sets forth line items from our
consolidated statements of operations as a percentage of
net sales for the periods indicated and is intended to provide
a perspective of trends in our historical results:
Net sales
Cost of products sold
Gross profi t
Selling, general and
administrative expenses
Other income – net
Restructuring costs
Goodwill and other intangible
asset impairment charge
Operating income (loss)
Interest expense – net
Income (loss) from continuing
operations before
income taxes
Provision (benefi t) for
income taxes
Income (loss) from
Year Ended December 31,
2009
2008
2007
100.0%
82.3
17.7
100.0%
86.5
13.5
100.0%
82.9
17.1
12.0
(0.1)
3.0
–
2.8
4.0
10.3
(1.6)
–
7.4
(2.6)
3.4
10.3
(0.2)
–
–
7.0
3.3
(1.2)
(6.0)
3.7
(0.9)
0.5
(0.5)
continuing operations
(0.3)%
(6.5)%
4.2%
Neenah Paper, Inc. 2009 Annual Report
63
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
A N A L Y S I S O F O P E R A T I N G I N C O M E – Y E A R S E N D E D
D E C E M B E R 3 1 , 2 0 0 9 , 2 0 0 8 A N D 2 0 0 7
The following table reconciles our operating income (loss)
by segment to consolidated operating income as adjusted
for the periods indicated:
Operating income (loss)
Fine Paper
Technical Products
Unallocated corporate costs
Consolidated Operating
Year Ended December 31,
2009
2008
2007
$ 17.5
14.4
(15.5)
$ 34.0
(42.3)
(11.0)
$ 46.6
24.7
(17.4)
Income
16.4
(19.3)
53.9
Adjustments for Unusual Items
Fine Paper adjustments
Closure of the Ripon Mill
Gain on sale of Fox River assets
Fox River integration costs
Total
17.1
–
–
17.1
–
(6.3)
–
(6.3)
Technical Products adjustment
Goodwill impairment charge
Unallocated corporate
costs adjustment
Settlement of Terrace Bay
retiree litigation
Total adjustments
Consolidated Operating
–
54.5
–
17.1
(4.3)
43.9
5.2
10.4
–
–
5.2
5.2
–
In accordance with generally accepted account-
ing principles in the United States (“GAAP”), consolidated
operating income (loss) includes the pre-tax effects of
unusual items. We believe that by adjusting reported oper-
ating income (loss) to exclude the effects of unusual items,
the resulting adjusted operating income is on a basis that
refl ects the results of our ongoing operations. We believe
that investors gain additional perspective of underlying busi-
ness trends and results by providing a measure of operating
results that exclude certain gains and losses that are not
expected to affect future consolidated or segment operating
performance. Adjusted operating income is not a recognized
term under GAAP and should not be considered in isolation
or as a substitute for operating income derived in accor-
dance with GAAP. Other companies may use different meth-
odologies for calculating their non-GAAP fi nancial measures
and, accordingly, our non-GAAP fi nancial measures may not
be comparable to their measures.
Income as Adjusted
$ 33.5
$ 24.6
$ 64.3
C O M M E N T A R Y :
Y E A R 2 0 0 9 V E R S U S 2 0 0 8
Fine Paper(d)
Technical Products(e)
Unallocated corporate costs(f)
Consolidated
For the Year Ended
December 31,
2009
2008
$ 17.5
14.4
(15.5)
$ 16.4
$ 34.0
(42.3)
(11.0)
$(19.3)
Total
Change
$(16.5)
56.7
(4.5)
$ 35.7
Change in Operating Income (Loss)
Compared to the Prior Year
Change Due To
Material
Volume
Net Price(a)
Costs(b)
Currency
Other(c)
$(23.4)
(23.2)
–
$(46.6)
$ 5.4
(6.3)
–
$(0.9)
$13.3
12.6
–
$25.9
$ –
(0.1)
–
$(0.1)
$(11.8)
73.7
(4.5)
$ 57.4
(a) Includes price changes, net of changes in product mix.
(b) Includes price changes for raw materials and energy.
(c) Includes $30.7 million of improvements from reductions in other manufacturing costs, distribution, selling, general and administrative expenses and net
improvements of $26.8 million related to items described in notes (d), (e) and (f).
(d) For the year ended December 31, 2009, results for the Fine Paper segment include a pre-tax charge of $17.1 million related to the closure of the Ripon Mill.
For the year ended December 31, 2008 results include gains of $6.3 million from the sale of certain Fox River assets.
(e) For the year ended December 31, 2008, results for the Technical Products segment include a non-cash pre-tax goodwill and other intangible asset impairment
(f)
charge of $54.5 million.
For the year ended December 31, 2008, unallocated corporate costs include a gain of $4.3 million for a settlement of certain benefi ts earned by Terrace
Bay retirees.
64
Neenah Paper, Inc. 2009 Annual Report
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
Consolidated operating income of $16.4 million
for the year ended December 31, 2009 increased $35.7 mil-
lion compared to the prior year. Operating results for the
year ended December 31, 2009 include costs of $17.1 mil-
lion related to the closure of the Ripon Mill in May 2009.
Operating results for the year ended December 31, 2008,
include a charge of $54.5 million related to the impair-
ment of goodwill and other intangible assets, and gains of
approximately $6.3 million from the sale of certain Fox River
assets and $4.3 million the settlement of certain Terrace
Bay postretirement benefi ts. Excluding such items, con-
solidated operating income as adjusted for the year ended
December 31, 2009 increased $8.9 million from the prior
year due to actions taken across all businesses to reduce
costs and control spending and from lower manufacturing
input costs, particularly for pulp and latex. These favor-
able factors were only partially offset by lower volume and
reductions in paper machine operating schedules.
• Operating income for our fi ne paper business of
$17.5 million decreased $16.5 million compared to the
prior year. Excluding costs of $17.1 million associated
with closing the Ripon Mill and the gain of approximately
$6.3 million in 2008 from assets sales, operating income
for our fi ne paper business increased $6.9 million primar-
ily due to lower manufacturing input costs, principally
for hardwood pulp, lower operating and administrative
Y E A R 2 0 0 8 V E R S U S 2 0 0 7
spending due to cost reduction initiatives, including clos-
ing the Ripon Mill, and higher average net selling prices
due to the realization of price increases implemented in
2008. These favorable factors were partially offset by the
effects of lower volume and reductions in paper machine
operating schedules.
• Operating income for our technical products business
of $14.4 million increased $56.7 million compared to
the prior year. Excluding the asset impairment charge,
operating income for our technical products business
increased $2.2 million from the prior year primarily due
to lower spending resulting from the implementation
of cost reduction initiatives and from lower manufactur-
ing input costs, principally for pulp and latex. These
favorable factors were partially offset by lower volume,
reduced paper machine operating schedules and, to a
lesser extent, lower average net selling prices.
• Unallocated corporate expenses increased $4.5 mil-
lion compared to the prior year. Unallocated corporate
expense for the year ended December 31, 2008 included
a non-cash gain of approximately $4.3 million related
to the settlement of certain postretirement benefi ts we
retained following the sale of our Terrace Bay pulp mill.
Excluding this gain, unallocated corporate expenses
were essentially unchanged from the prior year.
For the Year Ended
December 31,
2008
$ 34.0
(42.3)
(11.0)
$(19.3)
2007
$ 46.6
24.7
(17.4)
$ 53.9
Total
Change
$(12.6)
(67.0)
6.4
$(73.2)
Change in Operating Income (Loss)
Compared to the Prior Year
Change Due To
Material
Volume
Net Price(a)
Costs(b)
Currency
Other(c)
$ (4.1)
(7.3)
–
$(11.4)
$(0.7)
8.1
–
$ 7.4
$(12.2)
(13.7)
–
$(25.9)
$ –
1.9
–
$1.9
$ 4.4
(56.0)
6.4
$(45.2)
Fine Paper(d)
Technical Products(e)
Unallocated corporate costs(f)
Consolidated
(a) Includes price changes, net of changes in product mix.
(b) Includes price changes for raw materials and energy.
(c) Includes other manufacturing costs, distribution, selling, general and administrative expenses and gains and losses on asset sales.
(d) For the year ended December 31, 2008, results for the Fine Paper segment include gains of $6.3 million from the sale of certain Fox River assets. For the year
ended December 31, 2007, results for Fine Paper segment includes costs of approximately $5.2 million related to the integration of the Fox River acquisition.
(e) For the year ended December 31, 2008, results for the Technical Products segment include a non-cash pre-tax goodwill and other intangible asset impairment
(f)
charge of $54.5 million.
For the year ended December 31, 2008, unallocated corporate costs include a gain of $4.3 million for a settlement of certain benefi ts earned by Terrace Bay
retirees. For the year ended December 31, 2007, unallocated corporate costs include a loss of approximately $5.2 million related to the settlement of Terrace
Bay retiree litigation.
Neenah Paper, Inc. 2009 Annual Report
65
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
For the year ended December 31, 2008, we
incurred a consolidated operating loss of $19.3 million
primarily due to a non-cash pre-tax goodwill and other
intangible asset impairment charge of $54.5 million. In
addition, consolidated operating results for the year ended
December 31, 2008 included gains of approximately
$6.3 million from the sale of certain Fox River assets and
$4.3 million the settlement of certain Terrace Bay post-
retirement benefi ts. Operating results for the year ended
December 31, 2007 include approximately $5.2 million for
costs related to the integration of the Fox River acquisition
and $5.2 million related to the settlement of Terrace Bay
retiree litigation. Excluding these items, consolidated oper-
ating income as adjusted for the year ended December 31,
2008 decreased $39.7 million compared to 2007 primarily
due to increased manufacturing input costs that exceeded
selling price increases in both businesses, lower volumes
and a less favorable mix of products in our fi ne paper busi-
ness. These unfavorable factors more than offset benefi ts
related to improved manufacturing operations and lower
administrative costs.
• Operating income for our fi ne paper business of
$34.0 million decreased $12.6 million, primarily due to
higher manufacturing input costs, principally for hard-
wood pulp and energy, a less favorable product mix due
to the dilutive effect of selling relatively lower priced
grades acquired in the Fox River acquisition and lower
volumes. These unfavorable factors were only partially
offset by gains on asset sales of approximately $6.3 mil-
lion, higher selling prices, improved manufacturing
effi ciencies and incremental volume related to the
acquisition of Fox River.
• Our technical products business incurred an operat-
ing loss of $42.3 million for the current year due to a
non-cash pre-tax goodwill and other intangible asset
impairment charge of $54.5 million. Excluding the
asset impairment charge in 2008, operating income
for our technical products business of $12.2 million
decreased $12.5 million from the prior year, primar-
ily due to higher manufacturing input costs and lower
volume. The increase in manufacturing costs primarily
refl ected higher input prices for energy, pulp and latex
and increased costs in Germany following the start-up of
new and rebuilt assets. These unfavorable factors were
partially offset by improved pricing and mix, improved
manufacturing operations and the favorable translation
impact from a stronger Euro relative to the U.S. dollar.
• Unallocated corporate expenses decreased $6.4 mil-
lion, primarily due to the favorable settlement of certain
employee benefi t liabilities that we retained follow-
ing the sale of our Terrace Bay pulp mill and due to
decreased spending for other corporate expenses
A D D I T I O N A L S T A T E M E N T O F O P E R A T I O N S C O M M E N T A R Y :
• For the years ended December 31, 2009, 2008 and 2007,
we incurred $23.4 million, $25.0 million and $25.5 mil-
lion, respectively, of interest expense. The decrease in
interest expense for 2009 as compared to 2008 was due
to lower average borrowings and lower average inter-
est rates. In addition, during the fourth quarter of 2009,
we recognized additional interest expense of approxi-
mately $1.4 million for costs incurred in conjunction with
amending and restating our bank credit agreement and
to write off deferred fi nancing costs associated with our
previous bank credit agreement. The decrease in net
interest expense in 2008 versus 2007 was primarily due
to lower average interest rates, partially offset by higher
average borrowings.
• In general, our effective tax rate differs from the U.S.
statutory tax rate of 35 percent, primarily due to the
benefi ts of our corporate tax structure and the propor-
tion of pre-tax income in jurisdictions with marginal tax
rates that differ from the U.S. statutory tax rate. For the
year ended December 31, 2009, we recorded an income
tax benefi t related to continuing operations of $5.0 mil-
lion, which resulted in an effective income tax (benefi t)
rate of approximately (74) percent. For the year ended
December 31, 2008, we recorded an income tax provi-
sion related to continuing operations of $3.0 million,
which resulted in an effective income tax rate of approxi-
mately 7 percent. Our effective tax rate for the year
ended December 31, 2008 was also signifi cantly affected
by the non-tax-deductible nature of the goodwill impair-
ment charge and an increase in the limitation on avail-
able tax benefi ts acquired in the Fox River acquisition.
Excluding such items, our effective income tax rate for
the year ended December 31, 2008 was approximately
36 percent.
66
Neenah Paper, Inc. 2009 Annual Report
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
• For the year ended December 31, 2007, our effective tax
rate was approximately 13 percent. Our effective tax rate
for the year ended December 31, 2007 was signifi cantly
affected by a reduction in German statutory income
tax rates effective as of January 1, 2008. Application
of the new rates to our existing deferred tax assets
and liabilities reduced our net deferred tax liabilities at
December 31, 2007. The reduction in our net deferred
tax liabilities due to the benefi t of the tax rate change
resulted in an income tax benefi t of $8.8 million for the
year ended December 31, 2007 in accordance with ASC
Topic 740. Excluding the impact of the German tax law
amendment on our deferred tax liabilities and other tax
adjustments, our effective tax rate for the year ended
December 31, 2007 was approximately 17 percent. See
“Executive Summary – Income Taxes.” For a reconcilia-
tion of our annual effective tax rates see Note 6, “Income
Taxes” of Notes to Consolidated Financial Statements.
LIQU IDITY AND CAPITAL RESOURCES
Net cash fl ow provided
by (used in):
Operating activities
Investing activities
Capital expenditures
Other investing activities
Total
Year Ended December 31,
2009
2008
2007
$ 64.9
$ 13.1
$ 69.5
(8.4)
0.1
(8.3)
(30.0)
(0.4)
(30.4)
(58.3)
(55.1)
(113.4)
Financing activities
(54.2)
18.2
43.8
O P E R A T I N G C A S H F L O W C O M M E N T A R Y :
• Cash provided by operating activities of $64.9 million
for the year ended December 31, 2009 was $51.8 mil-
lion favorable to cash provided by operating activities of
$13.1 million in the prior year. The favorable comparison
to the prior year was due to cash provided by decreased
investments in working capital of $27.4 million, includ-
ing the receipt of a refund of U.S. income taxes. For the
year ended December 31, 2008, cash used for increased
investments in working capital was $21.1 million.
• For the year ended December 31, 2009, we received
approximately $10.9 million in refunds of U.S. income
taxes. As of December 31, 2009, we had approximately
$65.3 million of U.S. federal and $75.4 million of
U.S. state NOLs that may be carried forward to offset
future taxable income through 2029.
• Cash provided by operating activities of $13.1 million for
the year ended December 31, 2008 was $56.4 million
lower than cash provided by operating activities in the
prior year. The unfavorable comparison to the prior year
was primarily due to an increase in cash used by oper-
ating activities of our discontinued pulp operations of
approximately $33.4 million, lower earnings (excluding
the effects of non-cash items) and increased investments
in working capital in 2008.
I N V E S T I N G C O M M E N T A R Y :
• For the year ended December 31, 2009, cash used
in investing activities was $8.3 million, a decrease of
$22.1 million versus the prior year due to a reduction
of $21.6 million in capital spending.
• For the year ended December 31, 2008, cash used
in investing activities includes payments by Neenah
Canada of approximately $10.3 million to Northern Pulp
in connection with the transfer of the Pictou Mill. In addi-
tion, we paid approximately $3.3 million in transaction
costs. Such payments were more than offset by pro-
ceeds of $13.8 million, primarily from the sale of certain
Fox River assets.
• We have aggregate planned capital expenditures for
2010 of approximately $15 million. We believe that
the level of our capital spending for 2010 is consistent
with current economic conditions and will allow us to
maintain the effi ciency and cost effectiveness of our
manufacturing assets.
• For the year ended December 31, 2008, cash used in
investing activities was $30.4 million, a decrease of
$83.0 million versus the prior year. The decrease in cash
used was primarily due to spending of $54.7 million for
the acquisition of Fox River in 2007. Capital spending
for the year ended December 31, 2008 was $30.0 mil-
lion compared to spending of $58.3 million in the 2007.
The reduction in capital spending is primarily due to
expenditures in 2007 for major projects to increase
capacity and improve effi ciency at Neenah Germany and
for capital spending related to our enterprise resource
planning system.
Neenah Paper, Inc. 2009 Annual Report
67
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
F I N A N C I N G C O M M E N T A R Y :
In November 2009, we renewed and modifi ed our bank
credit agreement by entering into an amended and restated
credit agreement (the “Restated Credit Agreement”). The
Restated Credit Agreement consists of a $100 million senior
secured revolving credit facility (the “New Revolver”) and a
$40 million senior secured term loan (the “New Term Loan”).
The Restated Credit Agreement matures in November 2013.
Under certain conditions, we have the ability to increase
the size of the New Revolver by up to $50 million. The total
amount outstanding under the Restated Credit Agreement
cannot exceed $150 million.
Our liquidity requirements are provided by cash
generated from operations, short- and long-term borrow-
ings and proceeds from asset sales. Availability under the
New Revolver varies over time depending on the value of
our inventory, receivables and various capital assets. As of
December 31, 2009, we had $27.9 million outstanding under
the New Revolver, outstanding letters of credit of $1.0 mil-
lion and $60.6 million of available credit. In addition, we
have €6.0 million ($8.6 million, based on exchange rates
at December 31, 2009) of available credit under a secured
€15 million revolving line of credit at Neenah Germany (the
“German Line of Credit”).
• For the year ended December 31, 2009, net repayments
on our New Revolver and the German Line of Credit
were $73.2 million and $4.1 million, respectively. We
repaid $7.2 million on a previous term loan, includ-
ing amounts repaid with proceeds from the New Term
Loan. In addition, we repaid $1.8 million on a €10 mil-
lion construction fi nancing agreement (the “German
Loan Agreement”).
• We paid aggregate annual cash dividends of $0.40 per
share or approximately $5.9 million, $6.0 million and
$6.0 million for the years ended December 31, 2009,
2008 and 2007, respectively.
• For the year ended December 31, 2009, cash and cash
equivalents increased $2.3 million.
• For the year ended December 31, 2008, we paid approxi-
mately $9.4 million to purchase shares of common stock
in connection with a reverse/forward split of issued and
outstanding shares of common stock.
• Our required debt payments through December 31, 2010
are $55.6 million. Such payments include $40 million to
prepay the New Term Loan with proceeds from the sale
of the Woodlands, required amortization payments on
the German Loan Agreement of approximately $1.8 mil-
lion and $12.9 million on our German Line of Credit,
which we expect to renew in November 2010.
• On March 1, 2010, we announced that Neenah Canada
had signed a defi nitive agreement to sell the Woodlands
for C$82.5 million ($78.6 million). Proceeds from the
sale will be used to repay the $40 million New Term
Loan in full and reduce the balance of revolving loans
outstanding under our Restated Credit Agreement to
zero. In addition, approximately $3.1 million in contract
termination payments related to the closure of the
Ripon Mill will become due and payable upon the sale
of the Woodlands. Our ability to use proceeds in excess
of amounts outstanding under the Restated Credit
Agreement is restricted to “permitted uses” as defi ned
in the indenture for our ten-year unsecured senior notes
(the “Senior Notes”). The transaction is not expected
to generate a cash tax liability because the tax basis for
the Woodlands is approximately equal to the sale price.
Fees and other costs associated with the transaction
are minimal.
Management believes that our ability to generate
cash from operations and our borrowing capacity are ade-
quate to fund working capital, capital spending and other
cash needs for the next 12 months. Our ability to generate
adequate cash from operations beyond 2010 will depend
on, among other things, our ability to successfully imple-
ment our business strategies, control costs in line with mar-
ket conditions and manage the impact of changes in input
prices and currencies. We can give no assurance we will be
able to successfully implement these items.
68
Neenah Paper, Inc. 2009 Annual Report
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
C O N T R A C T U A L O B L I G A T I O N S
The following table presents the total contractual obligations for which cash fl ows are fi xed or determinable as of December 31, 2009:
(In millions)
Minimum purchase commitments(a)
Long-term debt payments
Interest payments on long-term debt(b)
Other post-employment benefi t obligations(c)
Operating leases
Open purchase orders(d)
Contributions to pension trusts
Liability for uncertain tax positions
Total contractual obligations
2010
$ 4.4
55.6
19.6
2.5
3.0
59.2
11.4
9.5
$165.2
2011
$ 0.4
1.8
18.1
1.7
2.6
–
3.4
–
$28.0
2012
$ 0.4
1.7
18.2
2.0
2.0
–
3.3
–
$27.6
2013
$ 0.4
29.7
18.0
2.4
0.8
–
3.3
–
$54.6
2014
$ 0.4
226.8
16.1
2.7
0.5
–
3.3
–
$249.8
Beyond
2014
$ 1.8
3.6
0.1
18.5
1.2
–
–
–
$25.2
Total
$ 7.8
319.2
90.1
29.8
10.1
59.2
24.7
9.5
$550.4
(a) The minimum purchase commitments in 2010 are primarily for natural gas contracts. Although we are primarily liable for payments on the above operating
leases and minimum purchase commitments, based on historical operating performance and forecasted future cash fl ows, we believe our exposure to losses, if
any, under these arrangements is not material.
(b) Interest payments on long-term debt includes interest on variable rate debt at December 31, 2009 weighted average interest rates.
(c) The above table includes future payments that we will make for postretirement benefi ts other than pensions. Those amounts are estimated using actuarial
assumptions, including expected future service, to project the future obligations.
(d) The open purchase orders displayed in the table represent amounts we anticipate will become payable within the next 12 months for goods and services that
we have negotiated for delivery.
AD OPTION OF NEW
ACCO UNTIN G PRONOUNCEM ENTS
On July 1, 2009, we adopted Statement of Financial
Accounting Standards No. 168, The FASB Accounting
Standards Codifi cation and the Hierarchy of Generally
Accepted Accounting Principles – a replacement of FASB
Statement No. 162 (“SFAS No. 168”). SFAS No. 168 estab-
lished the ASC as the source of authoritative U.S. GAAP to
be applied by nongovernmental entities. Rules and inter-
pretive releases of the SEC under authority of federal secu-
rities laws are also sources of authoritative GAAP for SEC
registrants. SFAS No. 168 supersedes all existing non-
SEC accounting and reporting standards. All non-SEC
accounting literature not included in the ASC is nonauthori-
tative. Our adoption of SFAS No. 168 did not have an effect
on its fi nancial position, results of operation or cash fl ows.
As of January 1, 2009, we adopted the enhanced
required annual disclosures about plan assets in an employ-
er’s defi ned benefi t pension or other postretirement plan in
ASC Topic 715. Such enhanced disclosures include, but are
not limited to, investment allocation decisions, the inputs
and valuation techniques used to measure the fair value
of plan assets and signifi cant concentrations of risk within
plan assets. See Note 8, “Pension and Other Postretirement
Benefi ts” of Notes to Consolidated Financial Statements.
On December 15, 2009, we adopted the dis-
closure requirements of Accounting Standards Update
No. 2009-12, which amends ASC sub-topic 820-10, Fair
Value Measurements and Disclosures (“ASU No. 2009-12”).
ASU No. 2009-12 permits a reporting entity, as a practi-
cal expedient, to estimate the fair value of an investment
using the net asset value per share (or its equivalent) of the
investment, if the net asset value per share of the invest-
ment (or its equivalent) is calculated in a manner consistent
with the measurement principles of ASC Topic 946, Financial
Neenah Paper, Inc. 2009 Annual Report
69
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
Services – Investment Companies as of the reporting entity’s
measurement date. The adoption of ASU No. 2009-12 did not
have an effect on our results of operations, fi nancial position
or cash fl ows.
CR ITICAL ACCOUNTING POLICIES AND
U S E O F ESTIMATES
The preparation of fi nancial statements in conformity with
GAAP in the United States requires estimates and assump-
tions that affect the reported amounts and related disclo-
sures of assets and liabilities at the date of the fi nancial
statements and net sales and expenses during the reporting
period. Actual results could differ from these estimates, and
changes in these estimates are recorded when known. The
critical accounting policies used in the preparation of the
consolidated fi nancial statements are those that are impor-
tant both to the presentation of fi nancial condition and
results of operations and require signifi cant judgments with
regard to estimates used. These critical judgments relate to
the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities, and the reported amounts
of revenue and expenses.
The following summary provides further informa-
tion about the critical accounting policies and should be read
in conjunction with the Notes to the Consolidated Financial
Statements. We believe that the consistent application of our
policies provides readers of our fi nancial statements with use-
ful and reliable information about our operating results and
fi nancial condition.
We have discussed the application of these
critical accounting policies with our Board of Directors and
Audit Committee.
R E V E N U E R E C O G N I T I O N
We recognize sales revenue when all of the following have
occurred: (1) delivery has occurred, (2) persuasive evidence
of an agreement exists, (3) pricing is fi xed or determin-
able, and (4) collection is reasonably assured. Delivery is
not considered to have occurred until the customer takes
title and assumes the risks and rewards of ownership. The
timing of revenue recognition is largely dependent on ship-
ping terms. In general, our shipments are designated free
on board shipping point and we recognize revenue at the
time of shipment. Sales are reported net of allowable dis-
counts and estimated returns. Reserves for cash discounts,
trade allowances and sales returns are estimated using
historical experience.
