WE
AUTOMOBILE
MAKE
WALLPAPER
PAPER
MAP
THAT MAKES
ESPRESSO
ITS WAY
MASKING TAPE
INTO
SANDPAPER
MANY
PASSPORT
THINGS
NOTEBOOK
NEENAH PAPER, INC.
WINE LABEL
2010 ANNUAL REPORT
PACKAGING
BLUE JEANS
BLUE JEANS
SKI LIFT TICKET
CATALOG
LETTERHEAD
COASTER
BUSINESS CARD
MENU
GREETING CARD
VENEER
SHOPPING BAG
HANG TAG
BOOK
BOURBON
MAGAZINE
GARMENT LABEL
INVITATION
WALL DECAL
ACOUSTIC CEILING
PACKING TAPE
SUSTAINABILITY REPORT
PART I: STRATEGIC REVIEW
Building on our strengths in diverse products,
markets and regions
AT NEENAH PAPER,
WE MAKE
PRODUCTS THAT
MAKE
THEIR WAY
INTO MANY THINGS.
IN FACT,
DESPITE OUR NAME,
A LOT
OF OUR PRODUCTS
AREN’T
“PAPER” AT ALL –
AT LEAST
NOT IN THE
TRADITIONAL SENSE.
2
Neenah Paper, Inc. 2010 Annual Report
Thanks to the expertise of our technical
teams and process capabilities in areas such
as formation, saturation, coating
and meltblown nonwovens, you may
experience our products as the filters in your
car, the patch on the pocket of your jeans,
the base material in an abrasive disk,
the label or package that drew you to a
premium bottle of wine or perfume,
the backing to exotic hardwood veneer
furniture, or the sterile packaging for
a disposable medical device. At the same
time, we are the leader in our
traditional markets for fine printing and
writing papers, and the choice for premium
communications by individuals,
businesses and, occasionally, the President
of the United States.
We have changed a lot in the six years since
Neenah has been an independent
public company. From a domestic business
that depended on commodity pulp
for more than half of its revenue, we built a
company whose focus is now directed toward
global markets and specialty products,
where our technical knowledge and process
expertise provide a competitive edge.
Today, our ability to deliver value for
customers – and performance for
shareholders – derives from a wide range
of products beyond paper.
Maybe it’s time to just call us “Neenah.”
Neenah Paper, Inc. 2010 Annual Report
3
OUR LONG-TERM POTENTIAL WILL BE DEFINED BY
OUR LONG-TERM POTENTIAL WILL BE DEFINED BY
INNOVATION AND TECHNICAL
INNOVATION AND TECHNICAL
OUR ABILITY TO SOLVE COMPLEX CUSTOMER NEEDS
OUR ABILITY TO SOLVE COMPLEX CUSTOMER NEEDS
EXPERTISE DETERMINE SUCCESS
EXPERTISE DETERMINE SUCCESS
One of Neenah’s strengths is our command of
One of Neenah’s strengths is our command of
specialized processes and chemistries that enhance
specialized processes and chemistries that enhance
a product’s performance to meet customer needs.
a product’s performance to meet customer needs.
For example, we have unique capabilities and exper-
For example, we have unique capabilities and exper-
tise in saturation, coatings and nonwoven materials
tise in saturation, coatings and nonwoven materials
that permit us to satisfy exacting customer demands
that permit us to satisfy exacting customer demands
in such diverse
in such diverse
applications as
applications as
filtration, sterile
filtration, sterile
packaging and
packaging and
coated abrasives.
coated abrasives.
We also have
We also have
significant skills
significant skills
in image trans-
in image trans-
fer technology,
fer technology,
used primarily in the placement of graphics on textiles.
used primarily in the placement of graphics on textiles.
By combining these capabilities with our ability to
By combining these capabilities with our ability to
innovate, we continue to expand our portfolio with
innovate, we continue to expand our portfolio with
products that in some cases are new to the market –
products that in some cases are new to the market –
and generate strong margins by delivering high value
and generate strong margins by delivering high value
to the customer.
to the customer.