I N V E N T O R I E S
We value U.S. inventories at the lower of cost, using the
Last-In, First-Out (“LIFO”) method for fi nancial reporting
purposes, or market. German inventories are valued at
the lower of cost, using a weighted-average cost method,
or market. The First-In, First-Out value of U.S. inventories
valued on the LIFO method was $58.2 million and $66.5 mil-
lion at December 31, 2009 and 2008, respectively and
exceeded such LIFO value by $8.7 million and $8.2 mil-
lion, respectively. Cost includes labor, materials and
production overhead.
I N C O M E T A X E S
As of December 31, 2009, we have recorded aggregate
deferred income tax assets of $100.6 million related to
temporary differences, and have established a valua-
tion allowance against these deferred income tax assets
of $1.5 million. As of December 31, 2008, our aggregate
deferred income tax assets were $100.7 million. In deter-
mining the need for valuation allowances, we consider
many factors, including specifi c taxing jurisdictions, sources
of taxable income, income tax strategies and forecasted
earnings for the entities in each jurisdiction. A valuation
allowance would be recognized if, based on the weight of
available evidence, we conclude that it is more likely than
not that some portion or all of the deferred income tax
assets will not be realized.
As of December 31, 2009 and 2008, our liability
for uncertain income taxes positions was $9.5 million and
$12.9 million, respectively. In evaluating and estimating tax
positions and tax benefi ts, we consider many factors which
may result in periodic adjustments and which may not accu-
rately anticipate actual outcomes.
P E N S I O N B E N E F I T S
Substantially all active employees of our U.S. paper opera-
tions participate in defi ned benefi t pension plans and/
or defi ned contribution retirement plans. In July 2007, the
Financial Services Commission of Ontario approved our
request to settle our pension obligations for active employ-
ees and terminate the Ontario Plan. In December 2007, the
Ontario Plan was terminated and all outstanding pension
obligations were settled through the purchase of annuity
contracts or lump-sum payments pursuant to participant
elections. In conjunction with the sale of the Pictou Mill,
Northern Pulp assumed responsibility for the Nova Scotia
Plan and other postretirement benefi t obligations for active
and retired employees of the mill. The Company accounted
70
Neenah Paper, Inc. 2009 Annual Report
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
for the transfer of these liabilities as a settlement of post-
retirement benefi t obligations pursuant to ASC Topic 715.
Substantially all of Neenah Germany’s employees partici-
pate in defi ned benefi t plans designed to provide a monthly
pension benefi t upon retirement. There is no legal or gov-
ernmental obligation to fund Neenah Germany’s benefi t
plans and, as such, the plans are currently unfunded.
Our funding policy for qualifi ed defi ned benefi t
plans is to contribute assets to fully fund the accumulated
benefi t obligation, as required by the Pension Protection Act
of 2006. Subject to regulatory and tax deductibility limits,
any funding shortfall is to be eliminated over a reasonable
number of years. Nonqualifi ed plans providing pension ben-
efi ts in excess of limitations imposed by the taxing authorities
are not funded.
Consolidated pension expense for defi ned benefi t
pension plans was $9.2 million, $7.8 million and $49.5 mil-
lion for the years ended December 31, 2009, 2008 and
2007, respectively. Pension expense for the year ended
December 31, 2008, excludes a non-cash, pre-tax settlement
loss of $53.7 million due to the reclassifi cation of deferred
pension and other postretirement benefi t adjustments
related to the transfer of the Nova Scotia Plan to Northern
Pulp from accumulated other comprehensive income to loss
from discontinued operations in the consolidated state-
ment of operations. Pension expense for the year ended
December 31, 2007, includes $38.7 million for losses related
to the settlement of pension obligations for active employees
in the Ontario Plan. In addition, we recognized a reduction
in pension expense of $1.2 million related to an amendment
to the Fox River defi ned benefi t pension plan to freeze the
vested pension benefi t for salaried employees born after
December 31, 1957. Pension expense is calculated based
upon a number of actuarial assumptions applied to each of
the defi ned benefi t plans.
The weighted-average expected long-term rate
of return on pension fund assets used to calculate pension
expense was 7.92 percent, 8.02 percent and 7.90 percent for
the years ended December 31, 2009, 2008 and 2007, respec-
tively. The expected long-term rate of return on pension fund
assets held by our pension trusts was determined based on
several factors, including input from pension investment con-
sultants and projected long-term returns of broad equity and
bond indices. We also considered the plans’ historical 10-year
and 15-year compounded annual returns. We anticipate that,
on average, actively managed U.S. pension plan assets will
generate annual long-term rates of return of at least 8 per-
cent. Our expected long-term rate of return on the assets in
the plans is based on an asset allocation assumption of about
60 percent with equity managers, with expected long-term
rates of return of approximately 10 percent, and 40 percent
with fi xed income managers, with an expected long-term
rate of return of about 6 percent. The actual asset allocation
is regularly reviewed and periodically rebalanced to the tar-
geted allocation when considered appropriate. We evaluate
our investment strategy and long-term rate of return on pen-
sion asset assumptions at least annually.
Pension expense is estimated based on the fair
value of assets rather than a market-related value that aver-
ages gains and losses over a period of years. Investment gains
or losses represent the difference between the expected
return calculated using the fair value of the assets and the
actual return based on the fair value of assets. The variance
between the actual and the expected gains and losses on pen-
sion assets is recognized in pension expense more rapidly than
it would be if a market-related value for plan assets was used.
As of December 31, 2009, our pension plans had cumulative
unrecognized investment losses and other actuarial losses of
approximately $28.9 million. These unrecognized net losses
may increase our future pension expense if not offset by
(i) actual investment returns that exceed the assumed invest-
ment returns, (ii) other factors, including reduced pension
liabilities arising from higher discount rates used to calculate
our pension obligations or (iii) other actuarial gains, including
whether such accumulated actuarial losses at each measure-
ment date exceed the “corridor” determined under ASC
Topic 715.
The discount (or settlement) rate that is utilized
for determining the present value of future pension obliga-
tions in the United States is generally based on the yield for
a theoretical basket of AA-rated corporate bonds currently
available in the market place, whose duration matches the
timing of expected pension benefi t payments. The discount
(or settlement) rate that is utilized for determining the pres-
ent value of future pension obligations in Germany is gener-
ally based on the IBOXX index of AA-rated corporate bonds
adjusted to match the timing of expected pension benefi t
payments. The weighted average discount rate utilized to
determine the present value of future pension obligations at
December 31, 2009 and 2008 was 6.17 percent and 6.80 per-
cent, respectively.
Our consolidated pension expense in 2009 is
based on the expected weighted-average long-term rate
of return on assets and the weighted-average discount rate
described above and various other assumptions. Pension
expense beyond 2009 will depend on future investment
Neenah Paper, Inc. 2009 Annual Report
71
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
performance, our contributions to the pension trusts,
changes in discount rates and various other factors related to
the covered employees in the plans.
The fair value of the assets in our defi ned benefi t
plans at December 31, 2009 of approximately $168 million
increased approximately $25 million from the fair value of
about $143 million at December 31, 2008, as investment
gains and employer contributions exceeded benefi t pay-
ments. At December 31, 2009, the projected benefi t obliga-
tions of our defi ned benefi t plans exceeded the fair value
of plan assets by approximately $66 million, which was
approximately $5 million smaller than the $71 million defi cit
at December 31, 2008. The accumulated benefi t obligation
exceeded the fair value of plan assets by approximately
$51.3 million and $52.8 million at December 31, 2009 and
2008, respectively. Contributions to pension trusts for the
year ended December 31, 2009 were $10.2 million compared
with $7.5 million for the year ended December 31, 2008. In
addition, we made direct benefi t payments for unfunded
supplemental retirement benefi ts of approximately $2.3 mil-
lion and $2.5 million for the years ended December 31, 2009
and 2008, respectively.
I M P A I R M E N T O F L O N G - L I V E D A S S E T S
P R O P E R T Y , P L A N T A N D E Q U I P M E N T
Property, plant and equipment are tested for impairment
in accordance with ASC Topic 360, Property, Plant, and
Equipment (“ASC Topic 360”), whenever events or changes
in circumstances indicate that the carrying amounts of such
long-lived assets may not be recoverable from future net
pre-tax cash fl ows. Impairment testing requires signifi cant
management judgment including estimating the future suc-
cess of product lines, future sales volumes, growth rates for
selling prices and costs, alternative uses for the assets and
estimated proceeds from disposal of the assets. Impairment
testing is conducted at the lowest level where cash fl ows
can be measured and are independent of cash fl ows of
other assets. An asset impairment would be indicated if the
sum of the expected future net pre-tax cash fl ows from the
use of the asset (undiscounted and without interest charges)
is less than the carrying amount of the asset. An impairment
loss would be measured based on the difference between
the fair value of the asset and its carrying amount. We
determine fair value based on an expected present value
technique using multiple cash fl ow scenarios that refl ect a
range of possible outcomes and a risk-free rate of interest
are used to estimate fair value.
The estimates and assumptions used in the impair-
ment analysis are consistent with the business plans and
estimates we use to manage our business operations. The
use of different assumptions would increase or decrease the
estimated fair value of the asset and would increase or decrease
the impairment charge. Actual outcomes may differ from
the estimates.
G O O D W I L L A N D O T H E R I N T A N G I B L E A S S E T S
W I T H I N D E F I N I T E L I V E S
Goodwill arising from a business combination is recorded as
the excess of purchase price and related costs over the fair
value of identifi able assets acquired and liabilities assumed
in accordance with ASC Topic 805, Business Combinations.
All of our goodwill was acquired in conjunction with the
acquisition of Neenah Germany in October 2006.
Under ASC Topic 350, Intangibles – Goodwill and
Other (“ASC Topic 350”), goodwill is subject to impairment
testing at least annually. A fair-value-based test is applied at
the reporting unit level, which is generally one level below
the segment level. The test compares the fair value of an
entity’s reporting units to the carrying value of those report-
ing units. This test requires various judgments and estimates.
We estimate the fair value of the reporting unit using a mar-
ket approach in combination with a probability-weighted
discounted operating cash fl ow approach for a number of
scenarios representing differing operating and economic
assumptions. We record an adjustment to goodwill for any
goodwill that is determined to be impaired.
Impairment of goodwill is measured as the excess
of the carrying amount of goodwill over the fair values of
recognized assets and liabilities of the reporting unit. We test
goodwill for impairment at least annually on November 30 in
conjunction with preparation of our annual business plan, or
more frequently if events or circumstances indicate it might
be impaired.
Certain trade names are estimated to have indefi -
nite useful lives and as such are not amortized. Intangible
assets with indefi nite lives are annually reviewed for impair-
ment in accordance with ASC Topic 350.
O T H E R I N T A N G I B L E A S S E T S W I T H F I N I T E L I V E S
Acquired intangible assets with fi nite useful lives are amor-
tized on a straight-line basis over their respective esti-
mated useful lives to their estimated residual values, and
72
Neenah Paper, Inc. 2009 Annual Report
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
reviewed for impairment in accordance with ASC Topic 360.
Intangible assets consist primarily of customer relationships,
trade names and acquired intellectual property. Such intan-
gible assets are amortized using the straight-line method
over estimated useful lives of between 10 and 15 years.
I M P A I R M E N T O F G O O D W I L L A N D O T H E R I N T A N G I B L E A S S E T S
Our annual test of goodwill for impairment at November 30,
2009, indicated that the carrying amount of goodwill
assigned to Neenah Germany was considered recoverable.
Signifi cant assumptions used in developing the discounted
operating cash fl ow approach were revenue growth rates
and pricing, costs for manufacturing inputs, levels of capital
investment and estimated cost of capital for high, medium
and low growth environments.
Our annual test of goodwill for impairment at
November 30, 2008, indicated that the carrying value of
Neenah Germany exceeded its estimated fair value. For the
year ended December 31, 2008, we recognized a non-cash
pre-tax loss of $52.7 million (we did not recognize a tax ben-
efi t related to the non-tax-deductible loss) for the excess of the
carrying value of goodwill assigned to Neenah Germany over
the estimated fair value of goodwill. The impairment loss was
primarily due to a substantial increase in the estimated cost
of capital we used to calculate the present value of Neenah
Germany’s estimated future cash fl ows, which resulted in a
substantially lower estimated fair value. The higher estimated
cost of capital refl ected market/fi nancial conditions at the
time the annual impairment test was performed, which indi-
cated higher risk premiums for debt and equity.
As of December 31, 2009, a one-percentage-point
increase in the estimate for our cost of capital used in the
impairment test would result in an approximately $25 million
change in the estimated fair value of the Neenah Germany
and a corresponding reduction in the implied value of good-
will but would not result in an impairment of goodwill.
Our annual test of other intangible assets for
impairment at November 30, 2009, indicated that the car-
rying amount of such assets was recoverable. During our
annual test of other intangible assets for impairment, we
determined that certain trade names and customer based
intangible assets were also impaired at December 31, 2008.
For the year ended December 31, 2008, we recognized a
non-cash pre-tax charge of approximately $1.8 million for the
impairment of such assets.
S T O C K - B A S E D C O M P E N S A T I O N
We account for stock-based compensation in accordance
with the fair value recognition provisions of ASC Topic 718,
Compensation – Stock Compensation (“ASC Topic 718”).
The amount of stock-based compensation cost recognized is
based on the fair value of grants that are ultimately expected
to vest and is recognized pro-rata over the requisite serv-
ice period for the entire award. ASC Topic 718 also requires
the reporting of excess tax benefi ts related to the exer-
cise or vesting of stock-based awards as cash provided by
fi nancing activities.
QUANTIT ATIVE AND QUALIT ATIVE
DISCLOSURE S ABOUT MARKET RIS K
As a multinational enterprise, we are exposed to risks such
as changes in commodity prices, foreign currency exchange
rates, interest rates and environmental regulation. A variety
of practices are employed to manage these risks, includ-
ing operating and fi nancing activities and, where deemed
appropriate, the use of derivative instruments. Derivative
instruments are used only for risk management purposes
and not for speculation or trading.
Presented below is a description of our most sig-
nifi cant risks.
F O R E I G N C U R R E N C Y R I S K
Our reported operating results are affected by changes
in the exchange rates of the Euro relative to the U.S. dol-
lar. For the year ended December 31, 2009, a hypotheti-
cal 10 percent decrease in the exchange rates of the Euro
relative to the U.S dollar would have decreased our income
before income taxes by approximately $0.7 million. We do
not hedge our exposure to such exchange risk on reported
operating results.
Currency transactional exposures are sensitive to
changes in the exchange rate of the U.S. dollar against the
Euro. We performed a sensitivity test to quantify the effects
that possible changes in the exchange rate of the U.S. dollar
would have on pre-tax comprehensive income based on the
transactional exposure at December 31, 2009. The effect is
calculated by multiplying our net monetary asset or liability
position by a 10 percent change in the exchange rate of the
Euro versus the U.S. dollar. The results of this sensitivity test
are as follows. As of December 31, 2009, a 10 percent unfa-
vorable change in the exchange rate of the U.S. dollar against
Neenah Paper, Inc. 2009 Annual Report
73
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
the Euro involving balance sheet transactional exposures
would have resulted in net pre-tax losses of approximately
$11 million.
Finally, the translation of the balance sheets of our
German operations from Euros into U.S. dollars also is sensi-
tive to changes in the exchange rate of the U.S. dollar against
the Euro. Consequently, we performed a sensitivity test to
determine if changes in the exchange rate would have a sig-
nifi cant effect on the translation of the balance sheets of our
German operations into U.S. dollars. These translation gains
or losses are recorded as unrealized translation adjustments
(“UTA”, a component of comprehensive income) within stock-
holders’ equity. The hypothetical change in UTA is calculated
by multiplying the net assets of our German operations by a
10 percent change in the U.S. dollar/Euro exchange rates. As
of December 31, 2009, a 10 percent unfavorable change in
the exchange rate of the U.S. dollar against the Euro would
have decreased our stockholders’ equity by approximately
$27 million. The hypothetical decrease in UTA is based on the
difference between the December 31, 2009 exchange rate
and the assumed exchange rate.
C O M M O D I T Y R I S K
P U L P
We purchase the wood pulp used to produce our products
on the open market, and, as a result, the price and other
terms of those purchases are subject to change based on
factors such as worldwide supply and demand and govern-
ment regulation. We do not have signifi cant infl uence over
the price paid for our wood pulp purchases. Therefore, an
increase in wood pulp prices could occur at the same time
that prices for our products are decreasing and have an
adverse effect on our results of operations, fi nancial posi-
tion and cash fl ows.
Based on 2009 pulp purchases, a 10 percent
increase in the average market price for pulp (approximately
$65 per ton) would have increased our annual costs for pulp
purchases by approximately $15 million.
O T H E R M A N U F A C T U R I N G I N P U T S
We purchase a substantial portion of the other manufactur-
ing inputs necessary to produce our products on the open
market, and, as a result, the price and other terms of those
purchases are subject to change based on factors such as
worldwide supply and demand and government regulation.
We do not have signifi cant infl uence over our costs for such
manufacturing inputs. Therefore, an increase in other manu-
facturing inputs could occur at the same time that prices for
our products are decreasing and have an adverse effect on
our results of operations, fi nancial position and cash fl ows.
While we believe that alternative sources of criti-
cal supplies would be available, an interruption in supply of
either single source specialty grade latex or specialty soft-
wood pulp to our technical products business could disrupt
and eventually cause a shutdown of production of certain
technical products.
We generate substantially all of the electrical
energy used by our Munising mill and approximately 20 per-
cent of the electrical energy at our Bruckmühl and Appleton
mills. Availability of energy is not expected to be a problem
in the foreseeable future, but the purchase price of such
energy can and likely will fl uctuate signifi cantly based on fl uc-
tuations in demand and other factors. There is no assurance
that that we will be able to obtain electricity or natural gas
purchases on favorable terms in the future.
I N T E R E S T R A T E R I S K
We are exposed to interest rate risk on our fi xed rate debt
and our variable rate bank debt. At December 31, 2009,
we had $238.4 million of fi xed rate debt outstanding and
$80.8 million of variable rate borrowings outstanding. We
are exposed to fl uctuations in the fair value of our fi xed rate
long-term debt resulting from changes in market interest
rates, but not to fl uctuations in our earnings or cash fl ows.
At December 31, 2009, the fair market value of our fi xed
rate debt was $221.5 million based upon the quoted market
price of the Senior Notes or rates currently available to us
for debt of the same remaining maturities. A 100-basis-
point increase in interest rates would increase our annual
interest expense on outstanding variable rate borrowings
by approximately $0.6 million.
74
Neenah Paper, Inc. 2009 Annual Report
M A N A G E M E N T ’ S D I S C U S S I O N A N D A N A L Y S I S
We could, in the future, reduce our exposure to
interest rate fl uctuations on our variable rate debt by enter-
ing into interest rate hedging arrangements, although those
arrangements could result in us incurring higher costs than
we would incur without the arrangements.
E N V I R O N M E N T A L R E G U L A T I O N / C L I M A T E
C H A N G E L E G I S L A T I O N
Our manufacturing operations are subject to extensive
regulation primarily by U.S., German and other international
authorities. We have made signifi cant capital expenditures
to comply with environmental laws, rules and regulations.
Due to changes in environmental laws and regulations,
including potential future legislation to limit greenhouse
gas emissions, the application of such regulations and
changes in environmental control technology, we are not
able to predict with certainty the amount of future capi-
tal spending to be incurred for environmental purposes.
Taking these uncertainties into account, we have planned
capital expenditures for environmental projects during the
period 2010 through 2012 of approximately $1 million to
$2 million annually.
We believe these risks can be managed and will
not have a material adverse effect on our business or our
consolidated fi nancial position, results of operations or
cash fl ows.
FORWA RD -LOOKING STATEMENTS
Certain statements in this annual report may constitute
“forward-looking” statements as defi ned in Section 27A of
the Securities Act of 1933 (the “Securities Act”), Section 21E
of the Securities Exchange Act of 1934 (the “Exchange
Act”), the Private Securities Litigation Reform Act of 1995
(the “PSLRA”), or in releases made by the SEC, all as may be
amended from time to time. Statements contained in this
annual report that are not historical facts may be forward-
looking statements within the meaning of the PSLRA. Any
such forward-looking statements refl ect our beliefs and
assumptions and are based on information currently available
to us and are subject to risks, uncertainties and other factors
that may cause actual results to differ materially from those
presented herein including, but not limited to: (i) fl uctuations
in global equity and fi xed-income markets; (ii) capital and
credit market volatility, which have reached unprecedented
levels in 2008 and 2009; (iii) the competitive environment;
(iv) fl uctuations in commodity prices (particularly for pulp,
energy and latex), exchange rates (in particular changes in
the U.S. dollar/Euro currency exchange rates) and interest
rates; (v) the ability to realize anticipated cost savings in our
business; (vi) the cost or availability of raw materials and
energy; (vii) unanticipated expenditures related to the cost
of compliance with environmental and other governmental
regulations; (viii) our ability to control costs and implement
measures designed to enhance operating effi ciencies; (ix) the
loss of current customers or the inability to obtain new cus-
tomers; (x) increases in the funding requirements for our
pension and postretirement liabilities; (xi) changes in asset
valuations including write-downs of assets including fi xed
assets, inventory, accounts receivable, deferred tax assets or
other assets for impairment or other reasons; (xii) our exist-
ing and future indebtedness; (xiii) strikes, labor stoppages
and changes in our collective bargaining agreements and
relations with our employees and unions; and (xiv) other risks
that are detailed from time to time in reports we fi le with the
SEC. These and other factors that could cause or contribute
to actual results differing materially from any forward-looking
statements are discussed in more detail in our fi lings with
the SEC. Forward-looking statements are only predictions
and involve known and unknown risks, uncertainties and
other factors that may cause our actual results, performance
or achievements, or industry results, to be materially differ-
ent from any future results, performance or achievements
expressed or implied by such forward-looking statements.
We undertake no obligation to publicly update any forward-
looking statements, whether as a result of new information,
future events or otherwise. These cautionary statements are
being made pursuant to the Securities Act, the Exchange Act
and the PSLRA with the intention of obtaining the benefi ts of
the “safe harbor” provisions of such laws. The Company cau-
tions investors that any forward-looking statements we make
are not guarantees or indicative of future performance.
Neenah Paper, Inc. 2009 Annual Report
75
MANAGEMENT’S ANNUAL REPORT
ON INTERNAL CONTROL
OVER FINANCIAL REPORTING
The Company’s management, with the participation of its
Chief Executive Offi cer and Chief Financial Offi cer, has
evaluated the effectiveness of the Company’s disclosure
controls and procedures (as such term is defi ned in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934, as amended (the Exchange Act)) as of the end of
the period covered by this report. Based on such evaluation,
the Company’s Chief Executive Offi cer and Chief Financial
Offi cer have concluded that, as of the end of such period,
the Company’s disclosure controls and procedures are
effective in recording, processing, summarizing and report-
ing, on a timely basis, information required to be disclosed
by the Company in the reports that it fi les or submits under
the Exchange Act and are effective in ensuring that informa-
tion required to be disclosed by the Company in the reports
that it fi les or submits under the Exchange Act is accumu-
lated and communicated to the Company’s management,
including the Company’s Chief Executive Offi cer and Chief
Financial Offi cer, as appropriate to allow timely decisions
regarding required disclosure.
MANAGEMENT’S ANNUAL REPO RT ON INT ERNA L
CO NT ROL OVER FINANCIAL REP ORTING
The Company’s management is responsible for establish-
ing and maintaining effective internal control over fi nancial
reporting as defi ned in Rules 13a-15(f) or 15a-15(f) under
the Securities Exchange Act of 1934. The Company’s inter-
nal control over fi nancial reporting is designed to provide
reasonable assurance to the Company’s management and
board of directors regarding the preparation and fair pre-
sentation of published fi nancial statements.
Because of its inherent limitations, internal control
over fi nancial reporting may not prevent or detect misstate-
ments. Therefore, even those systems determined to be
effective can provide only reasonable assurance with respect
to fi nancial statement preparation and presentation.
Management assessed the effectiveness of the
Company’s internal control over fi nancial reporting as of
December 31, 2009. The scope of management’s assess-
ment of the effectiveness of internal control over fi nancial
reporting includes all of the Company’s businesses. In
making this assessment, management used the criteria
set forth by the Committee of Sponsoring Organizations
of the Treadway Commission (COSO) in Internal Control
– Integrated Framework. Based upon its assessment,
management believes that as of December 31, 2009,
the Company’s internal controls over fi nancial reporting
were effective.
A material weakness is a signifi cant control defi -
ciency, or a combination of signifi cant control defi ciencies,
such that there is a reasonable possibility that a material
misstatement of the Company’s annual or interim fi nan-
cial statements will not be prevented or detected on a
timely basis.
76
Neenah Paper, Inc. 2009 Annual Report
M A N A G E M E N T ’ S A N N U A L R E P O R T
CON TROLS OVER INC OME TAX ACCOUNTING: As
discussed in our Annual Report on Form 10-K for the year
ended December 31, 2008, as of December 31, 2008 and
2007 the Company did not maintain effective controls over
the determination and reporting of the provision for income
taxes and related income tax balances. At December 31,
2008, there were certain auditor identifi ed misstatements
in our December 31, 2008 deferred tax balances. These
misstatements were the result of a failure in the operating
effectiveness of our underlying control activities related
to the preparation and review of the provision for income
taxes and related income tax balances.
R E M E D I A T I O N A N D C H A N G E S I N I N T E R N A L C O N T R O L S
During 2009, the following remedial actions were imple-
mented to address our material weakness:
• we improved communications between a major public
accounting fi rm engaged to prepare and analyze our
income tax provision and our management personnel
responsible for reviewing and approving our income tax
provision;
• the major public accounting fi rm is utilizing additional
quality control procedures and resources in the prepara-
tion and analysis of our income tax provision and income
tax accounts;
• we expanded the number of management personnel
utilized to test and review the tax strategies and assump-
tions supporting our income tax provision and income
tax accounts; and
• The Audit Committee of our Board of Directors is meet-
ing regularly with management personnel to monitor the
progress of our remediation efforts.
As a result of the implementation of these pro-
cesses, management believes that the consolidated fi nan-
cial statements are fairly stated in all material respects as of
and for the year ended December 31, 2009. Management
has concluded that the design and operation of our internal
controls over fi nancial reporting as it relates to accounting
for income taxes were effective at December 31, 2009 and
that the material weakness in accounting for income taxes
has been remediated.
The effectiveness of internal control over fi nancial
reporting as of December 31, 2009, has been audited by
Deloitte & Touche LLP, the independent registered public
accounting fi rm who also audited the Company’s consoli-
dated fi nancial statements. Deloitte & Touche’s attestation
report on the Company’s internal control over fi nancial
reporting follows.
• we reviewed prior year tax returns to determine if addi-
tional accruals were required for uncertain tax positions;
Neenah Paper, Inc
March 10, 2010
Neenah Paper, Inc. 2009 Annual Report
77
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM ON INTERNAL
CONTROL OVER FINANCIAL REPORTING
To the Board of Directors and Stockholders of
Neenah Paper, Inc., Alpharetta, Georgia
We have audited the internal control over fi nancial report-
ing of Neenah Paper, Inc. and subsidiaries (the “Company”)
as of December 31, 2009, based on criteria established
in Internal Control – Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway
Commission. The Company’s management is responsible
for maintaining effective internal control over fi nancial
reporting and for its assessment of the effectiveness of
internal control over fi nancial reporting, included in the
accompanying Management’s Annual Report on Internal
Control Over Financial Reporting. Our responsibility is to
express an opinion on the Company’s internal control over
fi nancial reporting based on our audit.
We conducted our audit in accordance with the
standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about
whether effective internal control over fi nancial reporting
was maintained in all material respects. Our audit included
obtaining an understanding of internal control over fi nancial
reporting, assessing the risk that a material weakness exists,
testing and evaluating the design and operating effective-
ness of internal control over fi nancial reporting based on the
assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that
our audit provides a reasonable basis for our opinion.
A company’s internal control over fi nancial
reporting is a process designed by, or under the supervi-
sion of, the company’s principal executive and principal
fi nancial offi cers, or persons performing similar functions,
and effected by the company’s board of directors, manage-
ment, and other personnel to provide reasonable assur-
ance regarding the reliability of fi nancial reporting and the
preparation of fi nancial statements for external purposes in
accordance with accounting principles generally accepted
in the United States of America (“generally accepted
accounting principles”). A company’s internal control over
fi nancial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly refl ect the transac-
tions and dispositions of the assets of the company; (2) pro-
vide reasonable assurance that transactions are recorded
as necessary to permit preparation of fi nancial statements
in accordance with generally accepted accounting prin-
ciples, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detec-
tion of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the
fi nancial statements.
Because of the inherent limitations of internal
control over fi nancial reporting, including the possibility of
collusion or improper management override of controls,
material misstatements due to error or fraud may not be
prevented or detected on a timely basis. Also, projections
of any evaluation of the effectiveness of the internal control
over fi nancial reporting to future periods are subject to the
risk that the controls may become inadequate because of
changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all
material respects, effective internal control over fi nancial
reporting as of December 31, 2009, based on the criteria
established in Internal Control – Integrated Framework
issued by the Committee of Sponsoring Organizations of
the Treadway Commission.
We have also audited, in accordance with the
standards of the Public Company Accounting Oversight
Board (United States), the consolidated fi nancial state-
ments as of and for the year ended December 31, 2009
of the Company and our report dated March 10, 2010
expressed an unqualifi ed opinion on those consolidated
fi nancial statements.
Atlanta, Georgia
March 10, 2010
78
Neenah Paper, Inc. 2009 Annual Report
To the Board of Directors and Stockholders of
Neenah Paper, Inc., Alpharetta, Georgia
We have audited the accompanying consolidated bal-
ance sheets of Neenah Paper, Inc. and subsidiaries (the
“Company”) as of December 31, 2009 and 2008, and the
related consolidated statements of operations, changes
in stockholders’ equity, and cash fl ows for each of the
three years in the period ended December 31, 2009. These
fi nancial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on
the fi nancial statements based on our audits.
We conducted our audits in accordance with the
standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the fi nancial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
fi nancial statements. An audit also includes assessing the
accounting principles used and signifi cant estimates made
by management, as well as evaluating the overall fi nancial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
REPORT OF INDEPENDENT
REGISTERED PUBLIC
ACCOUNTING FIRM
In our opinion, such consolidated fi nancial state-
ments present fairly, in all material respects, the fi nan-
cial position of Neenah Paper, Inc. and subsidiaries as
of December 31, 2009 and 2008, and the results of their
operations and their cash fl ows for each of the three years
in the period ended December 31, 2009, in conformity
with accounting principles generally accepted in the
United States of America.
We have also audited, in accordance with the
standards of the Public Company Accounting Oversight
Board (United States), the Company’s internal control
over fi nancial reporting as of December 31, 2009, based
on the criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report
dated March 10, 2010 expressed an unqualifi ed opinion on
the Company’s internal control over fi nancial reporting.
Atlanta, Georgia
March 10, 2010
Neenah Paper, Inc. 2009 Annual Report
79
CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except share data)
Net sales
Cost of products sold
Gross profi t
Selling, general and administrative expenses
Other income – net
Restructuring costs
Goodwill and other intangible asset impairment charge
Operating income (loss)
Interest expense
Interest income
Income (loss) from continuing operations before income taxes
Provision (benefi t) for income taxes
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of taxes (Note 5)
Net income (loss)
Earnings (Loss) Per Common Share
Basic
Continuing operations
Discontinued operations
Diluted
Continuing operations
Discontinued operations
Weighted Average Common Shares Outstanding (in thousands)
Basic
Diluted
See Notes to Consolidated Financial Statements
Year Ended December 31,
2009
2008
2007
$573.9
472.3
101.6
69.1
(1.0)
17.1
–
16.4
23.4
(0.2)
(6.8)
(5.0)
(1.8)
0.6
$ (1.2)
$ (0.12)
0.04
$ (0.08)
$ (0.12)
0.04
$ (0.08)
$ 732.3
633.2
99.1
75.2
(11.3)
–
54.5
(19.3)
25.0
–
(44.3)
3.0
(47.3)
(111.2)
$(158.5)
$ (3.24)
(7.59)
$(10.83)
$ (3.24)
(7.59)
$(10.83)
$767.0
635.5
131.5
79.3
(1.7)
–
–
53.9
25.5
(0.1)
28.5
(3.7)
32.2
(22.0)
$ 10.2
$ 2.15
(1.48)
$ 0.67
$ 2.11
(1.46)
$ 0.65
14,655
14,655
14,642
14,642
14,874
15,141
80
Neenah Paper, Inc. 2009 Annual Report
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
ASSETS
Current Assets
Cash and cash equivalents
Accounts receivable, net
Inventories
Income taxes receivable
Deferred income taxes
Prepaid and other current assets
Assets held for sale (Note 3 and Note 5)
Total Current Assets
Property, Plant and Equipment – net
Deferred Income Taxes
Goodwill (Note 4)
Intangible assets – net (Note 4)
Other Assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Debt payable within one year
Accounts payable
Accrued expenses
Total Current Liabilities
Long-term Debt
Deferred Income Taxes
Noncurrent Employee Benefi ts and Other Obligations
TOTAL LIABILITIES
Commitments and Contingencies (Notes 11 and 12)
Stockholders’ Equity
Common stock, par value $0.01 – authorized: 100,000,000 shares; issued and outstanding:
15,085,709 shares and 15,054,852 shares
Treasury stock, at cost: 410,654 shares and 405,744 shares
Additional paid-in capital
Accumulated defi cit
Accumulated other comprehensive income
Total Stockholders’ Equity
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
See Notes to Consolidated Financial Statements
December 31,
2009
2008
$ 5.6
67.7
70.7
0.8
61.7
13.7
10.0
230.2
284.4
37.4
44.9
27.5
13.1
$ 637.5
$ 55.6
30.0
48.6
134.2
263.6
23.7
108.3
529.8
$ 3.3
63.2
88.6
11.2
65.4
19.0
3.3
254.0
316.2
35.3
43.8
28.7
12.0
$ 690.0
$ 24.1
35.3
50.3
109.7
340.5
25.4
111.3
586.9
0.1
(10.2)
243.4
(217.1)
91.5
107.7
$ 637.5
0.1
(10.1)
238.7
(210.0)
84.4
103.1
$ 690.0
Neenah Paper, Inc. 2009 Annual Report
81
CONSOLIDATED STATEMENTS OF
CHANGES IN STOCKHOLDERS’ EQUITY
(In millions,
shares in thousands)
Balance, December 31, 2006
Net income
Other comprehensive income (loss)
Unrealized foreign currency
translation gains
Minimum pension liability
Loss on cash fl ow hedges
Dividends declared
Excess tax benefi ts from
stock-based compensation
Stock options exercised
Restricted stock vesting (Note 10)
Stock-based compensation
Balance, December 31, 2007
Net loss
Other comprehensive income (loss)
Unrealized foreign currency
translation losses
Adjustment to pension and
other benefi t liabilities
Loss on cash fl ow hedges
Dividends declared
Excess tax provision from
stock-based compensation
Share purchases
Restricted stock vesting (Note 10)
Stock-based compensation
Balance, December 31, 2008
Net loss
Other comprehensive income
Unrealized foreign currency
translation gains
Adjustment to pension and
other benefi t liabilities
Dividends declared
Restricted stock vesting (Note 10)
Stock-based compensation
Balance, December 31, 2009
See Notes to Consolidated Financial Statements
Common Stock
Shares
Amount
Treasury
Stock
Additional
Paid-In
Capital
14,812
$0.1
$ (0.1)
$224.7
124
33
14,969
`
(0.3)
(0.4)
0.1
86
(9.4)
(0.3)
15,055
0.1
(10.1)
0.5
3.7
6.4
235.3
(0.6)
4.0
238.7
Accumulated
Other
Accumulated Comprehensive Comprehensive
Income/(Loss)
Income
Defi cit
$ (49.7)
10.2
$ 9.9
58.0
30.7
(0.1)
(6.0)
$ 10.2
58.0
30.7
(0.1)
$ 98.8
(45.5)
(158.5)
98.5
$(158.5)
(30.1)
(30.1)
16.3
(0.3)
16.3
(0.3)
$(172.6)
84.4
4.1
3.0
$ (1.2)
4.1
3.0
$ 5.9
(6.0)
(210.0)
(1.2)
(5.9)
31
(0.1)
15,086
$0.1
$(10.2)
4.7
$243.4
$(217.1)
$91.5
82
Neenah Paper, Inc. 2009 Annual Report
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
OPERATING ACTIVITIES
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization
Stock-based compensation
Deferred income tax provision (benefi t)
Goodwill and other intangible asset impairment charge (Note 4)
Asset impairment loss
Loss on disposal – transfer of the Pictou Mill
Amortization of deferred revenue – transfer of the Pictou Mill
Loss on disposal – transfer of the Pictou Mill post-employment benefi t plans
Ripon Mill non-cash charges
Gain on curtailment of post-employment benefi t plan
Gain on sale of woodlands (Note 5)
(Gain) loss on other asset dispositions
Net cash provided by (used in) changes in operating working capital,
net of effects of acquisitions (Note 15)
Pension and other post-employment benefi ts
Loss on curtailment and settlement of pension plan (Note 5)
Other
NET CASH PROVIDED BY OPERATING ACTIVITIES
INVESTING ACTIVITIES
Capital expenditures
Acquisition of Fox River, net of cash acquired
Payments in conjunction with the transfer of the Pictou Mill
Proceeds from asset sales
Other
NET CASH USED IN INVESTING ACTIVITIES
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt
Debt issuance costs
Repayments of long-term debt
Short-term borrowings
Repayments of short-term borrowings
Cash dividends paid
Shares purchases (Note 10)
Proceeds from exercise of stock options
Other
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS
NET INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, END OF YEAR
See Notes to Consolidated Financial Statements
Year Ended December 31,
2009
2008
2007
$ (1.2)
$(158.5)
$ 10.2
34.5
4.7
(9.4)
–
–
–
–
–
6.3
–
–
0.2
27.4
2.4
–
–
64.9
(8.4)
–
–
0.8
(0.7)
(8.3)
45.5
(2.9)
(87.6)
12.2
(15.4)
(5.9)
–
–
(0.1)
(54.2)
(0.1)
2.3
3.3
$ 5.6
38.6
4.0
(56.1)
54.5
91.2
29.4
(2.8)
53.7
–
(4.3)
–
(6.3)
(21.1)
(7.6)
–
(1.6)
13.1
(30.0)
–
(13.6)
13.8
(0.6)
(30.4)
53.7
–
(34.6)
18.7
(3.3)
(6.0)
(9.4)
–
(0.9)
18.2
–
0.9
2.4
$ 3.3
45.3
6.4
(32.7)
–
–
–
–
–
–
–
(6.2)
(0.8)
5.9
4.1
38.7
(1.4)
69.5
(58.3)
(54.7)
–
–
(0.4)
(113.4)
77.0
–
(34.1)
8.0
(5.0)
(6.0)
–
3.7
0.2
43.8
0.9
0.8
1.6
$ 2.4
Neenah Paper, Inc. 2009 Annual Report
83
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Dollars in millions, except as noted)
ONE
Background and Basis of Presentation
B A C K G R O U N D
Neenah Paper, Inc. (“Neenah” or the “Company”), a
Delaware corporation, was incorporated in April 2004
in contemplation of the spin-off by Kimberly-Clark
Corporation (“Kimberly-Clark”) of its fi ne paper and tech-
nical products businesses in the United States and its
pulp business in Canada (collectively, the “Pulp and Paper
Business”). In November 2004, Kimberly-Clark completed
the distribution of all of the shares of Neenah’s common
stock to the stockholders of Kimberly-Clark (the “Spin-Off”).
As a result of the Spin-Off, Kimberly-Clark transferred all
of the assets and liabilities of the Pulp and Paper Business
to Neenah. Following the Spin-Off, management began
executing a strategy to exit the pulp business and transform
the Company into a manufacturer of specialty papers.
The fi ne paper business is a leading producer
of premium writing, text, cover and specialty papers used
in corporate identity packages, corporate annual reports,
invitations, personal stationery and high-end packaging for
point of sale advertising. The technical products business is
a leading international producer of transportation and other
fi lter media; durable, saturated and coated substrates for a
variety of end uses; and nonwoven wall coverings.
In August 2006, Neenah Canada transferred the
Terrace Bay, Ontario pulp mill and related woodlands opera-
tions (“Terrace Bay”) to certain affi liates of Buchanan Forest
Products Ltd. (“Buchanan”). Buchanan acquired substantially
all of the assets of Terrace Bay and assumed responsibility for
substantially all of the liabilities related to its future opera-
tion. The results of operations of Terrace Bay are reported as
discontinued operations on the consolidated statements
of operations for all years presented. See Note 5, “Discontinued
Operations – Transfer of the Terrace Bay Mill.”
In March 2007, the Company acquired the stock
of Fox Valley Corporation and its subsidiary, Fox River Paper
Company, LLC (collectively, “Fox River”). The Company
fi nanced the acquisition through a combination of cash and
debt drawn against its existing revolving credit facility. At
the time of the acquisition, the Fox River assets consisted of
four U.S. paper mills and various related assets. The results
of Fox River are reported as part of the Company’s Fine
Paper segment and have been included in the Company’s
consolidated fi nancial results since the acquisition date.
In February 2008, the Company committed to a
plan to sell its pulp mill in Pictou, Nova Scotia (the “Pictou
Mill”) and approximately 475,000 acres of woodland assets in
84
Neenah Paper, Inc. 2009 Annual Report
Nova Scotia (the “Woodlands”). In June 2008, the Company’s
wholly owned subsidiary, Neenah Paper Company of Canada
(“Neenah Canada”) sold the Pictou Mill to Northern Pulp
Nova Scotia Corporation (“Northern Pulp”), a new operating
company jointly owned by Atlas Holdings LLC (“Atlas”) and
Blue Wolf Capital Management LLC (“Blue Wolf”). Pursuant
to the terms of the transaction, Northern Pulp assumed all
of the assets and liabilities associated with the Pictou Mill,
as well as existing customer contracts, supply agreements,
labor agreements and pension obligations. The sale did not
include the Woodlands.
Management believes it is probable that the
sale of the Woodlands will be completed within 12 months.
As of December 31, 2009, the assets and liabilities of the
Woodlands are reported as assets held for sale – discon-
tinued operations on the consolidated balance sheet.
On March 1, 2010, the Company announced that Neenah
Canada had signed a defi nitive agreement to sell the
Woodlands to Northern Timber Nova Scotia Corporation,
a new operating company jointly owned by Atlas and
Blue Wolf, for C$82.5 million ($78.6 million). See Note 17,
“Subsequent Event.” For the years ended December 31,
2009 and 2008, the results of operations of the Pictou Mill
and the Woodlands and the loss on disposal of the Pictou
Mill are reported as discontinued operations in the con-
solidated statements of operations. For the year ended
December 31, 2007, the consolidated results of operations
have been restated to refl ect the results of operations of
the Pictou Mill and the Woodlands as discontinued opera-
tions. See Note 5, “Discontinued Operations – Sale of the
Pictou Mill and the Woodlands.”
B A S I S O F P R E S E N T A T I O N
The consolidated fi nancial statements include the fi nan-
cial statements of the Company and its wholly owned
and majority owned subsidiaries. All signifi cant inter-
company balances and transactions have been eliminated
in consolidation.
P R I O R Y E A R A D J U S T M E N T S
During the three months ended September 30, 2009,
the Company identifi ed and restated the accompanying
December 31, 2008 consolidated balance sheet for the fol-
lowing errors: (i) a $7.3 million overstatement of Canadian
deferred tax assets and unrealized foreign currency trans-
lation gains within stockholders’ equity and (ii) a $12.7 mil-
lion understatement of the liability for uncertain tax posi-
tions and deferred tax assets as a result of errors identifi ed
in prior year income tax returns. The net effect of these
corrections on the consolidated balance sheet as of
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
December 31, 2008 is an increase in current deferred tax
assets of $12.1 million, a decrease in long-term deferred
tax assets of $6.7 million, an increase of $12.7 million in
accrued expenses and a decrease of $7.3 million in stock-
holders’ equity. Interest associated with the uncertain tax
positions noted above was immaterial for all historical years.
In addition, the Company reclassifi ed $5.3 million from
accounts payable to accrued expenses in the accompanying
December 31, 2008 consolidated balance sheet to provide
consistency in the reporting of certain liabilities between its
U.S. and German operations and to conform to the current
year presentation. The net effect of these corrections on the
consolidated statements of cash fl ows for the years ended
December 31, 2008 and 2007 was to decrease the deferred
tax benefi t by $0.4 million and $5.9 million, respectively, and
increase net cash provided by (used in) operating working
capital. The Company believes the effects of these prior
year corrections individually and in the aggregate are imma-
terial to any prior year consolidated fi nancial statements.
TWO
Summary of Signifi cant Accounting Policies
U S E O F E S T I M A T E S
The preparation of fi nancial statements in conformity with
accounting principles generally accepted in the United
States (“GAAP”) requires management to make estimates
and assumptions that affect the reported amounts of assets
and liabilities at the date of the fi nancial statements and
the reported amounts of net sales and expenses during the
reporting periods. Actual results could differ from these
estimates, and changes in these estimates are recorded
when known. Signifi cant management judgment is required
in determining the accounting for, among other things, pen-
sion and postretirement benefi ts, retained insurable risks,
allowances for doubtful accounts and reserves for sales
returns and cash discounts, purchase price allocations, use-
ful lives for depreciation, depletion and amortization, future
cash fl ows associated with impairment testing for tangible
and intangible long-lived assets, income taxes, contingen-
cies, inventory obsolescence and market reserves and valu-
ation of stock-based compensation.
R E V E N U E R E C O G N I T I O N
The Company recognizes sales revenue when all of the
following have occurred: (1) delivery has occurred, (2) per-
suasive evidence of an agreement exists, (3) pricing is fi xed
or determinable, and (4) collection is reasonably assured.
Delivery is not considered to have occurred until the cus-
tomer takes title and assumes the risks and rewards of
ownership. The timing of revenue recognition is largely
dependent on shipping terms. In general, the Company’s
shipments are designated free on board shipping point and
revenue is recognized at the time of shipment. Sales are
reported net of allowable discounts and estimated returns.
Reserves for cash discounts, trade allowances and sales
returns are estimated using historical experience.
E A R N I N G S P E R S H A R E ( “ E P S ” )
The Company computes basic earnings (loss) per share
(“EPS”) in accordance with Accounting Standards
Codifi cation (“ASC”) Topic 260, Earnings Per Share (“ASC
Topic 260”). In accordance with ASC Topic 260, share-
based awards with nonforfeitable dividends are classifi ed
as participating securities. In calculating basic earnings per
share, this method requires net income to be reduced by
the amount of dividends declared in the current period for
each participating security and by the contractual amount
of dividends or other participation payments that are paid
or accumulated for the current period. Undistributed earn-
ings for the period are allocated to participating securities
based on the contractual participation rights of the security
to share in those current earnings assuming all earnings
for the period are distributed. Holders of restricted stock,
restricted stock units (“RSUs”) and RSUs with performance
conditions have contractual participation rights that are
equivalent to those of common stockholders. Therefore,
the Company allocates undistributed earnings to restricted
stock, RSUs and common stockholders based on their
respective ownership percentage, as of the end of the period.
ASC Topic 260 also requires companies with par-
ticipating securities to calculate diluted earnings per share
using the “Two Class” method. The Two-Class method
requires the denominator to include the weighted aver-
age participating securities along with the additional share
equivalents from the assumed conversion of stock options
calculated using the “Treasury Stock” method, subject to
the antidilution provisions of ASC Topic 260. The Company
adopted the Two-Class method on January 1, 2009. For
the years ended December 31, 2008 and 2007, EPS has
been restated to refl ect the retroactive application of the
Two-Class method.
Diluted EPS was calculated to give effect
to all potentially dilutive common shares using the
Treasury Stock method. Outstanding stock options,
stock appreciation rights (“SARs”) and certain RSUs
with performance con ditions represent the only poten-
tially dilutive nonpar ticipating security effects on the
Neenah Paper, Inc. 2009 Annual Report
85
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Company’s weighted- average shares. For the years
ended December 31, 2009, 2008 and 2007, approximately
1,700,000, 1,510,000 and 335,000 potentially dilutive
options, respectively, were excluded from the computa-
tion of dilutive common shares because the exercise price
of such options exceeded the average market price of the
Company’s common stock for the period the options were
outstanding. In addition, as a result of the loss from con-
tinuing operations for the years ended December 31, 2009
and 2008, approximately 160,000 and 130,000 incremen-
tal shares resulting from the assumed exercise or vesting
of potentially dilutive securities were excluded from the
diluted earnings per share calculation, as the effect would
have been anti-dilutive.
The following table presents the computation of
basic and diluted shares of common stock used in the cal-
culation of EPS (amounts in millions, except share and per
share amounts):
Year Ended December 31,
2009
2008
2007
Income (loss) from
continuing operations
$ (1.8)
$ (47.3)
$ 32.2
Less: Distributed and
undistributed amounts
allocated to participating
securities(a)
Income (loss) from continuing
operations available to
common stockholders
Income (loss) from
discontinued operations,
net of income taxes
Net income (loss) available
to common stockholders
Weighted-average basic
shares outstanding
Add: Assumed incremental
shares under stock
compensation plans
Assuming dilution
Earnings (Loss)
Per Common Share
Basic
Continuing operations
Discontinued operations
Diluted
Continuing operations
Discontinued operations
–
0.1
0.3
(1.8)
(47.4)
31.9
0.6
(111.2)
(22.0)
$ (1.2)
$(158.6)
$ 9.9
14,655
14,642
14,874
–
14,655
–
14,642
267
15,141
$(0.12)
0.04
$(0.08)
$(0.12)
0.04
$(0.08)
$ (3.24)
(7.59)
$(10.83)
$ (3.24)
(7.59)
$(10.83)
$ 2.15
(1.48)
$ 0.67
$ 2.11
(1.46)
$ 0.65
(a) In accordance with ASC Topic 260, for the years ended December 31,
2009 and 2008, undistributed losses have been entirely allocated to common
stockholders due to the fact that the holders of participating securities are not
contractually obligated to share in the losses of the Company.
86
Neenah Paper, Inc. 2009 Annual Report
F I N A N C I A L I N S T R U M E N T S
Cash and cash equivalents include all cash balances and
highly liquid investments with an initial maturity of three
months or less. The Company places its temporary cash
investments with high credit quality fi nancial institutions.