A recent example of our ability to put innovation
A recent example of our ability to put innovation
to work for a customer is a name-badge product
to work for a customer is a name-badge product
for Avery Dennison. Avery was looking for a material
for Avery Dennison. Avery was looking for a material
that adhered better and avoided the wrinkling
that adhered better and avoided the wrinkling
and curling typical of traditional paper badges. They
and curling typical of traditional paper badges. They
turned to Neenah because of our specialized print
turned to Neenah because of our specialized print
coating expertise and ability to provide a customized
coating expertise and ability to provide a customized
solution with an extremely quick turnaround. For
solution with an extremely quick turnaround. For
Neenah, which had previously received both the
Neenah, which had previously received both the
“Growth and Innovation Excellence” and “Supplier
“Growth and Innovation Excellence” and “Supplier
of the Year” awards from Avery Dennison’s office
of the Year” awards from Avery Dennison’s office
products division, the name-badge product was
products division, the name-badge product was
further proof of our commitment to customer solutions.
further proof of our commitment to customer solutions.
Also during the past year, we developed a
Also during the past year, we developed a
product that offers a more environmentally friendly
product that offers a more environmentally friendly
and easier method of creating the stencil used in the
and easier method of creating the stencil used in the
screen printing of items such as imprinted t-shirts.
screen printing of items such as imprinted t-shirts.
Our process, which was introduced
Our process, which was introduced
to the market in early 2011, can
to the market in early 2011, can
deposit an image on a screen in a
deposit an image on a screen in a
manner that is capable of printing
manner that is capable of printing
relatively large runs, while reducing
relatively large runs, while reducing
the extensive preparation and
the extensive preparation and
cleanup traditionally associated with
cleanup traditionally associated with
the screen printing process.
the screen printing process.
In other illustrations of our
In other illustrations of our
innovative approach, we have expanded our filtration
innovative approach, we have expanded our filtration
end markets, developed products that can be used
end markets, developed products that can be used
for sterile medical packaging, as well as packaging
for sterile medical packaging, as well as packaging
that can help protect electronic components against
that can help protect electronic components against
electrostatic discharge, and labels for chemicals and
electrostatic discharge, and labels for chemicals and
that require compatibility with digital imaging pro-
that require compatibility with digital imaging pro-
cesses and can still stand up under harsh environments.
cesses and can still stand up under harsh environments.
Our teams also work with other partner companies
Our teams also work with other partner companies
in exploring and applying new technologies such as
in exploring and applying new technologies such as
e-beam coating and carbon fiber formation.
e-beam coating and carbon fiber formation.
To maintain our technical edge, we continually
To maintain our technical edge, we continually
invest in research and development. We will further
invest in research and development. We will further
strengthen our product development efforts in
strengthen our product development efforts in
2011, when we open a new Innovation Center based
2011, when we open a new Innovation Center based
at our facility south of Munich, Germany. The Center
at our facility south of Munich, Germany. The Center
will bring together many of our R&D resources in a
will bring together many of our R&D resources in a
single location, further driving our innovation efforts.
single location, further driving our innovation efforts.
4
4
Neenah Paper, Inc. 2010 Annual Report
Neenah Paper, Inc. 2010 Annual Report
WE SERVE SPECIALIZED MARKETS
TARGETING HIGH-VALUE
WHERE OUR PRODUCT PERFORMANCE
NICHES TO DRIVE GROWTH
IS A DIFFERENTIATING STRENGTH
Neenah’s long-term success will
be driven by our ability to identify
and serve new markets that map
to our specialized capabilities. We
continually ask ourselves how our
expertise can best serve customers’
needs, and actively seek to market
our products for use in those areas
where we can be differentiated through value-added
features, superior performance, or best-in-class
execution and service.
In Technical Products, we are building on our
expertise in filtration for the transportation indus-
try, where our products have long been employed
in engine and cabin air, oil and fuel filtration. For
example, we are now making triple-layer filter media
for the next generation of high-efficiency engines,
including a wet-laid micro glass layer that meets the
highest efficiency standards and customer require-
ments. We have increased our nonwoven meltblown
capacity, and can not only serve the growing demand
for high-end transportation filters, but also expand
into new markets where specialized filtration
needs are mission-critical. These new end markets are
as diverse as beverage processing, industrial manu-
facturing, medical and health applications.
Our Fine Paper business provides many exam-
communicating a prestigious image is most
important. We are now building a growing business
providing labels for products such as premium
wines and beverages, gourmet and natural foods.
Additionally, we are growing the pack-
aging of luxury consumer products
such as fine jewelry and fragrances, as
well as retailers’ gift card enclosures
and shopping bags.