I N V E N T O R I E S
U.S. inventories are valued at the lower of cost, using the
Last-In, First-Out (LIFO) method for fi nancial reporting
purposes, or market. German inventories are valued at the
lower of cost, using a weighted-average cost method, or
market. The First-In, First-Out value of inventories valued
on the LIFO method was $58.2 million and $66.5 million at
December 31, 2009 and 2008, respectively. Cost includes
labor, materials and production overhead. For the years
ended December 31, 2009 and 2008, the Company rec-
ognized income (expense) of approximately $0.1 million
and $(0.1) million, respectively, due to the liquidation of
LIFO inventories.
P R O P E R T Y A N D D E P R E C I A T I O N
Property, plant and equipment are stated at cost, less accu-
mulated depreciation. Certain costs of software developed
or obtained for internal use are capitalized. When property,
plant and equipment is sold or retired, the costs and the
related accumulated depreciation are removed from the
accounts, and the gains or losses are recorded in other
(income) expense – net. For fi nancial reporting purposes,
depreciation is principally computed on the straight-line
method over the estimated useful asset lives. Weighted
average useful lives are approximately 33 years for build-
ings, 9 years for land improvements and 17 years for
machinery and equipment. For income tax purposes, accel-
erated methods of depreciation are used.
Estimated useful lives are periodically reviewed
and, when warranted, changes are made to them. On
January 1, 2009, the Company changed the estimated use-
ful life of its Enterprise Resource Planning software from fi ve
years to eight years to more accurately refl ect its expected
future utilization of the software. The change in the esti-
mated useful life reduced depreciation expense for the
year ended December 31, 2009 by $1.9 million, or $0.08 per
diluted share.
Long-lived assets are reviewed for impairment
whenever events or changes in circumstances indicate
that their cost may not be recoverable. An impairment
loss would be recognized when estimated undiscounted
future pre-tax cash fl ows from the use of the asset are less
than its carrying amount. Measurement of an impairment
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
loss is based on the excess of the carrying amount of the
asset over its fair value. Fair value is generally measured
using discounted cash fl ows. See Note 5, “Discontinued
Operations – Sale of the Pictou Mill and the Woodlands”
for a discussion of asset impairment losses recorded for the
year ended December 31, 2008 related to the Pictou Mill’s
long-lived assets.
The costs of major rebuilds and replacements
of plant and equipment are capitalized, and the cost of
maintenance performed on manufacturing facilities, com-
posed of labor, materials and other incremental costs, is
charged to operations as incurred. Start-up costs for new or
expanded facilities are expensed as incurred.
W O O D L A N D S
As of December 31, 2009 and 2008, the Company had
$3.8 million and $3.3 million, respectively, in wood-
land assets reported at their historical book value on
the Consolidated Balance Sheet as assets held for sale.
Woodland assets are stated at cost, less the accumulated
cost of timber previously harvested. In accordance with
ASC Topic 360, Property, Plant and Equipment (“ASC Topic
360”) the Company does not recognize depletion expense
for woodland assets recorded as assets held for sale. See
Note 17, “Subsequent Event.”
G O O D W I L L A N D O T H E R I N T A N G I B L E A S S E T S
The Company follows the guidance of ASC Topic 805,
Business Combinations, in recording goodwill arising from
a business combination as the excess of purchase price
and related costs over the fair value of identifi able assets
acquired and liabilities assumed. All of the Company’s
goodwill was acquired in conjunction with the acquisition
of the stock of FiberMark Services GmbH & Co. KG and
the stock of FiberMark Beteiligungs GmbH (collectively,
“Neenah Germany”) in October 2006.
Under ASC Topic 350, Intangibles – Goodwill
and Other (“ASC Topic 350”), goodwill is subject to impair-
ment testing at least annually. A fair-value-based test is
applied at the reporting unit level, which is generally one
level below the segment level. The test compares the fair
value of an entity’s reporting units to the carrying value of
those reporting units. This test requires various judgments
and estimates. The Company estimates the fair value of
the reporting unit using a market approach in combination
with a probability-weighted discounted operating cash fl ow
approach for a number of scenarios representing differ-
ing operating and economic assumptions. Impairment of
goodwill is measured as the excess of the carrying amount
of goodwill over the fair values of recognized and unrecog-
nized assets and liabilities of the reporting unit. An adjust-
ment to goodwill will be recorded for any goodwill that is
determined to be impaired. The Company tests goodwill for
impairment at least annually on November 30 in conjunc-
tion with preparation of its annual business plan, or more
frequently if events or circumstances indicate it might be
impaired. The Company last tested goodwill for impairment
as of November 30, 2009 and no impairment was indicated.
An impairment of goodwill was indicated in the Company’s
test of goodwill for impairment as of November 30, 2008.
See Note 4, “Goodwill and Other Intangible Assets.”
Intangible assets with fi nite useful lives are
amortized on a straight-line basis over their respective
estimated useful lives to their estimated residual values,
and reviewed for impairment in accordance with ASC Topic
360. Intangible assets consist primarily of customer rela-
tionships, trade names and acquired intellectual property.
Such intangible assets are amortized using the straight-line
method over estimated useful lives of between 10 and 15
years. Certain trade names are estimated to have indefi nite
useful lives and as such are not amortized. Intangible assets
with indefi nite lives are reviewed for impairment annually in
accordance with ASC Topic 350. See Note 4, “Goodwill and
Other Intangible Assets.”
F O R E I G N C U R R E N C Y
The balance sheet accounts of Neenah Germany and
Neenah Canada are translated from Euros and Canadian
dollars, respectively, into U.S. dollars at period-end
exchange rates, and income and expense accounts are
translated at average exchange rates during the period.
Translation gains or losses related to net assets located in
Germany and Canada are recorded as unrealized foreign
currency translation adjustments within accumulated other
comprehensive income (loss) in stockholders’ equity. Gains
and losses resulting from foreign currency transactions
(transactions denominated in a currency other than the
entity’s functional currency) are included in Other income –
net in the consolidated statements of operations.
R E S E A R C H E X P E N S E
Research and development costs are charged to expense as
incurred and are recorded in “Selling, general and adminis-
trative expenses” on the consolidated statement of opera-
tions. See Note 15, “Supplemental Data – Supplemental
Statement of Operations Data.”
Neenah Paper, Inc. 2009 Annual Report
87
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
F A I R V A L U E O F F I N A N C I A L I N S T R U M E N T S
The carrying amounts refl ected in the consolidated balance sheets for cash and cash equivalents, accounts receivable and
accounts payable approximate fair value due to their short maturities. The fair value of short and long-term debt is estimated
using current market prices for the Company’s publicly traded debt or rates currently available to the Company for debt of
the same remaining maturities. The following table presents the carrying value and the fair value of the Company’s debt at
December 31, 2009 and 2008.
Senior Notes (7.375% fi xed rate)
Neenah Germany project fi nancing (3.8% fi xed rate)
Revolving bank credit facility (variable rates)
Term Loan (variable rates)
Neenah Germany revolving line of credit (variable rates)
Other debt (2.9% fi xed rate)
Total debt
O T H E R C O M P R E H E N S I V E I N C O M E ( L O S S )
December 31, 2009
December 31, 2008
Carrying
Value
$225.0
12.5
27.9
40.0
12.9
0.9
$319.2
Fair
Value
$208.6
12.0
27.9
40.0
12.9
0.9
$302.3
Carrying
Value
$225.0
14.0
101.1
7.2
17.3
–
$364.6
Fair
Value
$126.5
13.3
101.1
7.2
17.3
–
$265.4
Comprehensive income (loss) includes, in addition to net income (loss), gains and losses recorded directly into
stockholders’ equity on the consolidated balance sheet. These gains and losses are referred to as other comprehensive
income items. Accumulated other comprehensive income (loss) consists of foreign currency translation gains and (losses),
deferred gains and (losses) on cash fl ow hedges, and adjustments related to pensions and other postretirement benefi ts.
Income taxes are not provided for foreign currency translation adjustments related to indefi nite investments in Neenah
Germany. The Company also does not provide income taxes for foreign currency translation adjustments for its Canadian
operations. For the years ended December 31, 2009 and 2008, the Company did not record deferred taxes related to future
funds expected to be repatriated upon the sale of the Woodlands because there are no expected tax consequences consid-
ering the anticipated proceeds from the disposal of the Woodlands.
Changes in the components of other comprehensive income (loss) are as follows:
Pretax
Amount
2009
Tax
Effect
Net
Amount
Pretax
Amount
2008
Tax
Effect
Net
Amount
Pretax
Amount
2007
Tax
Effect
Net
Amount
Year Ended December 31,
$4.1
$ –
$4.1
$(30.1)
$ –
$(30.1)
$ 58.0
$ –
$58.0
4.6
(1.6)
3.0
26.4
(10.1)
16.3
48.2
(17.5)
30.7
–
–
–
(0.5)
0.2
(0.3)
(0.1)
–
(0.1)
Foreign currency
translation
Adjustment to pension
and other
benefi t liabilities
Deferred loss on
cash fl ow hedges
Other comprehensive
income (loss)
$8.7
$(1.6)
$7.1
$ (4.2)
$ (9.9)
$(14.1)
$106.1
$(17.5)
$88.6
88
Neenah Paper, Inc. 2009 Annual Report
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
The components of accumulated other compre-
hensive income (loss), net of applicable income taxes are
as follows:
Foreign currency translation
Adjustment to pension and other
benefi t liabilities (net of income
tax benefi ts of $14.0 million and
$15.6 million, respectively)
Accumulated other
December 31,
2009
2008
$112.8
$108.7
(21.3)
(24.3)
comprehensive income
$ 91.5
$ 84.4
A C C O U N T I N G S T A N D A R D S C H A N G E S
On July 1, 2009, the Company adopted Statement of
Financial Accounting Standards No. 168, The FASB
Accounting Standards Codifi cation and the Hierarchy of
Generally Accepted Accounting Principles – a replacement
of FASB Statement No. 162 (“SFAS No. 168”). SFAS No. 168
established the ASC as the source of authoritative U.S.
GAAP to be applied by nongovernmental entities. Rules
and interpretive releases of the SEC under authority of fed-
eral securities laws are also sources of authoritative GAAP
for SEC registrants. SFAS No. 168 supersedes all existing
non-SEC accounting and reporting standards. All non-SEC
accounting literature not included in the ASC is nonauthori-
tative. The Company’s adoption of SFAS No. 168 did not
have an effect on its fi nancial position, results of operations
or cash fl ows.
As of January 1, 2009, the Company adopted the
enhanced required annual disclosures about plan assets in
an employer’s defi ned benefi t pension or other postretire-
ment plan in ASC Topic 715, Compensation – Retirement
Benefi ts. Such enhanced disclosures include, but are not
limited to, investment allocation decisions, the inputs and
valuation techniques used to measure the fair value of plan
assets and signifi cant concentrations of risk within plan
assets. See Note 8, “Pension and Other Postretirement
Benefi ts – Plan Assets.”
On December 15, 2009, the Company adopted
the disclosure requirements of Accounting Standards
Update No. 2009-12, which amends ASC sub-topic 820-10,
Fair Value Measurements and Disclosures (“ASU
No. 2009-12”). ASU No. 2009-12 permits a reporting
entity, as a practical expedient, to estimate the fair value
of an investment using the net asset value per share (or
its equivalent) of the investment, if the net asset value per
share of the investment (or its equivalent) is calculated in a
manner consistent with the measurement principles of ASC
Topic 946, Financial Services – Investment Companies as of
the reporting entity’s measurement date. The Company’s
adoption of ASU No. 2009-12 did not have an effect on its
results of operations, fi nancial position or cash fl ows.
As of December 31, 2009, no amendments to the
ASC had been issued but not adopted by the Company that
will have or are reasonably likely to have a material effect on
its results of operations, fi nancial position or cash fl ows.
THREE
Closure of the Ripon Mill
In May 2009, the Company closed the Ripon Mill. The clo-
sure resulted in a pre-tax charge of $17.1 million for the year
ended December 31, 2009. The charge was comprised of
approximately $5.8 million in non-cash charges, primarily
for losses related to the carrying value of property, plant
and equipment, a curtailment loss of $0.8 million related
to postretirement benefi t plans in which employees of the
Ripon Mill participated and cash payments for contract
terminations and severance and other employee costs of
approximately $10.5 million. See Note 8, “Pension and
Other Postretirement Benefi ts.” The Company paid approx-
imately $6.5 million of such costs in 2009, with the remain-
ing payments in 2010 and beyond.
As of December 31, 2009, the remaining long-
lived assets of the Ripon Mill, primarily composed of land
and buildings, are classifi ed as Assets held for sale on the
consolidated balance sheet. The Company believes that
the sale of such assets will be completed within 12 months.
Assets held for sale are valued at the lower of cost or fair
value less cost to sell. The assets of the Ripon Mill are
reported at their aggregate cost of $6.2 million.
Neenah Paper, Inc. 2009 Annual Report
89
I M P A I R M E N T
The Company’s annual test of goodwill for impairment at
November 30, 2008, indicated that the carrying value of
Neenah Germany exceeded its estimated fair value. The
Company estimated fair value using a market approach in
combination with a probability-weighted discounted oper-
ating cash fl ow approach for a number of scenarios rep-
resenting differing operating and economic assumptions.
Signifi cant assumptions used in developing the discounted
operating cash fl ow approach were revenue growth rates
and pricing, costs for manufacturing inputs, levels of capital
investment and estimated cost of capital for high, medium
and low growth environments. The Company measured the
estimated fair value of goodwill as the excess of the car-
rying amount of Neenah Germany over the fair values of
recognized assets and liabilities of the reporting unit. The
Company recorded an impairment adjustment to goodwill
for the excess of the carrying value of goodwill assigned
to Neenah Germany over the estimated fair value of
goodwill. For the year ended December 31, 2008, the
Company recognized a pre-tax loss of $52.7 million
(the Company did not recognize a tax benefi t related
to the non-tax-deductible loss) for the impairment of good-
will assigned to Neenah Germany. The impairment loss was
primarily due to a substantial increase in the estimated cost
of capital the Company used to calculate the present value
of Neenah Germany’s estimated future cash fl ows which
resulted in a substantially lower estimated fair value. The
higher estimated cost of capital refl ected market/fi nan-
cial conditions at the time the annual impairment test was
performed, which indicated higher risk premiums for debt
and equity.
As of December 31, 2009, the carrying amount
of goodwill assigned to Neenah Germany was considered
recoverable. As of December 31, 2009, a one-percentage-
point increase in the Company’s estimate for its cost of
capital used in the impairment test would result in an
approximately $25 million change in the estimated fair value
of Neenah Germany and a corresponding reduction in the
implied value of goodwill but would not result in an impair-
ment of goodwill.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
The Company accounted for the costs associ-
ated with the closure of the Ripon Mill in accordance with
ASC Topic 420, Exit or Disposal Cost Obligations. As of
December 31, 2009, approximately $1.7 million in sever-
ance benefi ts had been paid to 96 former employees of the
Ripon Mill and severance benefi ts of approximately $0.1 mil-
lion due to one former employee of the Ripon Mill remained
unpaid. The following table presents the status of such clo-
sure costs as of and for the year ended December 31, 2009:
Contract
termination
and other
costs
Severance
benefi ts
Total
$ 1.8
$ 8.7
$10.5
Amounts accrued during
the year ended
December 31, 2009
Payments for the year
ended December 31, 2009
(1.7)
(4.8)
(6.5)
Accrued exit costs at
December 31, 2009
FOUR
$ 0.1
$ 3.9
$ 4.0
Goodwill and Other Intangible Assets
As of December 31, 2009, the Company had goodwill of
$44.9 million, which is not amortized. The following table
presents changes in goodwill (all of which relates to the
Company’s Technical Products segment) for the years
ended December 31, 2009, 2008 and 2007:
Accumulated
Impairment
Losses
Gross
Amount
Net
Balance at December 31, 2006 $ 92.0
$ –
$ 92.0
Finalization of Neenah
Germany purchase
price allocation
Foreign currency translation
Balance at December 31, 2007
Goodwill impairment charge
Foreign currency translation
Balance at December 31, 2008
Foreign currency translation
4.0
10.6
106.6
–
(10.1)
96.5
2.4
Balance at December 31, 2009 $ 98.9
–
–
–
(52.7)
–
(52.7)
(1.3)
$(54.0)
4.0
10.6
106.6
(52.7)
(10.1)
43.8
1.1
$ 44.9
90
Neenah Paper, Inc. 2009 Annual Report
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
O T H E R I N T A N G I B L E A S S E T S
As of December 31, 2009, the Company had net identifi able intangible assets of $27.5 million. All such intangible assets were
acquired in the Neenah Germany and Fox River acquisitions. The following table details amounts related to those assets.
Cost
Balance at December 31, 2006
Amounts acquired in the acquisition of Fox River
Foreign currency translation
Balance at December 31, 2007
Less: Accumulated amortization
Balance at December 31, 2006
Amortization
Foreign currency translation
Balance at December 31, 2007
Intangible assets – net at December 31, 2007
Cost
Balance at December 31, 2007
Purchased intangibles
Impairment charge
Foreign currency translation
Balance at December 31, 2008
Less: Accumulated amortization
Balance at December 31, 2007
Amortization
Impairment charge
Foreign currency translation
Balance at December 31, 2008
Intangible assets – net at December 31, 2008
Cost
Balance at December 31, 2008
Foreign currency translation
Balance at December 31, 2009
Less: Accumulated amortization
Balance at December 31, 2008
Amortization
Foreign currency translation
Balance at December 31, 2009
Intangible assets – net at December 31, 2009
Weighted Average Amortization Period (Years)
Trade
names
$ 7.2
2.6
0.2
10.0
–
–
–
–
$ 10.0
$ 10.0
–
–
(0.3)
9.7
–
–
–
–
–
$ 9.7
$ 9.7
0.2
9.9
–
–
–
–
$ 9.9
Not amortized
Customer Trade names
and
intangibles Trademarks
based
Acquired
Technology
Total
Intangible
Assets
$ 16.2
–
1.7
17.9
(0.2)
(1.2)
(0.1)
(1.5)
$ 16.4
$ 17.9
–
(1.9)
(0.8)
15.2
(1.5)
(1.2)
0.4
–
(2.3)
$ 12.9
$ 15.2
0.3
15.5
(2.3)
(1.0)
(0.1)
(3.4)
$12.1
15
$ 5.3
0.3
1.3
6.9
(0.1)
(0.6)
–
(0.7)
$ 6.2
$ 6.9
0.2
(0.3)
(0.3)
6.5
(0.7)
(0.6)
–
–
(1.3)
$ 5.2
$ 6.5
0.1
6.6
(1.3)
(0.6)
–
(1.9)
$ 4.7
10
$ 1.1
–
0.1
1.2
–
(0.1)
(0.1)
(0.2)
$ 1.0
$ 1.2
–
–
(0.1)
1.1
(0.2)
(0.1)
–
0.1
(0.2)
$ 0.9
$ 1.1
0.1
1.2
(0.2)
(0.2)
–
(0.4)
$ 0.8
10
$ 29.8
2.9
3.3
36.0
(0.3)
(1.9)
(0.2)
(2.4)
$ 33.6
$ 36.0
0.2
(2.2)
(1.5)
32.5
(2.4)
(1.9)
0.4
0.1
(3.8)
$ 28.7
$ 32.5
0.7
33.2
(3.8)
(1.8)
(0.1)
(5.7)
$27.5
10
Neenah Paper, Inc. 2009 Annual Report
91
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
The intangible assets acquired in the Fox River
acquisition are reported within the Fine Paper segment. See
Note 14, “Business Segment and Geographic Information.”
Aggregate amortization expense of acquired intangible
assets for the years ended December 31, 2009, 2008 and
2007 was $1.8 million, $1.9 million and $1.9 million, respec-
tively. Estimated annual amortization expense for each of
the next fi ve years is approximately $1.8 million.
The Company’s annual test of other intangible
assets for impairment at November 30, 2009, indicated that
the carrying amount of such intangible assets was recover-
able. The Company determined during its annual test of
intangible assets for impairment at November 30, 2008 that
certain trade names and customer based intangible assets
acquired in the Neenah Germany acquisition were impaired
at December 31, 2008. For the year ended December 31,
2008, the Company recognized a non-cash pre-tax charge
of approximately $1.8 million for the impairment of such
intangible assets.
FIVE
Discontinued Operations
S A L E O F T H E P I C T O U M I L L A N D T H E W O O D L A N D S
As of December 31, 2006, the Company’s pulp opera-
tions consisted of the Pictou Mill and the Woodlands. The
Company considered its pulp operations as nonstrategic
assets and sought opportunities to reduce its exposure to
the cyclical commodity pulp business. In the fi rst quarter of
2007, the Company engaged a nationally known investment
banking fi rm to identify buyers interested in acquiring the
Pictou Mill and/or the Woodlands. Throughout 2007, the
Company actively pursued opportunities to maximize the
value of these assets through a sale or divesture; however, as
of December 31, 2007, the Company did not believe it was
probable that the assets could be sold within 12 months.
In February 2008, Atlas was identifi ed as a party
interested in acquiring the Pictou Mill. The transaction
with Atlas did not include the Woodlands. At that time, the
Company committed to a plan to sell the Pictou Mill to Atlas
and to separately pursue purchasers of the Woodlands.
In June 2008, Neenah Canada completed the sale of the
Pictou Mill to Northern Pulp, a new operating company
jointly owned by Atlas and Blue Wolf. In connection with
the transfer of the Pictou Mill, Neenah Canada made pay-
ments of approximately $10.3 million to Northern Pulp.
In addition, the Company incurred transaction costs of
approximately $3.3 million. Pursuant to the terms of the
transaction, Northern Pulp assumed all of the assets and
liabilities associated with the Pictou Mill, as well as existing
customer contracts, supply agreements (including a pulp
supply agreement with Kimberly-Clark), labor agreements
and pension obligations.
In conjunction with the sale of the Pictou Mill,
the Company entered into a stumpage agreement (the
“Stumpage Agreement”), which allows Northern Pulp to har-
vest an average of approximately 400,000 metric tons of soft-
wood timber annually from the Woodlands. The Stumpage
Agreement is for a term of ten years and Northern Pulp
has the option to extend the agreement for an additional
three years. For calendar year 2008, Northern Pulp paid a
nominal amount for approximately 236,000 metric tons of
softwood timber harvested under the Stumpage Agreement.
As a result, the Company recorded $2.8 million in deferred
revenue for the estimated fair value of the timber to be
harvested by Northern Pulp in calendar 2008. For the year
ended December 31, 2008, the Company recognized all of
such deferred revenue. For timber purchases during calendar
year 2009, Northern Pulp paid the stumpage rate charged
by the Nova Scotia provincial government for harvesting on
government licensed lands. The price paid for timber pur-
chases during the remainder of the Stumpage Agreement
will be based on an agreed upon formula for estimating mar-
ket prices. The Company believes the Stumpage Agreement
prices for calendar year 2009 and beyond represent market
rates. Northern Pulp has agreed to pay substantially all costs
associated with maintaining the Woodlands and harvesting
the timber. The Stumpage Agreement will be terminated in
conjunction with the sale of the Woodlands.
During the fi rst quarter of 2008, the Company
determined that the estimated value it would receive from
a sale of the Pictou Mill indicated that it would not recover
the carrying value of the mill’s long-lived assets. As a result,
the Company recognized aggregate non-cash, pre-tax
impairment charges of $91.2 million to write off the carrying
value of the Pictou Mill’s long-lived assets. In addition, for
92
Neenah Paper, Inc. 2009 Annual Report
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
the year ended December 31, 2008, the Company recorded
a pre-tax loss of $29.4 million to recognize the loss on dis-
posal of the Pictou Mill.
In conjunction with the sale of the Pictou Mill,
Northern Pulp assumed responsibility for all pension and
other postretirement benefi t obligations for active and retired
employees of the mill. The Company accounted for the trans-
fer of the Nova Scotia, Canada defi ned benefi t pension plan
(the “Nova Scotia Plan”) as a settlement of postretirement
benefi t obligations pursuant to ASC Topic 715. For the year
ended December 31, 2008, the Company recognized a non-
cash, pre-tax settlement loss of $53.7 million for the reclassifi -
cation of deferred pension and other postretirement benefi t
adjustments related to the Nova Scotia Plan from accumulated
other comprehensive income to loss from discontinued opera-
tions in the consolidated statement of operations.
On March 1, 2010, the Company announced
that Neenah Canada had signed a defi nitive agreement
to sell the Woodlands. See Note 17, “Subsequent Event.”
As of December 31, 2009 and 2008, the Woodlands are
reported as assets held for sale on the consolidated balance
sheet. The results of operations of the Pictou Mill and the
Woodlands and the loss on disposal of the Pictou Mill are
reported as discontinued operations in the consolidated
statements of operations for all years presented. Assets
held for sale are valued at the lower of cost or fair value less
cost to sell. As of December 31, 2009 and 2008, the assets
of the Woodlands are reported at their historical book cost
of $3.8 million and $3.3 million, respectively.
T R A N S F E R O F T H E T E R R A C E B A Y M I L L
In August 2006, Neenah Canada transferred Terrace Bay to
Buchanan, which assumed responsibility for substantially all
liabilities related to the future operation of Terrace Bay. At
closing, Neenah Canada retained certain working capital
amounts and pension and long-term disability obligations
for current and former mill employees and postretirement
medical and life insurance obligations for current retirees.
As a closing condition of the agreement to transfer
Terrace Bay to Buchanan, Neenah Canada initiated plans to
curtail and settle its Ontario, Canada, defi ned benefi t pen-
sion plan (the “Ontario Plan”). In December 2007, the Ontario
Plan was terminated and all outstanding pension obligations
for active employees were settled through the purchase of
annuity contracts or lump-sum payments pursuant to par-
ticipant elections. For the year ended December 31, 2007,
Neenah Canada recognized a non-cash pre-tax settlement
loss of $38.7 million upon termination of the Ontario Plan.