We have also captured new revenue
and profit pools from existing markets.
An expanded relationship with
Crane & Company allows us not only to
exclusively manufacture, but also to
sell and distribute their products
to our customers. In envelopes, we are
taking an active role in direct sales,
whereas we previously relied on third-
party converters to produce and sell
those papers to customers. Our enve-
lopes can now be purchased directly
from Neenah, bundled together with
other fine paper orders, enhancing cus-
tomer convenience in a sizeable market.
As we seek additional growth
opportunities, we will follow a disci-
plined approach: identifying promising
ples of this successful focus on specialized market
opportunities. Neenah’s position as the leader in
premium printing and writing paper was built on pro-
viding the highest quality, best finishes and broadest
color selection, appealing to customers for whom
market segments that offer volume growth and
attractive financial returns, setting well-defined
objectives, allocating resources, and giving our teams
the authority and responsibility to extend our
leadership to new areas.
Neenah Paper, Inc. 2010 Annual Report
5
WE ARE DEVOTING GREATER RESOURCES
OUR EMERGING OPPORTUNITIES
TO EXPAND OUR BUSINESS INTERNATIONALLY
SPAN THE GLOBE
Neenah’s reputation for high quality, performance
and custom-tailored solutions has helped to drive
growing demand for our products around the world.
Our products are currently sold in some 70 countries,
with about 45 percent of our sales generated outside
of North America. Sales to Europe, Asia and
Latin America combined increased by approximately
23 percent in 2010. As we seek to broaden our
opportunities, we are aligned with global customers
that can employ our products in multiple regions,
while also strengthening resources such as marketing,
sales and logistical support that we dedicate
to international markets.
Europe accounted for some
30 percent of our sales in 2010, as our
manufacturing facilities in Germany
have given us a strong presence among
major customers based in the region. Many top
European auto manufacturers, as well as makers of
industrial equipment, home appliances and construc-
tion materials, use our substrates in their products
and manufacturing processes. Among our growth
initiatives in the region, we are enjoying success
in expanding our nonwoven wall covering business in
Eastern Europe, and we are building on our heat
transfer capabilities with a program of direct sales of
heat transfer products in Europe.
Asia is an increasingly important region for
Neenah, accounting for approximately 8 percent
of sales and growing approximately 18 percent over
the prior year. One of the areas in which we have
expanded recently is the Asian abrasives industry,
where we have grown by tailoring products specifically
to local market needs. We also are serving the
filtration market with products for such applications
as flame-retardant air filtration and high-pressure
injection diesel filtration. With the rising affluence of
local populations, we also are experiencing growing
demand for fine paper products. We have relaunched
our STARWHITE® and SUNDANCE® brands in Asia
to serve this market, and are building our presence
through a strong network of fine paper merchants.
North America remains an important market,
delivering approximately 55 percent of sales last year.
Our Fine Paper brands, such as CLASSIC® and
ENVIRONMENT® Papers, are among the most
recognized and preferred in North America, and we
are expanding on that position with a
broad range of new papers for commercial
digital printing. In the Technical
Products area, we actively serve the North
American market for materials used in
the manufacture of industrial consumable
products, digitally imaged transfer papers
and durable label materials.
In Latin America and the rest of
the world, which account for about 7 per-
cent of total sales, we are growing with
our international customers and looking
for ways to accelerate this growth.
For example, we see opportunities to work with global
companies that have manufacturing in the region
and desire a locally based source of advanced, high-
performance products.
6
Neenah Paper, Inc. 2010 Annual Report
WE ENGAGE WITH CUSTOMERS
OUR LEADERSHIP IS BUILT ON A SOLID COMMITMENT
AND STAND BEHIND OUR PRODUCTS
TO EXCELLENCE IN SERVICE AND SUPPLY CHAIN
TO CREATE EXCEPTIONAL VALUE
Customer engagement and quality service are
essential ingredients in Neenah’s success, and these
skills will support our growth. Illustrations of this
commitment to service range from our flexibility in
tailoring solutions to meet specific product perfor-
mance requirements, to using our supply chain tools
to strengthen our customers’ inventory
management, to guaranteeing our
brand performance.
For example, our Technical
Products business units work closely
with customers to understand and
respond to their needs for today’s and
tomorrow’s advanced solutions. Among
other initiatives, this has led us to invest
in additional meltblown capacity in
our German operations to meet rapidly
growing customer demands for
our more advanced filtration products.
Reflecting our efforts to build
our confidence in our brands. In 2010, we expanded
this effort with a new 110 percent print guarantee
on CLASSIC CREST® Paper, our best-selling brand, where
we will refund 110 percent of a customer’s paper costs
if they are not satisfied with the print quality. We
also introduced our Personal ProofSM, providing a free
sample print
of the customer’s
artwork on a
variety of our fine
papers.
Technology
is a major con-
tributor to
our customer
outreach. Our
recently rede-
signed www.
neenahpaper.com
website, our
close relationships with customers, our U.S. Technical
Products group invites customer teams each year
to visit our Munising mill and participate in “Paper
School.” The customer groups spend time in the labo-
ratory learning how to saturate and coat base papers
to achieve different properties, thus increasing their
understanding of Neenah’s customized solutions
and how we can work together on future product
developments.
In Fine Paper, we were the first in our industry
to offer the combination of both service and
product performance guarantees to demonstrate
Against the Grain blog, and our use of social media
help us to actively engage customers. We also
offer our Strategic Planning and Optimization Tool
(SPOT) program, in which we use data gathered
through our own supply chain systems to help cus-
tomers order the right products and quantities
to stay “in stock” on the highest velocity items –
saving them money and increasing their turns,
while making it easy for them to order with Neenah.
Through these and many other initiatives,
we stay engaged with our customers, helping to
build their business – and ours.
Neenah Paper, Inc. 2010 Annual Report
7
SUSTAINABILITY IS A VITAL ELEMENT
SUSTAINABILITY IS A VITAL ELEMENT
WE AIM FOR THE HIGHEST STANDARDS
WE AIM FOR THE HIGHEST STANDARDS
OF THE PRODUCTS WE MAKE
OF THE PRODUCTS WE MAKE
OF ENVIRONMENTAL RESPONSIBILITY
OF ENVIRONMENTAL RESPONSIBILITY
AND THE WAY WE MAKE THEM
AND THE WAY WE MAKE THEM
In our products, as well as our manufacturing
processes, Neenah strives to maintain the highest
standards of environmental sustainability. We have
the most extensive line of carbon neutral premium
writing, text and cover papers in our industry.
Our CLASSIC CREST®, CLASSIC® Linen, ENVIRONMENT®
and STARWHITE® Papers are all FSC certified, and
our major CLASSIC
brands are also
Carbon Neutral Plus,
with offerings made
from 100 percent
post-consumer fiber
and processed
chlorine free.
Using the ECO Calculator on our website, customers
can instantly calculate the environmental savings they
can achieve by using paper made with post-consumer
fiber, as well as the savings from using paper made
with 100 percent renewable electricity.
We also have increased our use of FSC certified
pulps in Technical Products, when we are able to do
so while still meeting customers’ performance
specifications. In addition, we created a masking
tape using recycled fibers, which is finding wide
use in construction projects in Europe due to local
green procurement requirements.
We introduced several green product
innovations in Fine Paper during the past year, includ-
ing a new CONSERVATION® brand that was created
to complement our industry-leading ENVIRONMENT®
brand. We introduced a 100 percent post-consumer
folding board for packaging cosmetics and other
luxury items.
Several years ago we defined an ambitious set
of standards for our manufacturing operations,
involving responsible procurement, reduction
in water usage, increased energy efficiency, reduction
in greenhouse gas emissions, wastewater treatment
and effluent quality, and other tangible areas. Today,
many of our plants
are 100 percent
landfill-free for manu-
facturing waste, and
make use of renewable
power sources such
as hydroelectricity
and wind.
One of our
recent environmental
initiatives is the
Osa Project, a part-
nership to preserve
an important bird
habitat on Costa
Rica’s Osa peninsula.
As the Osa provides
shelter for migratory
birds – including those from Wisconsin – during the
winter months, it is crucial to safeguard the region’s
forests. Neenah has partnered with the Wisconsin
Department of Natural Resources (DNR), Friends
of the Osa, and other public and private organizations
in this vital project.