During the fi rst quarter of 2008, Neenah Canada
paid approximately $5.0 million to settle litigation related
to the reduction and/or elimination of certain retiree ben-
efi ts following the transfer of Terrace Bay to Buchanan. In
conjunction with the settlement, Neenah Canada agreed to
continue certain retiree life insurance benefi ts at a reduced
rate in the future. As a result of the settlement, for the year
ended December 31, 2008, Neenah Canada recorded a
curtailment gain of approximately $4.3 million, which is
recorded in other income – net on the consolidated state-
ment of operations. For all years presented, the results of
operations of Terrace Bay are refl ected as discontinued
operations in the consolidated statements of operations.
The following table presents the results of discon-
tinued operations:
Net sales, net of
intersegment sales(a)
Discontinued operations:
Year Ended December 31,
2009
2008
2007
$ 3.7
$ 101.9
$223.5
Income (loss) from operations
Pictou Mill and the Woodlands(b) $ 2.8
–
2.8
(0.3)
Terrace Bay(c)
Income (loss) from operations
Loss on disposal – Pictou Mill
Loss on settlement of post-
$ (97.8)
–
(97.8)
(29.4)
$ 13.3
(44.9)
(31.6)
–
employment benefi t plans
Loss on disposal
Income (loss) before
income taxes
(Provision) benefi t for
income taxes
Income (loss) from
discontinued operations,
net of income taxes
–
(0.3)
(53.7)
(83.1)
–
–
2.5
(180.9)
(31.6)
(1.9)
69.7
9.6
$ 0.6
$(111.2)
$ (22.0)
(a) For the years ended December 31, 2009 and 2008, represent net sales of
the Pictou Mill and the Woodlands only.
(b) For the year ended December 31, 2008, the loss from operations includes
aggregate non-cash, pre-tax impairment charges of $91.2 million to write-off
the carrying value of the Pictou Mill’s long-lived assets.
(c) For the year ended December 31, 2007, the loss from operations includes
a loss of $38.7 million related to the settlement of the Ontario Plan.
Neenah Paper, Inc. 2009 Annual Report
93
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
SIX
Income Taxes
The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes (“ASC Topic 740”). Income tax
expense (benefi t) represented (73.5) percent, 6.8 percent and (13.0) percent of income (loss) from continuing operations
before income taxes for the years ended December 31, 2009, 2008 and 2007, respectively. The following table presents the
principal reasons for the difference between the effective income tax provision (benefi t) rate and the U.S. federal statutory
income tax provision (benefi t) rate:
U.S. federal statutory income tax provision (benefi t)
U.S. state income taxes, net of federal income tax effect
Uncertain income tax positions
Nondeductible goodwill and other intangible
asset impairment charge
Limitation on tax benefi ts available to Fox River
Enacted German tax law changes
Foreign tax rate differences
Other differences – net
Effective income tax provision (benefi t)
Year Ended December 31,
2009
2008
2007
(35.0)%
(3.3)%
39.1%
–
–
–
(47.2)%
(27.1)%
(73.5)%
$(2.4)
(0.2)
2.7
–
–
–
(3.2)
(1.9)
$(5.0)
(35.0)%
0.5%
–
33.0%
8.8%
–
1.0%
(1.5)%
6.8%
$(15.5)
0.2
–
14.6
3.9
–
0.4
(0.6)
$ 3.0
35.0%
0.8%
–
–
–
(30.7)%
(10.6)%
(7.5)%
(13.0)%
$10.0
0.2
–
–
–
(8.8)
(3.0)
(2.1)
$(3.7)
The Company’s effective income tax (benefi t) rate
The following table presents the components of
can be affected by many factors, including but not limited
to, changes in the mix of earnings in taxing jurisdictions with
differing statutory rates, changes in corporate structure as
a result of business acquisitions and dispositions, changes in
the valuation of deferred tax assets and liabilities, the results
of audit examinations of previously fi led tax returns and
changes in tax laws. During the year ended December 31,
2007, German tax laws were amended to reduce statutory
income tax rates effective as of January 1, 2008. Application
of the new rates to the Company’s existing deferred tax
assets and liabilities reduced the Company’s net deferred
tax liabilities at December 31, 2007. The reduction in the
Company’s net deferred tax liabilities due to the benefi t of
the enacted tax rate change resulted in an income tax ben-
efi t of $8.8 million for the year ended December 31, 2007 in
accordance with ASC Topic 740.
The following table presents the U.S. and foreign
components of income (loss) from continuing operations
before income taxes:
Income (loss) from continuing
operations before
income taxes:
U.S.
Foreign
Total
Year Ended December 31,
2009
2008
2007
$(13.3)
6.5
$ (6.8)
$ 3.1
(47.4)
$(44.3)
$ 6.6
21.9
$28.5
94
Neenah Paper, Inc. 2009 Annual Report
the provision (benefi t) for income taxes:
Provision (benefi t) for
income taxes:
Current:
Federal
State
Foreign
Total current
Year Ended December 31,
2009
2008
2007
$ 2.5
1.0
1.9
$ 0.9
(0.4)
1.2
$ 9.9
1.1
6.1
tax provision
5.4
1.7
17.1
Deferred:
Federal
State
Foreign
(7.5)
(0.6)
(2.3)
3.9
1.3
(3.9)
(9.8)
(0.9)
(10.1)
Total deferred tax
provision (benefi t)
Total provision (benefi t)
for income taxes
(10.4)
1.3
(20.8)
$ (5.0)
$ 3.0
$ (3.7)
The Company has elected to treat its Canadian
operations as a branch for U.S. income tax purposes.
Therefore, the amount of income (loss) before income taxes
from Canadian operations are included in the Company’s
consolidated U.S. income tax returns, and such amounts are
subject to U.S. income taxes.
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
The asset and liability approach is used to rec-
As of December 31, 2009, the Company had
ognize deferred tax assets and liabilities for the expected
future tax consequences of temporary differences between
the carrying amounts and the tax bases of assets and liabili-
ties. The components of deferred tax assets and liabilities
are as follows:
December 31,
2009
2008
Net current deferred income tax assets
Canadian timberlands
Intangible assets
Net operating losses
Accrued liabilities
Employee benefi ts
Inventory
Other
Net current deferred income tax
assets before valuation allowance
Valuation allowance
Net current deferred income tax assets
Net noncurrent deferred income tax assets
Employee benefi ts
Net operating losses and tax credits
Other long-term obligations
Accumulated depreciation
Other
Net noncurrent deferred income
$ 28.2
20.1
7.7
3.9
1.3
(0.1)
1.3
62.4
(0.7)
61.7
32.3
28.0
0.6
(22.7)
–
Valuation allowance
tax assets before valuation allowance 38.2
(0.8)
$ 28.2
19.9
10.9
4.5
2.2
(1.2)
0.9
65.4
–
65.4
24.7
35.9
0.8
(23.9)
(2.2)
35.3
–
Net noncurrent deferred
income tax assets
Total deferred income tax assets
Net noncurrent deferred income tax liability
Accumulated depreciation
Intangibles
Interest limitation
Employee benefi ts
Other
Net noncurrent deferred
income tax liabilities
37.4
$ 99.1
35.3
$100.7
$ 22.8
6.2
(3.2)
(1.7)
(0.4)
$ 21.0
6.8
(1.7)
0.5
(1.2)
$ 23.7
$ 25.4
As of December 31, 2009, a valuation allowance
of $1.5 million has been provided on deferred income tax
assets. In determining the need for valuation allowances,
the Company considers many factors, including specifi c
taxing jurisdictions, sources of taxable income, income tax
strategies and forecasted earnings for the entities in each
jurisdiction. A valuation allowance is recognized if, based on
the weight of available evidence, the Company concludes
that it is more likely than not that some portion or all of the
deferred income tax asset will not be realized.
$65.3 million of U.S. federal and $75.4 million of U.S. state
net operating losses, substantially all of which may be car-
ried forward to offset future taxable income through 2029.
The Company also has preacquisition and recognized built-
in carryovers of approximately $16.1 million, net of expected
limitations. In addition, the Company has $2.8 million of
AMT carryovers, which can be carried forward indefi nitely.
No provision for U.S. income taxes has been
made for undistributed earnings of certain of the
Company’s foreign subsidiaries that have been indefi nitely
reinvested. The Company is unable to estimate the amount
of U.S. income taxes that would be payable if such undis-
tributed foreign earnings were repatriated.
The following is a tabular reconciliation of the
total amounts of uncertain tax positions as of and for the
years ended December 31, 2009, 2008 and 2007:
Balance at January 1,
Initial adoption
Increase in prior period
tax positions
Decrease in prior period
tax positions
Increase in current period
For the Years Ended December 31,
2009
2008
$12.9
–
$13.3
–
2007
$ –
12.9
4.2
0.2
–
(0.1)
(1.0)
(5.5)
tax positions
0.5
0.4
5.9
Decrease due to settlements
with tax authorities
Balance at December 31,
(8.0)
$ 9.5
–
$12.9
–
$13.3
If recognized, approximately $2.1 million of the
benefi t for uncertain tax positions at December 31, 2009
would favorably affect the Company’s effective tax rate in
future periods. The Company does not anticipate that the
expiration of the statute of limitations or the settlement of
audits in the next 12 months will result in liabilities for uncer-
tain income tax positions that are materially different than
the amounts accrued as of December 31, 2009.
Tax years 2004 through 2008 are subject to exam-
ination by federal and state tax authorities in the United
States, federal and provincial tax authorities in Canada and
federal and municipal tax authorities in Germany. During
2009, the Company settled Internal Revenue Service (the
“IRS”) examinations of the 2004, 2005 and 2006 tax years.
As of December 31, 2009, the 2007 and 2008 tax years
are being audited by the IRS; the 2005, 2006 and 2007 tax
years are being audited by German tax authorities and the
2004, 2005, 2006 and 2007 tax years are being audited by
Canadian tax authorities.
Neenah Paper, Inc. 2009 Annual Report
95
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
The Company recognizes accrued interest and
penalties related to uncertain income tax positions in the
Provision (benefi t) for income taxes on the consolidated
statements of operations. As of December 31, 2009 and
2008, the Company had $0.7 million and $0.1 million,
respectively, accrued for interest related to uncertain
income tax positions.
SEVEN
Debt
Long-term debt consisted of the following:
Senior Notes (7.375% fi xed rate) due 2014
Revolving bank credit facility
(variable rates), due 2013
Term Loan (variable rates), due 2013
Neenah Germany project fi nancing
(3.8% fi xed rate) due in 16 equal
semiannual installments
beginning June 2009
Neenah Germany revolving line of
credit (variable rates)
Other debt (2.9% fi xed rate) due in
November 2010
Total Debt
Less: Debt payable within one year
Long-term debt
December 31,
2009
2008
$225.0
$225.0
27.9
40.0
101.1
7.2
12.5
12.9
0.9
319.2
55.6
$263.6
14.0
17.3
–
364.6
24.1
$340.5
S E N I O R U N S E C U R E D N O T E S
On November 30, 2004, the Company completed an
underwritten offering of ten-year senior unsecured
notes (the “Senior Notes”) at an aggregate face amount
of $225 million. Interest on the Senior Notes is payable
May 15 and November 15 of each year. The Senior Notes
are fully and unconditionally guaranteed by substantially
all of the Company’s subsidiaries, with the exception of
Neenah Germany.
A M E N D E D A N D R E S T A T E D S E C U R E D
R E V O L V I N G C R E D I T F A C I L I T Y
On November 5, 2009, the Company renewed and
modifi ed its Bank Credit Agreement by entering into an
amended and restated credit agreement (as amended
and restated, the “Restated Credit Agreement”) by
and among the Company, certain of its subsidiaries as
co-borrowers, Neenah Canada, as guarantor, the lenders
listed in the Restated Credit Agreement and JP Morgan
96
Neenah Paper, Inc. 2009 Annual Report
Chase Bank, N.A., as agent for the lenders. The Restated
Credit Agreement consists of a $100 million senior, secured
revolving credit facility (the “New Revolver”) and a $40 mil-
lion senior secured term loan (the “New Term Loan”). The
Company’s ability to borrow under the New Revolver is
limited to the lowest of (a) $100 million; (b) the Company’s
borrowing base (as determined in accordance with the
Restated Credit Agreement) and (c) the applicable cap on
the amount of “credit facilities” under the indenture for
the Senior Notes. In addition, under certain conditions,
the Company has the ability to increase the size of the
New Revolver by up to $50 million. The total commitment
under the Restated Credit Agreement cannot exceed
$150 million. The Restated Credit Agreement terminates on
November 30, 2013.
The New Revolver bears interest at either (1) a
prime rate-based index plus a percentage ranging from
2.00% to 2.50%, or (2) LIBOR plus a percentage ranging
from 3.50% to 4.00%, depending upon the amount of
availability under the New Revolver. Upon the sale of the
Woodlands, these percentages will each be reduced by
0.25%. See Note 17, “Subsequent Event.” The sale of the
Ripon Mill will reduce such percentages by an additional
0.25%. The New Term Loan will bear interest at either
(A) a prime rate-based index plus 2.75%, or (B) LIBOR plus
4.25%. Interest is computed based on actual days elapsed
in a 360-day year, payable monthly in arrears for prime-
rate based loans, or payable monthly in arrears and at the
end of the applicable interest period for LIBOR loans. The
Company is also required to pay a monthly facility fee on
the unused amount of the New Revolver commitment,
calculated at the per annum rate of 0.50% while the New
Term Loan remains outstanding, and after the New Term
Loan has been repaid in full, at a per annum rate ranging
between 0.50% and 0.75%, depending upon usage under
the New Revolver.
The Restated Credit Agreement is secured
by substantially all of the assets of the Company and the
subsidiary borrowers, including the capital stock of such
subsidiaries, and is guaranteed by Neenah Canada. Neenah
Canada’s guaranty is secured by substantially all of that
subsidiary’s assets. Neenah Germany is not obligated with
respect to the Restated Credit Agreement, either as a bor-
rower or a guarantor; however, the Company has directly
or indirectly pledged 65% of its equity interest in Neenah
Germany as security for the obligations of the Company and
its subsidiaries under the Restated Credit Agreement.
The weighted-average interest rate on outstand-
ing New Revolver borrowings as of December 31, 2009
was 4.6 percent per annum. Interest on amounts bor-
rowed under the New Revolver is paid monthly. Amounts
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
outstanding under the New Revolver may be repaid, in
whole or in part, at any time without premium or penalty
except for specifi ed make-whole payments on LIBOR-based
loans. All principal amounts outstanding under the New
Revolver are due and payable on the date of termination
of the Restated Credit Agreement. Borrowing availability
under the New Revolver is reduced by outstanding letters
of credit and reserves for certain other items as defi ned
in the Restated Credit Agreement. Availability under the
Restated Credit Agreement will fl uctuate over time depend-
ing on the value of the Company’s inventory, receivables
and various capital assets. As of December 31, 2009, the
Company had approximately $2.0 million of letters of
credit and other items outstanding that reduced availability
and $60.6 million of borrowing availability under the New
Revolver. The Company’s borrowing base will be reduced
by approximately $9.1 million upon the sale of the remaining
assets of the Ripon Mill, and its ability to use proceeds from
the sale is restricted to “permitted uses” as defi ned in the
indenture for the Senior Notes.
The weighted-average interest rate on outstand-
ing New Term Loan borrowings as of December 31, 2009
was 4.5 percent per annum. Commencing April 30, 2010,
the Company will be required to make quarterly principal
payments on the New Term Loan of $1.25 million per quar-
ter with a fi nal payment of $21.25 million in November 2013.
The Company is required to use proceeds from the sale of
the Woodlands to prepay the New Term Loan. On March 1,
2010, the Company announced that Neenah Canada had
signed a defi nitive agreement to sell the Woodlands and
therefore has classifi ed the New Term Loan as Debt payable
within one year on the consolidated balance sheet as of
December 31, 2009. See Note 17, “Subsequent Event.” The
Company used a portion of the New Term Loan proceeds to
repay the Term Loan (see below) in full.
The Restated Credit Agreement contains events
of default customary for fi nancings of this type, including
failure to pay principal or interest, materially false represen-
tations or warranties, failure to observe covenants and other
terms of the Restated Credit Agreement, cross-defaults to
certain other indebtedness, bankruptcy, insolvency, various
ERISA violations, the incurrence of material judgments and
changes in control.
The Restated Credit Agreement contains cov-
enants with which the Company must comply during
the term of the agreement. Among other things, such
covenants restrict the Company’s ability to incur certain
additional debt, make specifi ed restricted payments and
capital expenditures, authorize or issue capital stock, enter
into transactions with affi liates, consolidate or merge with
or acquire another business, sell certain of its assets, or
dissolve or wind up. In addition, the terms of the Restated
Credit Agreement require the Company to achieve and
maintain compliance with a fi xed charge coverage ratio if
availability under the Restated Credit Agreement is less
than $20 million. At December 31, 2009, the Company was
in compliance with all covenants.
The Company’s ability to pay cash dividends
on its common stock is limited under the terms of both
the Restated Credit Agreement and the Senior Notes. At
December 31, 2009, under the most restrictive terms of
these agreements, the Company’s ability to pay cash divi-
dends on its common stock is limited to a total of $8 million
in a 12-month period.
P R E V I O U S S E C U R E D R E V O L V I N G C R E D I T F A C I L I T Y
On November 30, 2004, the Company entered into a credit
agreement by and among the Company, certain of its
subsidiaries and the lenders listed in the credit agreement
(the “Credit Agreement”). Under the Credit Agreement,
the Company had a secured revolving credit facility (the
“Revolver”) that provided for borrowings of up to $150 mil-
lion. The Credit Agreement was secured by substantially all
of the Company’s assets, including the capital stock of its
subsidiaries and was guaranteed by Neenah Canada. The
Credit Agreement was originally scheduled to terminate on
November 30, 2008.
Following several amendments, as of
December 31, 2008, the Credit Agreement (as amended,
the “Amended Credit Agreement”) provided for a secured
revolving credit facility (the “Amended Revolver”) that pro-
vided for borrowings of up to $210 million. The Company’s
ability to borrow under the Amended Revolver was limited
to the lowest of (a) $210 million, (b) the Company’s borrow-
ing base (as determined in accordance with the Amended
Credit Agreement), and (c) the applicable cap on the
amount of “credit facilities” under the indenture for the
Senior Notes. The termination date of the Amended Credit
Agreement was extended to November 30, 2010.
As of December 31, 2008, the interest rate appli-
cable to borrowings under the Amended Revolver was
either (1) the Prime Rate plus a percentage ranging from
0 percent to 2.00 percent or (2) LIBOR plus a percentage
ranging from 1.25 percent to 3.50 percent. Interest was
computed based on actual days elapsed in a 360-day year,
payable monthly in arrears for base rate loans, or payable
monthly in arrears and at the end of the applicable interest
period for LIBOR loans. The commitment was subject to
an annual facility fee of 0.25 percent on the average daily
unused amount of the commitment. The weighted-average
interest rate on outstanding Revolver borrowings as of
December 31, 2008 was 3.6 percent per annum.
Neenah Paper, Inc. 2009 Annual Report
97
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
The Amended Credit Agreement was secured
by substantially all of the assets of the Company and the
subsidiary borrowers, including the capital stock of such
subsidiaries, and was guaranteed by Neenah Canada.
Neenah Canada’s guarantee was secured by substantially all
of that subsidiary’s assets. Neenah Germany was not a bor-
rower or guarantor with respect to the Amended Revolver.
However, the Company pledged 65 percent of its equity
interest in Neenah Germany as security for the obligations
of the Company and its subsidiaries under the Amended
Credit Agreement.
P R E V I O U S T E R M L O A N
In March 2007, the Company entered into an agreement
by and among the Company, certain of its subsidiaries and
JP Morgan Chase Bank, N.A. (the “Term Loan Agreement”)
to borrow up to $25 million (the “Term Loan”). As of
December 31, 2008, the weighted-average interest rate
on outstanding Term Loan borrowings was 3.6 percent
per annum. For the year ended December 31, 2008, the
Company used proceeds from the sale of Fox River assets
to prepay approximately $9.5 million in Term Loan bor-
rowings. In June 2008, the Company entered into the First
Amendment (the “First Amendment”) to the Term Loan.
The First Amendment reduced required amortization pay-
ments to $1.25 million per quarter. The Term Loan was
repaid in November 2009 with proceeds from the New
Term Loan.
The Company accounted for the modifi cation
of the Amended Credit Agreement and the termination of
the Term Loan Agreement as an extinguishment of debt in
accordance with ASC Topic 470, Debt. As a result, for the
year ended December 31, 2009, the Company recognized
within interest expense approximately $1.4 million for costs
incurred in conjunction with modifying the Amended Credit
Agreement and for the loss on extinguishment of the Term
Loan Agreement. The Company capitalized approximately
$2.3 million of debt issuance costs associated with the
Restated Credit Agreement. Such costs will be amortized
over the term of the Restated Credit Agreement.
O T H E R D E B T
In December 2006, Neenah Germany entered into an
agreement with HypoVereinsbank and IKB Deutsche
Industriebank AG to provide €10.0 million of project fi nanc-
ing with a term of 10 years for the construction of a satura-
tor. Principal outstanding under the agreement may be
repaid at any time without penalty. Interest on amounts
outstanding is based on actual days elapsed in a 360-day
year and is payable semiannually. As of December 31,
2009, €8.8 million ($12.5 million) was outstanding under
this agreement.
Neenah Germany has a revolving line of credit
(the “German Line of Credit”) with HypoVereinsbank that
provides for borrowings of up to €15 million for general
corporate purposes. The German Line of Credit is secured
by the domestic accounts receivable of Neenah Germany.
As of December 31, 2009 and 2008, the weighted-average
interest rate on outstanding Line of Credit borrowings was
4.1 percent per annum and 5.7 percent per annum, respec-
tively. In November 2009, Neenah Germany extended
the termination date for the German Line of Credit to
November 30, 2010. Neenah Germany has the ability to
borrow in either Euros or U.S. dollars. Interest is computed
on U.S. dollars loans at the rate of 8.5 percent per annum
and on Euro loans at EURIBOR plus a margin of 1.5 per-
cent. Interest is payable quarterly, and principal may be
repaid at any time without penalty. As of December 31,
2009, €8.9 million ($12.9 million, based on exchange rates
at December 31, 2009) was outstanding under the Line of
Credit and €6.0 million ($8.6 million, based on exchange
rates at December 31, 2009) of credit was available. Neenah
Germany’s ability to pay dividends or transfer funds to
the Company is limited under the terms of the German
Line of Credit, to not exceed certain limits defi ned in the
agreement without lender approval or repayment of the
amount outstanding under the line, which was €8.9 million
($12.9 million, based on exchange rates at December 31,
2009) at December 31, 2009. In addition, the terms of the
German Line of Credit require Neenah Germany to main-
tain a ratio of stockholder’s equity to total assets equal to or
greater than 45 percent. The Company was in compliance with
all provisions of the agreement as of December 31, 2009.
P R I N C I P A L P A Y M E N T S
The following table presents the Company’s required debt payments:
Debt payments
2010(a)
$55.6
2011
$1.8
2012
$1.7
2013(b)
2014(c)
Thereafter
Total
$29.7
$226.8
$3.6
$319.2
(a) Includes New Term Loan prepayment of $40.0 million.
(b) Includes principal payments on the Company’s revolving bank credit facility of $27.9 million.
(c) Includes principal payments on the Senior Notes of $225.0 million.
98
Neenah Paper, Inc. 2009 Annual Report
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
EIGHT
Pension and Other Postretirement Benefi ts
P E N S I O N P L A N S
Substantially all active employees of the Company’s U.S.
paper operations participate in defi ned benefi t pension
plans and/or defi ned contribution retirement plans. Neenah
Germany has defi ned benefi t plans designed to provide a
monthly pension upon retirement for substantially all its
employees in Germany. In addition, the Company maintains
a supplemental retirement contribution plan (the “SERP”),
which is a nonqualifi ed defi ned benefi t plan. The Company
provides benefi ts under the SERP to the extent necessary
to fulfi ll the intent of its defi ned benefi t retirement plans
without regard to the limitations set by the Internal Revenue
Code on qualifi ed defi ned benefi t plans. The Company has
no legal or governmental obligation to fund the SERP and,
as such, the plan is currently unfunded.
The closure of the Ripon Mill resulted in the
elimination of expected years of future service for mill
employees eligible to participate in the Company’s defi ned
benefi t pension plans and postretirement medical plan. See
Note 3, “Closure of the Ripon Mill.” In accordance with ASC
Topic 715, the Company measured the assets and liabilities
of the affected postretirement plans as of May 31, 2009 and
recognized an aggregate curtailment loss of approximately
$0.8 million for the year ended December 31, 2009.
In conjunction with the transfer of Terrace Bay to
Buchanan, Neenah Canada initiated plans to curtail and set-
tle the Ontario Plan. In December 2007, the Company termi-
nated the Ontario Plan and settled all outstanding pension
obligations for active employees through the purchase of
annuity contracts or lump-sum payments pursuant to par-
ticipant elections. For the year ended December 31, 2007,
Neenah Canada recognized a non-cash pre-tax settlement
loss of $38.7 million upon termination of the Ontario Plan.
No additional funding was required to settle the Ontario
Plan. See Note 5, “Discontinued Operations – Transfer of
the Terrace Bay Mill.”
In November 2007, the Company amended
the Fox River defi ned benefi t pension plan to freeze the
vested pension benefi t for salaried employees born after
December 31, 1957. The affected employees were trans-
ferred to the Company’s defi ned contribution retirement
plan. The pension benefi t for salaried employees of Fox
River born on or before December 31, 1957 was unaffected.
For the year ended December 31, 2007, the Company rec-
ognized a reduction in pension expense of approximately
$1.2 million related to the amendment.
The Company’s funding policy for qualifi ed
defi ned benefi t plans for its U.S. paper operations is to
contribute assets to fully fund the accumulated benefi t obli-
gation. Subject to regulatory and tax deductibility limits,
any funding shortfall is to be eliminated over a reasonable
number of years. Nonqualifi ed plans providing pension
benefi ts in excess of limitations imposed by taxing authori-
ties are not funded. There is no legal or governmental
obligation to fund Neenah Germany’s benefi t plans and,
as such, the Neenah Germany defi ned benefi t plans are
currently unfunded.
The Company uses the fair value of pension plan
assets to determine pension expense, rather than averaging
gains and losses over a period of years. Investment gains
or losses represent the difference between the expected
return calculated using the fair value of the assets and
the actual return based on the fair value of assets. The
Company’s pension obligations are measured annually as
of December 31. As of December 31, 2009, the Company’s
pension plans had cumulative unrecognized investment
losses and other actuarial losses of approximately $28.9 mil-
lion recorded in accumulated other comprehensive income.
O T H E R P O S T R E T I R E M E N T B E N E F I T P L A N S
The Company provides contributory health care and
life insurance benefi t plans to active employees of the
Company. Certain former U.S. employees who are eligible
to retire and continue coverage in retirement are offered
contributory postretirement health and life insurance bene-
fi ts. The Company also offers retiree life insurance coverage
on a contributory basis to certain Terrace Bay mill retirees.
In conjunction with the sale of the Pictou Mill, Northern Pulp
assumed responsibility for all health care and life insurance
benefi t plans for active and retired employees of the mill.
In the fourth quarter of 2007, Neenah Canada
settled a class action lawsuit brought by certain retired
employees of Neenah Canada by agreeing to pay the plain-
tiffs approximately 5.5 million Canadian dollars for a full
and complete dismissal of all claims for retiree health and
medical benefi ts against Neenah Canada and the Company.
Neenah Canada also agreed to continue certain retiree life
Neenah Paper, Inc. 2009 Annual Report
99
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
insurance benefi ts at a reduced rate in the future. For the
year ended December 31, 2007, Neenah Canada recorded a
charge related to the litigation settlement of $5.2 million.
The Company’s obligations for postretirement
benefi ts other than pensions are measured annually as of
December 31. At December 31, 2009, the assumed infl a-
tionary pre-65 and post-65 health care cost trend rates
used to determine year-end obligations and costs for the
year ended December 31, 2010 were 8.7 percent, gradually
decreasing to an ultimate rate of 4.5 percent in 2027. The
assumed infl ationary pre-65 and post-65 health care cost
trend rates used to determine obligations at December 31,
2008 and cost for the year ended December 31, 2009 were
9.0 percent, gradually decreasing to an ultimate rate
of 5.0 percent in 2023.
The following table reconciles the benefi t obligations, plan assets, funded status and net liability information of
the Company’s pension and other benefi t plans.
Change in Benefi t Obligation:
Benefi t obligation at beginning of year
Service cost
Interest cost
Currency
Actuarial loss (gain)
Benefi t payments from plans
Curtailments
Divestitures
Benefi t obligation at end of year
Change in Plan Assets:
Fair value of plan assets at beginning of year
Actual gain (loss) on plan assets
Employer contributions
Currency
Benefi t payments
Divestitures
Other
Fair value of plan assets at end of year
Reconciliation of Funded Status:
Fair value of plan assets
Projected benefi t obligation
Net liability recognized in statement of fi nancial position
Amounts recognized in statement of fi nancial position consist of:
Current liabilities
Noncurrent liabilities
Net amount recognized
Pension Benefi ts
Postretirement
Benefi ts Other
than Pensions
Year Ended December 31,
2009
2008
2009
2008
$214.2
4.5
14.3
0.9
11.9
(10.6)
(0.5)
–
$234.7
$142.9
23.3
10.2
–
(8.2)
–
–
$168.2
$168.2
234.7
$ (66.5)
$ (2.2)
(64.3)
$ (66.5)
$407.4
6.8
18.5
(14.6)
(13.8)
(15.0)
–
(175.1)
$214.2
$343.6
(20.4)
7.5
(11.7)
(12.6)
(160.6)
(2.9)
$142.9
$142.9
214.2
$ (71.3)
$ (2.6)
(68.7)
$ (71.3)
$ 36.8
1.9
2.5
0.5
(1.5)
(2.7)
0.4
–
$ 37.9
$ –
–
–
–
–
–
–
$ –
$ –
37.9
$(37.9)
$ (2.6)
(35.3)
$(37.9)
$ 55.2
2.2
2.5
(1.6)
(1.3)
(8.9)
–
(11.3)
$ 36.8
$ –
–
–
–
–
–
–
$ –
$ –
36.8
$(36.8)
$ (2.5)
(34.3)
$(36.8)
Amounts recognized in accumulated other comprehensive income consist of:
Accumulated actuarial loss
Prior service cost
Total recognized in accumulated other comprehensive income
100
Neenah Paper, Inc. 2009 Annual Report
Pension Benefi ts
Postretirement
Benefi ts Other
than Pensions
December 31,
2009
$28.3
0.6
$28.9
2008
$30.9
0.9
$31.8
2009
$3.3
2.4
$5.7
2008
$5.0
3.1
$8.1
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Summary disaggregated information about the pension plans follows:
Projected benefi t obligation
Accumulated benefi t obligation
Fair value of plan assets
C O M P O N E N T S O F N E T P E R I O D I C B E N E F I T C O S T
Service cost
Interest cost
Expected return on plan assets(a)
Recognized net actuarial loss
Amortization of unrecognized transition asset
Amortization of prior service cost
Cost of contractual termination benefi ts
Amount of curtailment (gain) loss recognized
Amount of settlement loss recognized
Net periodic benefi t cost
Less: Cost related to discontinued operations(b)(c)
Net periodic benefi t cost related to continuing operations
Assets
Exceed ABO
December 31,
ABO
Exceeds Assets
Total
2009
$94.6
$82.0
$82.9
2008
2009
2008
2009
2008
$104.6
$ 90.8
$ 91.4
$140.1
$137.5
$ 85.3
$109.6
$104.9
$ 51.5
$234.7
$219.5
$168.2
$214.2
$195.7
$142.9
Pension Benefi ts
Postretirement Benefi ts
Other than Pensions
Year Ended December 31,
2009
2008
2007
$ 4.5
14.3
(11.3)
1.4
–
0.1
–
0.2
–
9.2
–
$ 9.2
$ 6.8
18.5
(19.8)
1.4
(0.1)
1.0
–
–
–
7.8
1.9
$ 5.9
$ 9.2
28.1
(32.0)
(0.2)
1.8
5.0
0.1
(1.2)
38.7
49.5
46.0
$ 3.5
2009
$1.9
2.5
–
0.3
–
0.4
–
0.6
–
5.7
–
$5.7
2008
$ 2.2
2.5
–
1.3
–
(5.0)
–
–
–
1.0
0.6
$ 0.4
2007
$ 2.4
2.5
–
–
(6.7)
3.8
–
–
5.0
7.0
1.1
$ 5.9
(a) The expected return on plan assets is determined by multiplying the fair value of plan assets at the prior year-end (adjusted for estimated current year cash
benefi t payments and contributions) by the expected long-term rate of return.
(b) In conjunction with the transfer of the Terrace Bay mill to Buchanan and as a closing condition of the agreement, the Company initiated plans to curtail and
settle the Ontario Plan. The pension cost related to the operations of the Terrace Bay mill has been classifi ed as Loss from discontinued operations on the con-
solidated statements of operations. Pension expense for the year ended December 31, 2007 includes settlement/curtailment losses related to the Ontario Plan
of $38.7 million.
(c) Pursuant to the terms of the transfer agreement, Buchanan assumed responsibility for postretirement medical and life insurance benefi ts for active employees
at the Terrace Bay mill.
O T H E R C H A N G E S I N P L A N A S S E T S A N D B E N E F I T O B L I G A T I O N S R E C O G N I Z E D I N O T H E R C O M P R E H E N S I V E I N C O M E
Net periodic benefi t expense
Accumulated actuarial gain
Prior service cost (credit)
Transition asset
Total recognized in other comprehensive income
Total recognized in net periodic benefi t cost and other comprehensive income
Pension Benefi ts
Postretirement
Benefi ts Other
than Pensions
Year Ended December 31,
2009
$ 9.2
(2.6)
(0.3)
–
(2.9)
$ 6.3
2008
$ 7.8
(14.5)
(9.6)
0.1
(24.0)
$(16.2)
2009
$ 5.7
(1.7)
(0.7)
–
(2.4)
$(3.3)
2008
$ 1.0
(7.6)
5.3
–
(2.3)
$(1.3)
The estimated net actuarial loss and prior service cost for the defi ned benefi t pension plans expected to be amor-
tized from accumulated other comprehensive income into net periodic benefi t cost over the next fi scal year are $1.1 million
and $0.1 million, respectively. The estimated prior service cost for postretirement benefi ts other than pension expected
to be amortized from accumulated other comprehensive income into net periodic benefi t cost over the next fi scal year is
$0.4 million.
Neenah Paper, Inc. 2009 Annual Report
101
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
W E I G H T E D - A V E R A G E A S S U M P T I O N S U S E D T O D E T E R M I N E B E N E F I T O B L I G A T I O N S A T D E C E M B E R 3 1
Discount rate
Rate of compensation increase
Pension Benefi ts
Postretirement
Benefi ts Other
than Pensions
2009
6.17%
3.91%
2008
6.80%
3.42%
2009
5.92%
–
2008
6.82%
–
W E I G H T E D - A V E R A G E A S S U M P T I O N S U S E D T O D E T E R M I N E N E T P E R I O D I C B E N E F I T C O S T F O R Y E A R S E N D E D D E C E M B E R 3 1
Discount rate
Expected long-term return on plan assets
Rate of compensation increase
Pension Benefi ts
Postretirement Benefi ts
Other than Pensions
2009
6.80%
7.92%
3.43%
Year Ended December 31,
2008
2007
2009
6.10%
8.02%
3.30%
5.25%
7.90%
3.29%
6.00%
–
–
2008
6.00%
–
–
2007
5.66%
–
–
E X P E C T E D L O N G - T E R M R A T E O F R E T U R N A N D
I N V E S T M E N T S T R A T E G I E S
The expected long-term rate of return on pension fund
assets held by the Company’s pension trusts was deter-
mined based on several factors, including input from
pension investment consultants and projected long-term
returns of broad equity and bond indices. Also consid-
ered were the plans’ historical 10-year and 15-year com-
pounded annual returns. It is anticipated that, on average,
actively managed U.S. pension plan assets will generate
annual long-term rates of return of at least 8 percent. The
expected long-term rate of return on the assets in the
plans was based on an asset allocation assumption of about
60 percent with equity managers, with expected long-term
rates of return of approximately 10 percent, and 40 percent
with fi xed income managers, with an expected long-term
rate of return of about 6 percent. The actual asset allocation
is regularly reviewed and periodically rebalanced to the tar-
geted allocation when considered appropriate.
P L A N A S S E T S – F A I R V A L U E M E A S U R E M E N T S
The Company measures the fair value of pension plan assets
in accordance with ASC Topic 820, Fair Value Measurements
and Disclosures (“ASC Topic 820”) which establishes a
framework for measuring fair value. ASC Topic 820 provides
a fair value hierarchy that prioritizes the inputs to valua-
tion techniques used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to unobservable
inputs (Level 3 measurements). The three levels of the fair
value hierarchy under ASC Topic 820 are described below:
Level 1 Inputs to the valuation methodology are unadjusted
quoted prices for identical assets or liabilities in active mar-
kets that the plan has the ability to access.
Level 2 Inputs to the valuation methodology include:
• Quoted prices for similar assets or liabilities in active
markets;
• Quoted prices for identical or similar assets or liabilities
in inactive markets;
• Inputs other than quoted prices that are observable for
the asset or liability;
• Inputs that are derived principally from or corrobo-
rated by observable market data by correlation or
other means.
If the asset or liability has a specifi ed (contractual)
term, the Level 2 input must be observable for substantially
the full term of the asset or liability.
Level 3 Inputs to the valuation methodology are unobserv-
able and signifi cant to the fair value measurement.
The asset’s fair value measurement level within the
fair value hierarchy is based on the lowest level of any input
that is signifi cant to the fair value measurement. Valuation
techniques attempt to maximize the use of observable inputs
and minimize the use of unobservable inputs.
102
Neenah Paper, Inc. 2009 Annual Report
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
The following table sets forth by level, within the fair value hierarchy, the fair value of the Company’s pension plan assets as
of December 31, 2009:
Equity securities:
Domestic
International
Fixed income securities
Cash and equivalents
Total assets at fair value
Fair Value of Plan Assets
Level 1
Level 2
Level 3
Total
$ –
–
–
6.7
$6.7
$ 69.3
30.1
62.1
–
$161.5
$ –
–
–
–
$ –
$ 69.3
30.1
62.1
6.7
$168.2
Pension plan asset allocations are as follows:
Asset Category
Equity securities
Debt securities
Cash and money-market funds
Total
Percentage of Plan Assets
at December 31,
2009
2008
2007
59%
37%
4%
100%
55%
44%
1%
100%
61%
35%
4%
100%
The Company’s investment objectives for pension
plan assets is to ensure, over the long-term life of the pen-
sion plans, an adequate pool of assets to support the ben-
efi t obligations to participants, retirees, and benefi ciaries.
Specifi cally, these objectives include the desire to: (a) invest
assets in a manner such that future assets are available to
fund liabilities, (b) maintain liquidity suffi cient to pay current
benefi ts when due and (c) diversify, over time, among asset
classes so assets earn a return reasonable with acceptable
risk of capital.
The target investment allocation and permissible
allocation range for plan assets by category are as follows:
Asset Category
Equity securities
Debt securities / Fixed Income
Strategic
Target
Permitted
Range
65%
35%
60–70%
30–40%
As of December 31, 2009, no company or group
of companies in a single industry represented more than
fi ve percent of plan assets.
The Company’s investments assumptions are
established by an investment committee composed of
members of senior management and are validated periodi-
cally against actual investment returns. As of December 31,
2009, the Company’s investment assumptions are
as follows:
(a) the plan should be substantially fully invested at all times
because substantial cash holdings will reduce long-term
rates of return;
(b) equity investments will provide greater long-term returns
than fi xed income investments, although with greater
short-term volatility;
(c) it is prudent to diversify the plan investment across major
asset classes;
(d) allocating a portion of plan assets to foreign equities will
increase portfolio diversifi cation, decrease portfolio risk
and provide the potential for long-term returns;
(e) investment managers with active mandates can reduce
portfolio risk below market risk and potentially add value
through security selection strategies, and that a substan-
tial portion of plan assets should be allocated to such
active mandates;
(f) a component of passive, indexed management can ben-
efi t the plans through greater diversifi cation and lower
cost, and that a portion of the plan assets should be allo-
cated to such passive mandates, and
(g) it is appropriate to retain more than one investment
manager, given the size of the plans, provided that
such managers offer asset class or style diversifi cation.
For the years ended December 31, 2009, 2008 and
2007, no plan assets were invested in the Company’s securities.
Neenah Paper, Inc. 2009 Annual Report
103
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
C A S H F L O W S
At December 31, 2009, the Company expects to make
aggregate contributions to pension trusts and pay-
ments of pension benefi ts for unfunded pension plans of
approximately $14 million (based on exchange rates at
December 31, 2010).
F U T U R E B E N E F I T P A Y M E N T S
The following benefi t payments, which refl ect expected
future service, as appropriate, are expected to be paid:
2010
2011
2012
2013
2014
Years 2015–2019
Pension Plans
Postretirement
Benefi ts Other
than Pensions
$11.4
11.8
12.4
13.8
13.8
82.3
$2.5
1.7
2.0
2.4
2.7
18.5
H E A L T H C A R E C O S T T R E N D S
Assumed health care cost trend rates affect the amounts
reported for postretirement health care benefi t plans. A
one-percentage-point change in assumed health care cost
trend rates would have the following effects:
One-Percentage-Point
Increase
Decrease
Effect on total of service and
interest cost components
Effect on postretirement benefi t obligation
$ –
0.4
$ –
(0.5)
D E F I N E D C O N T R I B U T I O N R E T I R E M E N T P L A N S
The Company’s contributions to its defi ned contribution
retirement plans are primarily based on the age and com-
pensation of covered employees. Contributions to these
plans, all of which were charged to expense, were $1.4 mil-
lion in 2009, $1.6 million in 2008 and $1.2 million in 2007.
In addition, the Company maintains a supplemental retire-
ment contribution plan (the “SRCP”) which is a nonqualifi ed,
unfunded defi ned contribution plan. The Company provides
benefi ts under the SRCP to the extent necessary to fulfi ll
the intent of its defi ned contribution retirement plans with-
out regard to the limitations set by the Internal Revenue
Code on qualifi ed defi ned contribution plans. For each of
the years ended December 31, 2009, 2008 and 2007, the
Company recognized expense related to the SRCP of less
than $0.1 million.
I N V E S T M E N T P L A N S
The Company provides voluntary contribution investment
plans to substantially all North American employees. Under
the plans, the Company matches a portion of employee
contributions. For the years ended December 31, 2009,
2008 and 2007, costs charged to expense for company
matching contributions under these plans were $1.5 million,
$1.8 million and $1.7 million, respectively.
NINE
Stock Compensation Plans
The Company established the 2004 Omnibus Stock and
Incentive Plan (the “Omnibus Plan”) in December 2004
and reserved 3,500,000 shares of $0.01 par value common
stock (“Common Stock”) for issuance under the Omnibus
Plan. Pursuant to the terms of the Omnibus Plan, the com-
pensation committee of the Company’s board of directors
may grant various types of equity-based compensation
awards, including incentive and nonqualifi ed stock options,
SARs, restricted stock, RSUs, RSUs with performance con-
ditions (“Performance Shares”) and performance units, in
addition to certain cash-based awards. All grants under
the Omnibus Plan will be made at fair market value and
no grant may be repriced. In general, the options expire
ten years from the date of grant and vest over a three-year
service period. As of December 31, 2009, approximately
1,960,000 shares of Common Stock were reserved for future
issuance under the Omnibus Plan. As of December 31,
2009, the number of shares available for future issuance
was not reduced by outstanding SARs because the clos-
ing market price for the Company’s common stock was
less than the exercise price of all outstanding SARs. The
Company accounts for stock-based compensation pursuant
to the fair value recognition provisions of ASC Topic 718,
Compensation – Stock Compensation (“ASC Topic 718”).
ASC Topic 718 requires the reporting of
excess tax benefi ts related to the exercise or vesting
of stock-based awards as cash provided by fi nancing
104
Neenah Paper, Inc. 2009 Annual Report
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
activities. For the years ended December 31, 2009, 2008
and 2007, the Company recognized excess tax benefi ts
(costs) related to the exercise or vesting of stock-based
awards of approximately $(0.2) million, $(0.7) million and
$0.5 million, respectively.
V A L U A T I O N A N D E X P E N S E I N F O R M A T I O N
U N D E R A S C T O P I C 7 1 8
Substantially all stock-based compensation expense
has been recorded in selling, general and administrative
expenses. The following table summarizes stock-based
compensation costs and related income tax benefi ts.
price of the Company’s common stock on the date of grant.
Options awarded to LTIP participants expire in ten years
and one-third vest on each of the fi rst three anniversaries of
the date of grant. Options awarded to non-employee mem-
bers of the board of directors expire in ten years and vest
on the fi rst anniversary of the date of grant. The weighted-
average grant date fair value for stock options granted
for the years ended December 31, 2009 and 2008 was
$2.67 per share and $6.30 per share, respectively, and was
estimated using the Black-Scholes option valuation model
with the following assumptions:
Stock-based
compensation expense
Income tax benefi t
Stock-based compensation,
net of income tax benefi t
Year Ended December 31,
2009
2008
2007
$ 4.7
(1.8)
$ 4.0
(1.5)
$ 6.4
(2.5)
$ 2.9
$ 2.5
$ 3.9
Expected life in years
Interest rate
Volatility
Dividend yield
Year Ended
December 31,
2009
5.9
2.4%
51.6%
4.9%
2008
5.9
3.4%
31.5%
1.9%
The following table summarizes total compen-
sation costs related to the Company’s equity awards and
amounts recognized in the year ended December 31, 2009.
Stock
Options
Restricted
Stock
Unrecognized compensation cost –
December 31, 2008
Add: Grant date fair value current year grants
Less: Compensation expense recognized
Unrecognized compensation cost –
December 31, 2009
Expected amortization period (in years)
$ 1.5
1.8
1.9
$1.4
1.9
$ 1.6
2.6
2.8
$1.4
1.7
S T O C K O P T I O N S
For the year ended December 31, 2009, the Company
awarded nonqualifi ed stock options to Long-Term Incentive
Plan (the “LTIP”) participants to purchase approximately
698,000 shares of common stock (subject to forfeiture due
to termination of employment and other conditions). In
addition, the Company awarded to non-employee members
of its board of directors nonqualifi ed stock options to pur-
chase 32,000 shares of common stock. For the year ended
December 31, 2009, the weighted-average exercise price of
such nonqualifi ed stock option awards was $8.19 per share.
The exercise price of the options was equal to the market
For stock option awards granted in 2009,
expected volatility was based on the Company’s historical
stock price performance. For stock option awards granted
in 2008, expected volatility was estimated by reference to
the historical stock price performance of a peer group of
companies. The expected term was estimated based upon
historical data for Kimberly-Clark stock option awards.
The risk-free interest rate was based on the yield on
U.S. Treasury bonds with a remaining term approximately
equivalent to the expected term of the stock option award.
Forfeitures were estimated at the date of grant.
The following table summarizes stock option
activity under the Omnibus Plan for the year ended
December 31, 2009:
Options outstanding –
December 31, 2008
Add: Options granted
Less: Options forfeited/cancelled
Options outstanding –
December 31, 2009
Number of
Stock
Options
Weighted-
Average
Exercise
Price
1,622,045
730,150
82,347
$ 30.81
$ 8.19
$29.04
2,269,848
$23.60
Neenah Paper, Inc. 2009 Annual Report
105
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
The status of outstanding and exercisable stock options as of December 31, 2009, summarized by exercise price, follows:
Options Vested or Expected to Vest
Options Exercisable
Exercise Price
$ 7.41–$21.13
$24.01–$29.43
$30.15–$34.61
$35.92–$42.24
Remaining
Number of Contractual Life
(Years)
Weighted-Average Weighted-
Average
Exercise
Price
Options
845,564
383,500
689,180
331,193
2,249,437
9.2
5.5
4.4
4.3
6.4
$ 9.82
$26.50
$32.71
$37.34
$23.73
Aggregate
Intrinsic
Value(a)
$4.1
–
–
–
$4.1
Number of
Options
83,110
308,307
685,847
286,533
1,363,797
Weighted-
Average
Exercise
Price
$15.72
$26.69
$32.71
$37.40
$31.30
Aggregate
Intrinsic
Value(a)
$0.1
–
–
–
$0.1
(a) Represents the total pre-tax intrinsic value as of December 31, 2009 that option holders would have received had they exercised their options as of such date.
The pre-tax intrinsic value is based on the closing market price for the Company’s common stock of $13.95 on December 31, 2009.
No stock options were exercised for the years
In January 2009, the Compensation Committee of
ended December 31, 2009 and 2008. The aggregate pre-tax
intrinsic value of stock options exercised for the year ended
December 31, 2007 was $1.5 million.
The following table summarizes the status of the
Company’s unvested stock options as of December 31, 2009
and activity for the year then ended:
Outstanding – December 31, 2008
Add: Options granted
Less: Options vested
Less: Options forfeited/cancelled
Outstanding – December 31, 2009
Number of
Stock
Options
Weighted-
Average
Grant Date
Fair Value
414,828
730,150
228,210
10,717
906,051
$ 6.98
$2.67
$5.54
$8.43
$3.85
As of December 31, 2009, certain participants
met age and service requirements that allowed their
options to qualify for accelerated vesting upon retire-
ment. As of December 31, 2009, there were approximately
261,500 stock options subject to accelerated vesting that
such participants would have been eligible to exercise if
they had retired as of such date. The aggregate grant date
fair value of options subject to accelerated vesting was
$1.0 million. For the year ended December 31, 2009, stock-
based compensation expense for such options was $0.6 mil-
lion. For the year ended December 31, 2009, the aggregate
grant date fair value of options vested, including options
subject to accelerated vesting, was $2.3 million. Stock
options that refl ect accelerated vesting for expense recog-
nition become exercisable according to the contract terms
of the stock option grant.
the Board of Directors approved the conversion of approxi-
mately 1,105,000 outstanding nonqualifi ed stock options
with an exercise price in excess of $25.00 per share to an
equal number of SARs. Upon exercise, the holder of an SAR
will receive common shares equal to the number of SARs exer-
cised multiplied by a fraction where the numerator is equal
to the market price at the time of exercise minus the exer-
cise price of the SAR and the denominator is equal to the
market price at the time of exercise. The SARs can only be
settled for shares of Common Stock, and the Company will not
receive any cash proceeds upon exercise. All other contrac-
tual terms of the SARs are unchanged from those of the stock
options converted. At the date of conversions the fair value
of the SARs was equal to the fair value of the stock options
exchanged. As a result, the Company did not recognize any
additional compensation expense due to the conversion.
P E R F O R M A N C E S H A R E S
For the year ended December 31, 2009, the Company
granted target awards of 216,400 Performance Shares
to LTIP participants. The measurement period for
the Performance Shares is January 1, 2009 through
December 31, 2011. Common Stock equal to between
30 percent and 250 percent of the performance share tar-
get will be awarded based on the Company’s growth in
earnings before interest, taxes, depreciation and amortiza-
tion (“EBITDA”) minus a capital charge and total return to
shareholders relative to a peer group of companies and
the Russell 2000® Value small cap index. The weighted-
average grant date fair value for the Performance Shares
was $10.59 per share (which represents the grant date
market price of the Company’s Common Stock of $7.41 per
106
Neenah Paper, Inc. 2009 Annual Report
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
share multiplied by the probability-weighted expected
payout of approximately 1.43 shares of Common Stock for
each Performance Share) and was estimated using a “Monte
Carlo” simulation technique. Compensation cost is recog-
nized pro rata over the vesting period.
R S U s
For the year ended December 31, 2009, the Company
awarded 17,920 RSUs to non-employee members of the
Company’s board of directors (“Director Awards”). The
weighted average grant date fair value of such awards was
$8.04 per share. Director Awards vest one year from the date
of grant. During the vesting period, the holders of Director
Awards are entitled to dividends, but the shares do not have
voting rights and are forfeited in the event the holder is no
longer a member of the board of directors. In addition, the
Company issued 742 RSUs in lieu of dividends on RSUs held
by non-U.S employees and a non-U.S. member of the board
of directors.
The following table summarizes the activity of the Company’s unvested stock-based awards (other than stock
options) for the year ended December 31, 2009:
Outstanding – December 31, 2008
Add: Shares granted(a)
Less: Shares vested
Less: Shares expired or cancelled
Outstanding – December 31, 2009(b)
Restricted
Stock
Weighted-Average
Grant Date
Fair Value
Performance
Shares/RSUs
Weighted-Average
Grant Date
Fair Value
574
–
574
–
–
$ 34.28
–
$34.28
–
–
152,811
236,062
30,857
14,802
342,214
$ 27.69
$10.39
$30.80
$22.32
$15.76
(a) Includes the grant of 742 RSUs to non-U.S. employees and directors in lieu of cash dividends. Such dividends-in-kind vest concurrently with the underlying RSU.
(b) The aggregate pre-tax intrinsic value of RSUs and Performance Shares as of December 31, 2009 was $0.9 million and $1.7 million, respectively. The aggregate pre-
tax intrinsic value of Performance Shares was calculated on the shares that would be issued based on the Company’s achievement of performance targets if the
performance period ended at December 31, 2009.
The aggregate pre-tax intrinsic value of restricted
stock and RSUs that vested for the years ended December 31,
2009, 2008 and 2007 was $0.4 million, $1.1 million and $1.3 mil-
lion, respectively.
Fox River, the Company acquired 100 shares of Common
Stock with a fair market value of approximately four
thousand dollars.
On March 12, 2008, the Company’s sharehold-
TEN
Stockholders’ Equity
C O M M O N S T O C K
The Company has authorized 100 million shares of Common
Stock. Holders of the Company’s Common Stock are enti-
tled to one vote per share.
For the years ended December 31, 2009,
2008 and 2007, the Company acquired 4,910 shares,
31,652 shares and 11,445 shares of Common Stock, respec-
tively, at a cost of approximately $0.1 million, $0.3 million
and $0.3 million, respectively, for shares surrendered by
employees to pay taxes due on vested restricted stock
awards. In addition, in connection with the acquisition of
ers approved a reverse/forward split of the issued and
outstanding shares of Common Stock. The reverse/forward
split consisted of a 1-for-50 reverse split of Common Stock
followed immediately by a 50-for-1 forward split of Common
Stock. Holdings of stockholders with fewer than 50 shares
of Common Stock prior to the split were converted into
fractional shares. Such fractional shares were purchased by
the Company for $24.99 per share. The Company purchased
360,548 shares of Common Stock at a total cost of approxi-
mately $9.4 million including transaction costs. The reverse/
forward split resulted in a signifi cant reduction in share-
holder record keeping and mailing expenses and provided
holders of fewer than 50 shares with a cost-effective way to
effi ciently dispose of their investment.
Each share of Common Stock contains a pre-
ferred stock purchase right that is associated with the share.
These preferred stock purchase rights are transferred
Neenah Paper, Inc. 2009 Annual Report
107
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
only with shares of Common Stock. The preferred stock
purchase rights become exercisable and separately certifi -
cated only upon a “Rights Distribution Date” as that term
is defi ned in the stockholder rights agreement adopted
by the Company at the time of the Spin-Off. In general, a
Rights Distribution Date occurs ten business days following
either of these events: (i) a person or group has acquired
or obtained the right to acquire benefi cial ownership of 15
percent or more of the outstanding shares of our Common
Stock then outstanding, or (ii) a tender offer or exchange
offer is commenced that would result in a person or group
acquiring 15 percent or more of the outstanding shares of
our Common Stock then outstanding.
P R E F E R R E D S T O C K
The Company has authorized 20 million shares of $0.01 par
value preferred stock. The preferred stock may be issued
in one or more series and with such designations and
preferences for each series as shall be stated in the resolu-
tions providing for the designation and issue of each such
series adopted by the board of directors of the Company.
The board of directors is authorized by the Company’s
articles of incorporation to determine the voting, dividend,
redemption and liquidation preferences pertaining to each
such series. No shares of preferred stock have been issued
by the Company.
ELEVEN
Commitments
L E A S E S
The future minimum obligations under operating leases
having a noncancelable term in excess of one year as of
December 31, 2009, are as follows:
2010
2011
2012
2013
2014
Thereafter
Future minimum lease obligations
$ 3.0
2.6
2.0
0.8
0.5
1.2
$10.1
The following table presents the Company’s
rent expense under operating leases for the years ended
December 31, 2009, 2008 and 2007:
Rent expense
Less: Amounts related to
discontinued operations
Rent expense related to
Year Ended December 31,
2009
$2.5
2008
$3.3
–
0.5
2007
$3.0
1.0
continuing operations
$2.5
$2.8
$2.0
P U R C H A S E C O M M I T M E N T S
The Company has certain minimum purchase commitments,
none of which are individually material, that extend beyond
December 31, 2009. Commitments under these contracts
are approximately $4.4 million in 2010, $0.4 million in 2011,
$0.4 million in 2012, $0.4 million in 2013 and $0.4 million
in 2014.
Although the Company is primarily liable for pay-
ments on the above-mentioned leases and purchase com-
mitments, management believes exposure to losses, if any,
under these arrangements is not material.
TWELVE
Contingencies and Legal Matters
L I T I G A T I O N
The Company is involved in certain legal actions and claims
arising in the ordinary course of business. While the out-
come of these legal actions and claims cannot be predicted
with certainty, it is the opinion of management that the
outcome of any such claim which is pending or threatened,
either individually or on a combined basis, will not have a
material adverse effect on the consolidated fi nancial condi-
tion, results of operations or liquidity of the Company.
I N D E M N I F I C A T I O N S
Pursuant to a Distribution Agreement, an Employee Matters
Agreement and a Tax Sharing Agreement, the Company has
agreed to indemnify Kimberly-Clark for certain liabilities or
risks related to the Spin-Off. Many of the potential indem-
nifi cation liabilities under these agreements are unknown,
108
Neenah Paper, Inc. 2009 Annual Report
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
remote or highly contingent. Furthermore, even in the event
that an indemnifi cation claim is asserted, liability for indem-
nifi cation is subject to determination under the terms of
the applicable agreement. For these reasons, the Company
is unable to estimate the maximum potential amount of
the possible future liability under the indemnity provisions
of these agreements. However, the Company accrues for
any potentially indemnifi able liability or risk under these
agreements for which it believes a future payment is prob-
able and a range of loss can be reasonably estimated. As
of December 2009, management believes the Company’s
liability under such indemnifi cation obligations was not
material to the consolidated fi nancial statements.
additional costs which could have a material adverse effect
on the Company’s fi nancial condition, results of operations
or liquidity.
The Company incurs capital expenditures nec-
essary to meet legal requirements and otherwise relating
to the protection of the environment at its facilities in the
United States and internationally. For these purposes, the
Company has planned capital expenditures for environmen-
tal projects during the period 2010 through 2012 of approx-
imately $1 million to $2 million annually. The Company’s
anticipated capital expenditures for environmental projects
are not expected to have a material adverse effect on our
fi nancial condition, results of operations or liquidity.
E N V I R O N M E N T A L , H E A L T H A N D S A F E T Y M A T T E R S
The Company is subject to federal, state and local laws, reg-
ulations and ordinances relating to various environmental,
health and safety matters. The Company is in compliance
with, or is taking actions designed to ensure compliance
with, these laws, regulations and ordinances. However, the
nature of the Company’s business exposes it to the risk of
claims with respect to environmental, health and safety mat-
ters, and there can be no assurance that material costs or
liabilities will not be incurred in connection with such claims.
Except for certain orders issued by environmental, health
and safety regulatory agencies, with which management
believes the Company is in compliance and which manage-
ment believes are immaterial to the results of operations of
the Company’s business, Neenah is not currently named as
a party in any judicial or administrative proceeding relating
to environmental, health and safety matters.
While the Company has incurred in the past
several years, and will continue to incur, capital and oper-
ating expenditures in order to comply with environmen-
tal, health and safety laws, regulations and ordinances,
management believes that the Company’s future cost of
compliance with environmental, health and safety laws,
regulations and ordinances, and its exposure to liability
for environmental, health and safety claims will not have
a material adverse effect on its fi nancial condition, results
of operations or liquidity. However, future events, such as
changes in existing laws and regulations or contamination
of sites owned, operated or used for waste disposal by
the Company (including currently unknown contamination
and contamination caused by prior owners and operators
of such sites or other waste generators) may give rise to
E M P L O Y E E S A N D L A B O R R E L A T I O N S
As of December 31, 2009, the Company had approximately
1,700 regular full-time employees, of whom 675 hourly and
325 salaried employees were located in the United States
and 450 hourly and 250 salaried employees were located
in Germany. As of December 31, 2009, the Company has
approximately 300 hourly employees covered by collec-
tive bargaining agreements that have expired or will expire
within the next 12 months. The Company believes it has
satisfactory relations with its employees covered by such
collective bargaining agreements and does not expect
the negotiation of new collective bargaining agreements
to have a material effect on its results of operations or
cash fl ows.
Hourly employees at the Whiting, Neenah,
Munising and Appleton paper mills are represented by
the United Steelworkers Union (the “USW”). The collec-
tive bargaining agreement for the Munising paper mill
expired on July 14, 2009. The Company is currently nego-
tiating a new labor agreement for the mill with the USW. In
December 2009, the Company and the USW signed a new
collective bargaining agreement for the Whiting paper mill
that is effective through January 31, 2013. In October 2009,
the Company and the USW signed a new collective bargain-
ing agreement for the Neenah paper mill that is effective
through June 30, 2013. The collective bargaining agree-
ment for the Appleton paper mill expires on May 31, 2010.
Separately, the Neenah, Whiting and Munising paper mills
have bargained jointly with the union on pension matters.
The agreement on pension matters will remain in effect
through 2019.
Neenah Paper, Inc. 2009 Annual Report
109
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Approximately 50 percent of salaried employees
and 80 percent of hourly employees of Neenah Germany
are eligible to be represented by the Mining, Chemicals
and Energy Trade Union, Industriegewerkschaft Bergbau,
Chemie and Energie (the “IG BCE”). The collective bar-
gaining agreement covering union employees of Neenah
Germany is negotiated by the IG BCE and a national trade
association representing all employers in the industry.
Union membership is voluntary and under German law
does not need to be disclosed to the Company. As a result,
the number of employees covered by the collective bar-
gaining agreement that expires in August 2010 cannot
be determined.
THIRTEEN
Transactions with Kimberly-Clark
For the years ended December 31, 2008 and 2007, the
Company sold softwood and hardwood pulp to Kimberly-
Clark from the Pictou pulp mill. Net sales for the pulp sold
to Kimberly-Clark for the years ended December 31, 2008
and 2007 was $37 million and $115 million, respectively. All
such revenue is reported as results of discontinued opera-
tions on the consolidated statements of operations.
P U L P S U P P L Y A G R E E M E N T
In conjunction with the sale of the Pictou Mill, Northern
Pulp assumed responsibility for pulp sales to Kimberly-Clark
pursuant to a pulp supply agreement (the “Pulp Supply
Agreement”). The Company guaranteed certain obligations
under the Pulp Supply Agreement; however, in the event
that Northern Pulp and Kimberly-Clark entered into an
amended agreement or made other material changes to the
Pulp Supply Agreement, the Company’s guarantee obliga-
tions cease. In January 2009, Northern Pulp and Kimberly-
Clark entered into a new pulp supply agreement thereby
terminating the Company’s guarantee obligations.
O T H E R A G R E E M E N T S W I T H K I M B E R L Y - C L A R K
The Company also entered into a (i) Distribution Agreement,
(ii) Employee Matters Agreement, (iii) Corporate Services
Agreement and (iv) Tax Sharing Agreement with Kimberly-
Clark in connection with the Spin-Off. These agreements
provided for, among other things, (i) the principal corporate
transactions required to effect the separation of the Pulp
and Paper Business from Kimberly-Clark, cross-indemnities
principally designed to place fi nancial responsibility for the
obligations and liabilities of the Pulp and Paper Business
with the Company and fi nancial responsibility for the obliga-
tions and liabilities of Kimberly-Clark’s retained businesses
with Kimberly-Clark, (ii) employee liability transfers to the
Company and retention of certain employment liabilities by
Kimberly-Clark, (iii) various transitional corporate support
services and (iv) the Company’s and Kimberly-Clark’s respec-
tive rights, responsibilities and obligations after the Spin-Off
with respect to taxes attributable to the Company’s business,
as well as any taxes incurred by Kimberly-Clark as a result of
the failure of the Spin-Off to qualify for tax-free treatment
under Section 355 of the Code.
The descriptions above are summaries of the
principal provisions of the various agreements and are qual-
ifi ed in their entirety by the respective agreements.
FOURTEEN
Business Segment and Geographic Information
The Company reports its operations in two segments: Fine
Paper and Technical Products. The fi ne paper business is a
leading producer of premium writing, text, cover and spe-
cialty papers. The technical products business is a leading
international producer of fi ltration media, durable, satu-
rated and coated substrates for a variety of end uses; and
nonwoven wall coverings. Each segment employs different
technologies and marketing strategies. Disclosure of seg-
ment information is on the same basis that management uses
internally for evaluating segment performance and allocating
resources. Transactions between segments are executed
at market prices, and such transactions are eliminated
110
Neenah Paper, Inc. 2009 Annual Report
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
Year Ended December 31,
2009
2008
2007
Capital expenditures
Fine Paper
Technical Products
Pulp
Corporate
Total
Less: Discontinued operations
Total Continuing Operations
$4.0
4.3
–
0.1
8.4
–
$8.4
Total assets
Fine Paper
Technical Products
Assets held for sale
Corporate and other
Total
G E O G R A P H I C I N F O R M A T I O N
$ 8.9
15.0
1.4
4.7
30.0
1.4
$28.6
$ 9.5
39.5
5.4
3.9
58.3
5.4
$52.9
December 31,
2009
2008
$166.3
353.4
10.0
107.8
$637.5
$190.7
366.6
3.3
129.4
$690.0
in consolidation. The costs of shared services, and other
administrative functions managed on a common basis, are
allocated to the segments based on usage, where possible,
or other factors based on the nature of the activity. General
corporate expenses that do not directly support the opera-
tions of the business segments are shown as Unallocated
corporate costs. The accounting policies of the reportable
operating segments are the same as those described in
Note 2, “Summary of Signifi cant Accounting Policies.”
B U S I N E S S S E G M E N T S
Net sales
Fine Paper
Technical Products
Intersegment sales
Consolidated
Year Ended December 31,
2009
2008
2007
$255.6
318.3
–
$573.9
$335.5
396.8
–
$732.3
$366.5
400.8
(0.3)
$767.0
Year Ended December 31,
2009
2008
2007
Operating income (loss)
Fine Paper(a)
Technical Products(b)
Unallocated corporate costs(c)
Consolidated
$ 17.5
14.4
(15.5)
$ 16.4
$ 34.0
(42.3)
(11.0)
$(19.3)
$ 46.6
24.7
(17.4)
$ 53.9
(a) Operating earnings for the year ended December 31, 2009 include costs
related to the closure of the Ripon Mill of $17.1 million.
(b) The operating loss for the year ended December 31, 2008 includes a non-
cash pre-tax goodwill and other intangible asset impairment charge of
$54.5 million.
(c) Unallocated corporate costs for the year ended December 31, 2008
include a gain of approximately $4.3 million related to the settlement cer-
tain postemployment obligations for Terrace Bay retirees.
Year Ended December 31,
2009
2008
2007
Net sales
United States
Europe
Intergeographic items
Consolidated
Total assets
United States
Canada
Europe
Total
Year Ended December 31,
2009
2008
2007
$360.9
213.0
–
$573.9
$467.3
265.0
–
$732.3
$502.9
264.4
(0.3)
$767.0
December 31,
2009
2008
$330.9
5.4
301.2
$637.5
$371.8
3.3
314.9
$690.0
Depreciation and amortization
Fine Paper
Technical Products
Pulp
Corporate
Total
$10.7
17.8
–
6.0
34.5
–
Total Continuing Operations $34.5
Less: Discontinued operations
$11.4
18.9
1.9
6.4
38.6
1.9
$36.7
$11.3
17.2
10.7
6.1
45.3
10.7
$34.6
Net sales are attributed to geographic areas
based on the physical location of the entities. Segment
identifi able assets are those that are directly used in the
segments operations. Corporate assets are primarily cash,
deferred income taxes and deferred fi nancing costs.
Neenah Paper, Inc. 2009 Annual Report
111
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
C O N C E N T R A T I O N S
For the years ended December 31, 2009, 2008 and 2007,
sales to the fi ne paper business’s two largest customers
(both of which are distributors) represented approxi-
mately 30 percent of its total sales. For the years ended
December 31, 2009, 2008 and 2007, no single customer
accounted for more than 10 percent of the Company’s con-
solidated revenue. Except for certain specialty latex grades
and specialty softwood pulp used by Technical Products,
management is not aware of any signifi cant concentration
of business transacted with a particular supplier that could,
if suddenly eliminated, have a material adverse affect on
its operations. An interruption in supply of a latex spe-
cialty grade or of specialty softwood pulp could disrupt
and eventually cause a shutdown of production of certain
technical products.
FIFTEEN
Supplemental Data
S U P P L E M E N T A L S T A T E M E N T O F O P E R A T I O N S D A T A
S U P P L E M E N T A L B A L A N C E S H E E T D A T A
Summary of Accounts Receivable – net
Accounts Receivable:
From customers
Other
Less allowance for doubtful accounts and
sales discounts
Total
Summary of Inventories
Inventories by Major Class:
Raw materials
Work in progress
Finished goods
Supplies and other
Excess of FIFO over LIFO cost
Total
Summary of Advertising and
Research Expenses
Advertising expense
Research expense
Year Ended December 31,
2009
2008
2007
$6.5
$5.5
$8.7
$6.5
$10.3
$ 6.4
Year Ended December 31,
2009
2008
2007
Summary of Prepaid and
Other Current Assets
Prepaid and other current assets
Spare parts
Receivable from FiberMark for German taxes
Total
Summary of Other (Income)
Expense – net
(Gain) loss on property disposals $ 0.2
Net gain from risk
management activities
Litigation settlement
Terrace Bay employee benefi ts
Other income – net
(0.1)
–
0.7
(1.0)
(0.2)
Total other income – net
Less: (Income) expense related
to discontinued operations
Other income – net related
to continuing operations
$ (6.3)
$ 0.4
(0.7)
–
(4.4)
(1.4)
(12.8)
(4.4)
5.2
(3.4)
(2.3)
(4.5)
(2.8)
0.8
(1.5)
$(1.0)
$(11.3)
$(1.7)
Assets Held for Sale
The Woodlands (Note 5)
Ripon Mill property, plant and
equipment – net (Note 3)
Total
December 31,
2009
2008
$69.4
0.2
(1.9)
$67.7
$64.7
0.2
(1.7)
$63.2
December 31,
2009
2008
$16.6
11.7
49.4
1.7
79.4
(8.7)
$70.7
$21.8
13.0
59.0
3.0
96.8
(8.2)
$88.6
December 31,
2009
2008
$ 7.6
5.5
0.6
$13.7
$11.8
6.6
0.6
$19.0
December 31,
2009
2008
$ 3.8
6.2
$10.0
$3.3
–
$3.3
112
Neenah Paper, Inc. 2009 Annual Report
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
December 31,
2009
2008
Summary of Property, Plant and
Equipment – Net
Land and land improvements
Buildings
Machinery and equipment
Construction in progress
$ 21.9
97.8
445.1
4.8
569.6
Less accumulated depreciation and depletion 285.2
$284.4
Net Property, Plant and Equipment
$ 23.9
99.9
439.1
12.5
575.4
259.2
$316.2
Summary of Noncurrent Employee
Benefi ts and Other Obligations
Pension benefi ts
Post-employment benefi ts
other than pensions(a)
Other
Total
December 31,
2009
2008
$ 64.3
$ 68.7
40.7
3.3
$108.3
39.1
3.5
$111.3
(a) Includes $5.4 million and $4.8 million in long-term disability benefi ts due to
Terrace Bay retirees as of December 31, 2009 and 2008, respectively.
Depreciation expense for the years ended
S U P P L E M E N T A L C A S H F L O W D A T A
December 31, 2009, 2008 and 2007 was $30.1 million,
$34.7 million and $41.6 million, respectively. For the year
ended December 31, 2009, less than $0.1 million in inter-
est expense was capitalized as part of the cost of capital
projects. Interest expense capitalized as part of the costs
of capital projects was $0.5 million and $0.3 million for the
years ended December 31, 2008 and 2007, respectively.
December 31,
2009
2008
Summary of Accrued Expenses
Accrued salaries and employee benefi ts
Liability for uncertain income tax positions
Accrued interest
Accrued restructuring costs (Note 3)
Accrued income taxes
Other
Total
$18.2
9.5
2.1
4.0
0.4
14.4
$48.6
$19.0
12.9
2.1
1.7
1.3
13.3
$50.3
Year Ended December 31,
2009
2008
2007
Net cash provided by (used in)
changes in working capital,
net of effects of acquisitions
Accounts receivable
Inventories
Income taxes receivable
Prepaid and other current assets
Accounts payable
Accrued expenses
Foreign currency effects
on working capital
Total
$ (4.5)
17.7
9.8
1.4
(4.5)
6.6
0.9
$27.4
$ 48.7
(2.4)
(10.6)
2.6
(33.3)
(23.6)
(2.5)
$(21.1)
$(14.3)
(1.1)
–
(3.3)
2.8
13.1
8.7
$ 5.9
Year Ended December 31,
2009
2008
2007
$20.2
$23.0
$23.7
Cash paid during the year for
interest, net of interest
expense capitalized
Cash paid (received) during the
year for income taxes,
net of refunds
Non-cash investing activities:
Liability for equipment acquired
1.8
(7.7)
6.6
2.7
6.2
3.9
Neenah Paper, Inc. 2009 Annual Report
113
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
SIXTEEN
Condensed Consolidating Financial Information
Neenah Canada, Neenah Paper Michigan, Inc. and Neenah Paper Sales, Inc. (the “Guarantor Subsidiaries”) guarantee the
Company’s Senior Notes. The Guarantor Subsidiaries are 100 percent owned by the Company and all guarantees are full
and unconditional. The following condensed consolidating fi nancial information is presented in lieu of consolidated fi nancial
statements for the Guarantor Subsidiaries as of December 31, 2009 and 2008 and for the years ended December 31, 2009,
2008 and 2007.
C O N D E N S E D C O N S O L I D A T I N G S T A T E M E N T O F O P E R A T I O N S
Year Ended December 31, 2009
Neenah
Paper, Inc.
Guarantor Non-Guarantor
Subsidiaries
Subsidiaries
Consolidating
Adjustments
Consolidated
Amounts
Net sales
Cost of products sold
Gross profi t
Selling, general and administrative expenses
Restructuring costs
Other (income) expense – net
Operating income (loss)
Equity in earnings of subsidiaries
Interest expense – net
Income (loss) from continuing operations before income taxes
Benefi t for income taxes
Income (loss) from continuing operations
Income from discontinued operations, net of income tax provision
Net income (loss)
$248.2
186.2
62.0
45.4
(0.4)
0.1
16.9
(2.5)
21.4
(2.0)
(0.8)
(1.2)
–
$ (1.2)
$112.4
92.6
19.8
10.0
17.1
0.9
(8.2)
–
0.8
(9.0)
(4.0)
(5.0)
0.6
$ (4.4)
$213.3
193.5
19.8
13.7
0.4
(2.0)
7.7
–
1.0
6.7
(0.2)
6.9
–
$ 6.9
$ –
–
–
–
–
–
–
2.5
–
(2.5)
–
(2.5)
–
$(2.5)
$573.9
472.3
101.6
69.1
17.1
(1.0)
16.4
–
23.2
(6.8)
(5.0)
(1.8)
0.6
$ (1.2)
114
Neenah Paper, Inc. 2009 Annual Report
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
C O N D E N S E D C O N S O L I D A T I N G S T A T E M E N T O F O P E R A T I O N S
Year Ended December 31, 2008
Neenah
Paper, Inc.
Guarantor Non-Guarantor
Subsidiaries
Subsidiaries
Consolidating
Adjustments
Consolidated
Amounts
Net sales
Cost of products sold
Gross profi t
Selling, general and administrative expenses
Goodwill and other intangible asset impairment charge
Other income (expense) – net
Operating income (loss)
Equity in losses of subsidiaries
Interest expense – net
Income (loss) from continuing operations before income taxes
Provision (benefi t) for income taxes
Income (loss) from continuing operations
Loss from discontinued operations, net of income tax benefi t
Net income (loss)
$ 284.2
230.1
54.1
47.6
–
0.6
5.9
146.7
21.6
(162.4)
(3.9)
(158.5)
–
$(158.5)
$ 183.1
161.1
22.0
12.3
–
(10.9)
20.6
–
1.9
18.7
9.5
9.2
(111.2)
$(102.0)
$265.0
242.0
23.0
15.3
54.5
(1.0)
(45.8)
–
1.5
(47.3)
(2.6)
(44.7)
–
$ (44.7)
$ –
–
–
–
–
–
–
(146.7)
–
146.7
–
146.7
–
$146.7
$ 732.3
633.2
99.1
75.2
54.5
(11.3)
(19.3)
–
25.0
(44.3)
3.0
(47.3)
(111.2)
$(158.5)
C O N D E N S E D C O N S O L I D A T I N G S T A T E M E N T O F O P E R A T I O N S
Year Ended December 31, 2007
Neenah
Paper, Inc.
Guarantor Non-Guarantor
Subsidiaries
Subsidiaries
Consolidating
Adjustments
Consolidated
Amounts
Net sales
Cost of products sold
Gross profi t
Selling, general and administrative expenses
Other income – net
Operating income
Equity in earnings of subsidiaries
Interest expense – net
Income from continuing operations before income taxes
Provision (benefi t) for income taxes
Income from continuing operations
Loss from discontinued operations, net of income tax benefi t
Net income (loss)
$222.8
157.0
65.8
42.0
(0.1)
23.9
(9.2)
22.6
10.5
0.3
10.2
–
$ 10.2
$280.2
251.2
29.0
21.9
(1.0)
8.1
–
2.8
5.3
–
5.3
(22.0)
$ (16.7)
$264.3
227.6
36.7
15.4
(0.6)
21.9
–
–
21.9
(4.0)
25.9
–
$ 25.9
$(0.3)
(0.3)
–
–
–
–
9.2
–
(9.2)
–
(9.2)
–
$(9.2)
$767.0
635.5
131.5
79.3
(1.7)
53.9
–
25.4
28.5
(3.7)
32.2
(22.0)
$ 10.2
Neenah Paper, Inc. 2009 Annual Report
115
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
C O N D E N S E D C O N S O L I D A T I N G B A L A N C E S H E E T
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable – net
Inventories
Income taxes receivable
Deferred income taxes
Intercompany amounts receivable
Prepaid and other current assets
Assets held for sale
Total current assets
Property, plant and equipment at cost
Less accumulated depreciation
Property, plant and equipment – net
Investments in subsidiaries
Deferred Income Taxes
Goodwill
Intangible assets
Other Assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Debt payable within one year
Accounts payable
Intercompany amounts payable
Accrued expenses
Total current liabilities
Long-term Debt
Deferred Income Taxes
Noncurrent Employee Benefi ts and Other Obligations
TOTAL LIABILITIES
STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
As of December 31, 2009
Neenah
Paper, Inc.
Guarantor Non-Guarantor
Subsidiaries
Subsidiaries
Consolidating
Adjustments
Consolidated
Amounts
$ 2.1
23.8
38.1
0.3
4.7
68.7
5.2
–
142.9
262.2
180.3
81.9
280.5
10.9
–
2.9
6.5
$525.6
$ 40.9
16.3
49.4
23.6
130.2
252.9
–
34.8
417.9
107.7
$525.6
$ 2.0
16.1
8.9
0.5
57.0
49.4
1.7
10.0
145.6
99.5
62.9
36.6
–
26.5
–
–
0.1
$208.8
$ –
5.3
68.7
14.8
88.8
–
–
38.7
127.5
81.3
$208.8
$ 1.5
27.8
23.7
–
–
–
6.8
–
59.8
207.9
42.0
165.9
–
–
44.9
24.6
6.5
$301.7
$ 14.7
8.4
–
10.2
33.3
10.7
23.7
34.8
102.5
199.2
$301.7
$ –
–
–
–
–
(118.1)
–
–
(118.1)
–
–
–
(280.5)
–
–
–
–
$(398.6)
$ –
–
(118.1)
–
(118.1)
–
–
–
(118.1)
(280.5)
$(398.6)
$ 5.6
67.7
70.7
0.8
61.7
–
13.7
10.0
230.2
569.6
285.2
284.4
–
37.4
44.9
27.5
13.1
$637.5
$ 55.6
30.0
–
48.6
134.2
263.6
23.7
108.3
529.8
107.7
$637.5
116
Neenah Paper, Inc. 2009 Annual Report
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
C O N D E N S E D C O N S O L I D A T I N G B A L A N C E S H E E T
ASSETS
Current assets
Cash and cash equivalents
Accounts receivable, net
Inventories
Income taxes receivable
Deferred income taxes
Intercompany amounts receivable
Prepaid and other current assets
Assets held for sale – discontinued operations
Total current assets
Property, plant and equipment, at cost
Less accumulated depreciation
Property, plant and equipment – net
Investments In Subsidiaries
Deferred Income Taxes
Goodwill
Intangible Assets – net
Other Assets
TOTAL ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Debt payable within one year
Accounts payable
Intercompany amounts payable
Accrued expenses
Total current liabilities
Long-term Debt
Deferred Income Taxes
Noncurrent Employee Benefi ts and Other Obligations
TOTAL LIABILITIES
STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
As of December 31, 2008
Neenah
Paper, Inc.
Guarantor Non-Guarantor
Subsidiaries
Subsidiaries
Consolidating
Adjustments
Consolidated
Amounts
$ 1.9
22.4
45.8
11.2
3.5
69.6
5.5
–
159.9
261.7
169.1
92.6
292.9
9.6
–
3.0
6.8
$564.8
$ 5.0
17.4
55.6
21.8
99.8
328.3
–
33.6
461.7
103.1
$564.8
$ 1.1
12.9
11.2
–
61.9
55.6
5.4
3.3
151.4
113.4
62.1
51.3
–
25.6
–
–
0.1
$228.4
$ –
3.2
69.6
17.1
89.9
–
–
44.3
134.2
94.2
$228.4
$ 0.3
27.9
31.6
–
–
–
8.1
–
67.9
200.3
28.0
172.3
–
0.1
43.8
25.7
5.1
$314.9
$ 19.1
14.7
–
11.4
45.2
12.2
25.4
33.4
116.2
198.7
$314.9
$ –
–
–
–
–
(125.2)
–
–
(125.2)
–
–
–
(292.9)
–
–
–
–
$(418.1)
$ –
–
(125.2)
–
(125.2)
–
–
–
(125.2)
(292.9)
$(418.1)
$ 3.3
63.2
88.6
11.2
65.4
–
19.0
3.3
254.0
575.4
259.2
316.2
–
35.3
43.8
28.7
12.0
$690.0
$ 24.1
35.3
–
50.3
109.7
340.5
25.4
111.3
586.9
103.1
$690.0
Neenah Paper, Inc. 2009 Annual Report
117
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
C O N D E N S E D C O N S O L I D A T I N G S T A T E M E N T O F C A S H F L O W S
OPERATING ACTIVITIES
Net income (loss)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation and amortization
Stock-based compensation
Deferred income tax benefi t
Ripon Mill non-cash charges
(Gain) loss on other asset dispositions
Net cash provided by changes in operating working capital
Equity in earnings of subsidiaries
Pension and other post-employment benefi ts
Other
NET CASH PROVIDED BY OPERATING ACTIVITIES
INVESTING ACTIVITIES
Capital expenditures
Proceeds from asset sales
Other
NET CASH USED IN INVESTING ACTIVITIES
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt
Repayments of long-term debt
Short-term borrowings
Repayments of short-term borrowings
Cash dividends paid
Other
Intercompany transfers – net
NET CASH USED IN FINANCING ACTIVITIES
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS
NET INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, END OF YEAR
Year Ended December 31, 2009
Neenah
Paper, Inc.
Guarantor Non-Guarantor
Subsidiaries
Subsidiaries
Consolidating
Adjustments
Consolidated
Amounts
$ (1.2)
$(4.4)
$ 6.9
$(2.5)
$ (1.2)
15.2
4.7
(2.8)
–
0.2
19.9
(2.5)
4.5
(0.9)
37.1
(3.4)
–
0.8
(2.6)
42.6
(85.8)
0.9
–
(5.9)
(0.1)
14.0
(34.3)
4.6
–
(4.4)
6.3
–
4.7
–
(2.9)
1.0
4.9
(1.4)
0.8
(0.3)
(0.9)
–
–
–
–
–
–
(3.1)
(3.1)
14.7
–
(2.2)
–
–
2.8
–
0.8
(0.1)
22.9
(3.6)
–
(1.2)
(4.8)
–
(1.8)
11.3
(15.4)
–
–
(10.9)
(16.8)
–
–
–
–
–
–
2.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
34.5
4.7
(9.4)
6.3
0.2
27.4
–
2.4
–
64.9
(8.4)
0.8
(0.7)
(8.3)
42.6
(87.6)
12.2
(15.4)
(5.9)
(0.1)
–
(54.2)
–
0.2
1.9
$ 2.1
–
0.9
1.1
$ 2.0
(0.1)
1.2
0.3
$ 1.5
–
–
–
$ –
(0.1)
2.3
3.3
$ 5.6
118
Neenah Paper, Inc. 2009 Annual Report
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
C O N D E N S E D C O N S O L I D A T I N G S T A T E M E N T O F C A S H F L O W S
Year Ended December 31, 2008
Neenah
Paper, Inc.
Guarantor Non-Guarantor
Subsidiaries
Subsidiaries
Consolidating
Adjustments
Consolidated
Amounts
OPERATING ACTIVITIES
Net income (loss)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation and amortization
Stock-based compensation
Deferred income tax provision (benefi t)
Goodwill and other intangible asset impairment charge
Asset impairment loss
Loss on disposal – transfer of the Pictou Mill
Amortization of deferred revenue – transfer of the Pictou Mill
Loss on disposal – transfer of the Pictou Mill
postretirement benefi t plans
Gain on curtailment of postretirement benefi t plan
(Gain) loss on other asset dispositions
Net cash provided by (used in) changes in
operating working capital
Equity in losses of subsidiaries
Pension and other postretirement benefi ts
Other
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
INVESTING ACTIVITIES
Capital expenditures
Payments in conjunction with transfer of the Pictou Mill
Proceeds from asset sales
Other
NET CASH USED IN INVESTING ACTIVITIES
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt
Repayments of long-term debt
Short-term borrowings
Repayments of short-term debt
Cash dividends paid
Share purchases
Other
Intercompany transfers – net
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
NET CHANGE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, END OF YEAR
$(158.5)
$(102.0)
$(44.7)
$ 146.7
$(158.5)
15.4
4.0
3.1
–
–
–
–
–
–
0.4
(20.2)
146.7
(3.8)
(0.4)
(13.3)
(11.2)
–
–
(1.3)
(12.5)
53.7
(34.6)
–
–
(6.0)
(9.4)
(0.3)
25.2
28.6
2.8
(0.9)
$ 1.9
7.4
–
(55.2)
–
91.2
29.4
(2.8)
53.7
(4.3)
(6.7)
7.9
–
(4.6)
(1.1)
12.9
(7.4)
(13.6)
13.8
0.8
(6.4)
–
–
–
–
–
–
(0.6)
(7.6)
(8.2)
(1.7)
2.8
$ 1.1
15.8
–
(4.0)
54.5
–
–
–
–
–
–
(8.8)
–
0.8
(0.1)
13.5
(11.4)
–
–
(0.1)
(11.5)
–
–
18.7
(3.3)
–
–
–
(17.6)
(2.2)
(0.2)
0.5
$ 0.3
–
–
–
–
–
–
–
–
–
–
–
(146.7)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$ –
38.6
4.0
(56.1)
54.5
91.2
29.4
(2.8)
53.7
(4.3)
(6.3)
(21.1)
–
(7.6)
(1.6)
13.1
(30.0)
(13.6)
13.8
(0.6)
(30.4)
53.7
(34.6)
18.7
(3.3)
(6.0)
(9.4)
(0.9)
–
18.2
0.9
2.4
$ 3.3
Neenah Paper, Inc. 2009 Annual Report
119
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
C O N D E N S E D C O N S O L I D A T I N G S T A T E M E N T O F C A S H F L O W S
OPERATING ACTIVITIES
Net income (loss)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities
Depreciation and amortization
Stock-based compensation
Deferred income tax provision (benefi t)
Gain on sale of Woodlands
(Gain) loss on other asset dispositions
Net cash provided by (used in) changes in operating
working capital, net of effects of acquisition
Equity in earnings of subsidiaries
Pension and other postretirement benefi ts
Loss on curtailment and settlement of pension plan
Other
NET CASH PROVIDED BY OPERATING ACTIVITIES
INVESTING ACTIVITIES
Capital expenditures
Acquisition of Fox River, net of cash acquired
Acquisition of Neenah Germany, net of cash acquired
Other
NET CASH USED IN INVESTING ACTIVITIES
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt
Repayments of long-term debt
Short-term borrowings
Repayments of short-term borrowings
Cash dividends paid
Proceeds from exercise of stock options
Other
Intercompany transfers – net
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
EFFECT OF EXCHANGE RATE CHANGES ON
CASH AND CASH EQUIVALENTS
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, END OF YEAR
Year Ended December 31, 2007
Neenah
Paper, Inc.
Guarantor Non-Guarantor
Subsidiaries
Subsidiaries
Consolidating
Adjustments
Consolidated
Amounts
$ 10.2
$(16.7)
$ 25.9
$(9.2)
$ 10.2
15.1
5.8
(4.8)
–
0.2
2.5
(9.2)
2.9
–
0.1
22.8
(12.9)
(54.7)
(1.5)
0.1
(69.0)
63.6
(34.1)
–
–
(6.0)
3.7
0.2
17.8
45.2
16.2
0.3
(17.8)
(6.2)
(1.0)
5.3
–
(0.8)
38.7
(0.1)
17.9
(10.0)
–
–
0.5
(9.5)
–
–
–
–
–
–
–
(6.4)
(6.4)
14.0
0.3
(10.1)
–
–
(1.9)
–
2.0
–
(1.4)
28.8
(35.4)
–
–
0.5
(34.9)
13.4
–
8.0
(5.0)
–
–
–
(11.4)
5.0
–
–
–
–
–
–
9.2
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
45.3
6.4
(32.7)
(6.2)
(0.8)
5.9
–
4.1
38.7
(1.4)
69.5
(58.3)
(54.7)
(1.5)
1.1
(113.4)
77.0
(34.1)
8.0
(5.0)
(6.0)
3.7
0.2
–
43.8
–
(1.0)
0.1
$ (0.9)
0.3
2.3
0.5
$ 2.8
0.6
(0.5)
1.0
$ 0.5
–
–
–
$ –
0.9
0.8
1.6
$ 2.4
120
Neenah Paper, Inc. 2009 Annual Report
N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
SEVENTEEN
Subsequent Event
On March 1, 2010, the Company announced that Neenah
Canada had signed a defi nitive agreement to sell the
Woodlands to Northern Timber Nova Scotia Corporation,
a new operating company jointly owned by Atlas and
Blue Wolf, for C$82.5 million ($78.6 million). The Company
will receive the proceeds at the time of closing, which is
expected to occur before March 31, 2010. Proceeds from
the sale will be used to repay the $40 million New Term
Loan in full and reduce the balance of revolving loans out-
standing under our Restated Credit Agreement to zero.
In addition, approximately $3.1 million in contract termina-
tion payments related to the closure of the Ripon Mill will
become due and payable upon the sale of the Woodlands.
The Company’s ability to use proceeds in excess of amounts
outstanding under the Restated Credit Agreement is
restricted to “permitted uses” as defi ned in the indenture
for the Senior Notes. The transaction is expected to result
in a pre-tax gain of approximately $75 million which will
be recognized at the time of closing. The transaction is
not expected to generate a cash tax liability because the
tax basis for the Woodlands is approximately equal to
the sale price. The sale will result in the Company’s sub-
stantially complete liquidation of its Canadian operations.
In accordance with ASC Topic 830, Foreign Currency
Matters, the gain on sale will also include the reclassifi cation
from accumulated other comprehensive income of $88 mil-
lion in deferred foreign currency translation gains. Fees and
other costs associated with the transaction are minimal.
EIGHTEEN
Unaudited Quarterly Data
First
Second(a)
Net Sales
Gross Profi t
Operating Income (Loss)
Income (Loss) From Continuing Operations
Earnings (Loss) Per Common Share From Continuing Operations:
Basic
Diluted
$134.1
20.5
4.9
(0.7)
$ (0.05)
$ (0.05)
Net Sales
Gross Profi t
Operating Income (Loss)
Income (Loss) From Continuing Operations
Earnings (Loss) Per Common Share From Continuing Operations:
Basic
Diluted
First
$205.6
34.2
17.9
8.5
$ 0.58
$ 0.57
$135.2
24.2
(10.5)
(8.6)
$(0.58)
$ (0.58)
Second
$194.5
28.9
14.2
6.2
$ 0.43
$ 0.42
(a) Includes costs related to the closure of the Ripon Mill of $17.1 million.
(b) Includes non-cash pre-tax goodwill and other intangible asset impairment charge of $54.5 million.
2009 Quarters
Third
$150.1
28.3
10.7
3.4
$ 0.23
$ 0.23
2008 Quarters
Third
$185.6
25.0
12.3
5.0
$ 0.34
$ 0.34
Fourth
$154.5
28.6
11.3
4.1
$ 0.28
$ 0.28
Year(a)
$573.9
101.6
16.4
(1.8)
$ (0.12)
$ (0.12)
Fourth(b)
Year(b)
$146.6
11.0
(63.7)
(67.0)
$ (4.58)
$ (4.58)
$732.3
99.1
(19.3)
(47.3)
$ (3.24)
$ (3.24)
Neenah Paper, Inc. 2009 Annual Report
121
LEADERSHIP
E XE CUTIVE TEAM
BOARD OF DIRECTORS
Sean T. Erwin
Chairman of the Board,
President and
Chief Executive Offi cer,
Neenah Paper, Inc.
Bonnie C. Lind
Senior Vice President,
Chief Financial Offi cer
and Treasurer
Steven S. Heinrichs
Senior Vice President,
General Counsel
and Secretary
Walter M. Haegler, Ph.D.
Managing Director,
Neenah Germany
John P. O’Donnell
President, Fine Paper
James R. Piedmonte
Senior Vice President,
Operations
Dennis P. Runsten
President,
Technical Products – U.S.
Sean T. Erwin
Chairman of the Board,
President and
Chief Executive Offi cer,
Neenah Paper, Inc.
Edward Grzedzinski
Former Chief Executive
Offi cer, NOVA
Information Systems
Mary Ann Leeper, Ph.D.
Senior Strategic Advisor,
Female Health Company
and Former President and
Chief Operating Offi cer,
Female Health Company
Timothy S. Lucas, CPA
Independent Consultant,
Lucas Financial Reporting
and Former Director of
Research, FASB
John F. McGovern
Partner, Aurora Capital
LLC
and Former Executive
Vice President and
Chief Financial Officer,
Georgia Pacific
Corporation
Philip C. Moore
Partner,
McCarthy Tétrault, L.L.P.
Stephen M. Wood, Ph.D.
President and
Chief Executive Officer,
FiberVisions Corporation
122
Neenah Paper, Inc. 2009 Annual Report
SHAREHOLDER INFORMATION
TRADEMARKS
The following brand
names mentioned in this
report are trademarks
of Neenah Paper, Inc. –
CAPITOL BOND,
CLASSIC, CLASSIC
CREST, ENVIRONMENT,
ESSE, EVERGREEN,
GESSNER, IMAGE CLIP,
KIMDURA, MUNISING
LP, NEENAH, NEWTECH,
PREVAIL, SOFSTRETCH,
STARWHITE, SUNDANCE,
UV/ULTRA II and VARITESS.
STOCK EXC HA NGE
Neenah Paper’s common
stock is traded on the
New York Stock Exchange
under the symbol NP.
INDEPENDENT
RE GISTERE D PU B LIC
ACCOUNTING FIR M
Deloitte & Touche LLP
191 Peachtree Street
Suite 1500
Atlanta, GA 30303
CORPORATE
REGISTRAR AND
HEA DQU ARTER S
Neenah Paper, Inc.
3460 Preston Ridge Road
Suite 600
Alpharetta, GA 30005
678.566.6500
www.neenah.com
AN N UAL MEETING
OF S HA REHOLDERS
The 2010 annual meeting
of the shareholders of
Neenah Paper, Inc. will
be held Wednesday,
May 19, 2010, at 10:00 a.m.,
Eastern time at Neenah’s
headquarters in
Alpharetta, Georgia.
As of February 28, 2010,
Neenah had approximately
2,500 holders of record
of its common stock.
TRANSFER AGENT
BNY Mellon
Shareowner Services
P.O. Box 358010
Pittsburgh, PA 15252
Contact Center:
Toll Free U.S. and Canada:
877.498.8847
International callers:
201.680.6578
Toll Free
TDD for hearing impaired:
800.231.5469
www.bnymellon.com/
shareowner/isd
FINANCIAL AND
OTHER COM PANY
INFORMATION
Our Annual Report on
Form 10-K for the fi scal year
ended December 31, 2009
is available on our web-
site at www.neenah.com.
In addition, fi nancial
reports, recent fi lings
with the Securities and
Exchange Commission
(SEC), news releases and
other information are avail-
able on our website. For
a printed copy of our
Form 10-K, without charge,
please contact:
Neenah Paper, Inc.
Attn: Stockholder Services
3460 Preston Ridge Road
Suite 600
Alpharetta, GA 30005
866.548.6569
or via e-mail to investors@
neenahpaper.com
CE RTIFICATIONS
Neenah has included as
exhibits to its Annual Report
on Form 10-K for the fi scal
year ended December 31,
2009 fi led with the SEC,
certifi cations of Neenah’s
Chief Executive Offi cer
and Chief Financial Offi cer
certifying the quality of
our public disclosure.
FIV E-YEA R CUMULATIVE
TOT AL RETU RN*
$140
$120
$100
$80
$60
$40
$20
$0
12
04
12
05
12
06
12
07
12
08
12
09
Neenah Paper, Inc.
Russell 2000 value
Peer group: AbitibiBowater Inc., International Paper Company, P.H. Glatfelter Company,
Schweitzer-Mauduit International, Inc. and Wausau Paper Corporation. The peer group
average is weighted by market capitalization.
* $100 invested on 12/31/04 in stock or index, including reinvestment
of dividends. Fiscal year ending December 31.
Neenah Paper, Inc. 2009 Annual Report
123
COLOPHON
This year we are featuring
a hardbound decorative
component cover material
on the exterior of the NPI
annual report, 6-mil coated
PREVAIL® Paper. This paper
is a polymer saturated base
paper manufactured by
Neenah Paper Technical
Products. The cover paper
was manufactured at our
Munising mill and shipped
to our customer, Ecological
Fibers, Inc., who coated,
embossed and converted
the product into a decora-
tive book cover product.
Our technically advanced
polymer saturated base
papers are converted into
a wide variety of colors
and textures for book
and packaging end-use
customers worldwide.
SW-COC-000885 FSC Trademark
© 1996 Forest Stewardship Council A.C.
The mark of responsible forestry.
Illustration &
Photography
Pages 6–11
Jo Ratcliffe
Pages 14–19
Dwight Eschliman
Pages 30–35
Micah Lidberg
Page 44 (upper)
Sean Caffrey
Page 44 (lower)
Howard McAlpine
Page 45 (upper)
Ralph Richter
Page 45 (lower)
Lorne Bridgman
Paper
Credits
Exterior cover
PREVAIL® Paper
Black, 6-mil
Inside cover end papers
CLASSIC CREST® Paper
Epic Black
80 lb. cover
Pages 1–4
SUNDANCE® Paper
Warm White
70 lb. text
Design and Production
Addison
www.addison.com
Copywriting
Edward Nebb
Printing
Worth Higgins &
Associates
Cover Material Converting
Ecological Fibers
Pages 5–12
CRANE’S LETTRA® Paper
Pearl White (100% cotton)
80 lb. text
Foil Stamping and
Case Binding
BindTech
Pages 13–20
CLASSIC CREST® Paper
Avalanche White
100 lb. text
Pages 21–28
ESSE® Paper
Pearlized Cocoa
80 lb. text
Pages 29–36
CLASSIC CREST® Paper
Avalanche White
100 lb. text
Pages 37–52
ESSE® Paper
Crystal
80 lb. text
Pages 53–124
SUNDANCE® Paper
Warm White
70 lb. text
124
Neenah Paper, Inc. 2009 Annual Report
Neenah Paper, Inc.
3460 Preston Ridge Road
Suite 600
Alpharetta, GA 30005
678.566.6500
To minimize our
environmental impact, the
Neenah Paper, Inc.
2009 Annual Report was
printed on papers
containing fibers from
environmentally appropriate
socially beneficial
and economically viable
forest resources.