8
Neenah Paper, Inc. 2010 Annual Report
PART II: LETTER TO SHAREHOLDERS
Creating value and opportunity through
strategic transformation
Neenah Paper, Inc. 2010 Annual Report
9
TO NEENAH PAPER SHAREHOLDERS
Neenah Paper is stronger today than at any time since our founding six
years ago – a fact that is reflected in our 2010 performance. Our businesses
are more broadly diversified in higher-value products and focused on high-
potential global markets. We have built strong market positions and a
reputation for leadership in innovation and supply chain. As discussed in this
letter and annual report to you, these changes have resulted in a product
portfolio that can support top-line increases and improved margins,
a de-levered capital structure, consistent free cash flow, and the capacity
to produce profitable growth and attractive returns for shareholders.
We arrived at this position because our people – at all levels –
drove a major transformation of the Company over the past several years.
We divested our commodity pulp operations, culminating in the sale of
our remaining timberlands in March 2010. We expanded the scale and
growth potential of our Technical Products and Fine Paper businesses with
important acquisitions and strategic capital investments. In addition,
we aggressively reduced our costs and operating footprint. Because of
these efforts, we entered this year confident in our ability to produce strong
financial results, and we are pleased to report on our success in delivering
against this commitment in 2010.
10
Neenah Paper, Inc. 2010 Annual Report
DELIVERING FINANCIAL PERFORMANCE
Neenah’s results for 2010 demonstrate solid execution
of our business strategies. Net sales increased
15 percent, to $658 million. The increase was achieved
in spite of the almost $12 million impact of a weaker
Euro. Our businesses realized higher volumes,
an improved product mix and increased pricing.
Technical Products grew more than 20 percent and
now accounts for almost 60 percent of consolidated
sales. We also expanded our international presence,
and sales outside North America now represent
approximately 45 percent of total sales.
Income from continuing operations grew to
$55 million in 2010 from $16 million in 2009. Excluding
the one-time impact of a $3 million gain on the sale
of the Ripon mill in 2010 and a $17 million charge for
the closure of that facility in 2009, operating income
increased by almost $19 million, or more than
50 percent. This improvement was achieved in spite
of record high fiber prices during the year. Our
teams did an excellent job of countering the more
than $32 million rise in fiber prices, as we continued
to benefit from the cost reductions implemented
during the financial crisis, significantly higher volumes,
price increases, and a more profitable mix of
products. We remained focused on increasing our
operating margins, which improved to almost
8 percent of sales in 2010, from 6 percent in 2009,
excluding Ripon related items.
Earnings per share, adjusted for special items
such as the Woodlands sale and the closure of
the Ripon mill, were $1.47 in 2010, nearly double the
adjusted earnings per share of $0.76 in 2009.
Neenah Paper, Inc. 2010 Annual Report
11
STRONG BALANCE SHEET
Our business performance and strong cash flow
generation, supplemented by almost $86 million in
proceeds from the sale of the Woodlands and Ripon
mill, enabled us to increase our cash position by more
than $40 million while reducing debt by approxi-
mately $75 million. Our performance was recognized
by the major credit rating agencies, which upgraded
the rating of Neenah Paper debt in March of 2010.
We announced early in 2011 that we will further
reduce our debt and call approximately $65 million
of our bonds. With this action, we will have reduced
our debt levels by more than $165 million since
the third quarter of 2008, when the financial crisis hit.
More importantly, through our stronger operating
performance, along with non-core asset sales, we have
improved our capital structure significantly. And,
with a revolving credit facility of $100 million, we have
ample liquidity and flexibility for growth.
GROWING SHAREHOLDER VALUE AND DIVIDEND
Our share price increased in concert with the strong
performance of the business during the past year,
rising 41 percent during 2010, on top of the 58 percent
increase in 2009. In both years, Neenah’s perfor-
mance outpaced both broad market indices and
peer companies.
$28 million. Another key contributor to the improve-
ment was a reduction in working capital levels across
all of our businesses. We ended the year with working
capital at 14 percent of sales, versus 16 percent last
year. All of this also contributed to free cash flow of
more than $35 million.
We have mentioned in past years that Return
We, along with our Board of Directors, believe
on Invested Capital is a key metric against which we
measure our performance, as well as an important
benchmark for shareholders. During 2010 we raised
our return level to above 8 percent from just below
6 percent for the prior year. While improvements in
our top line and margins were the primary drivers,
we remain disciplined in our capital spending, which
at $17 million was well below our depreciation of
that an attractive dividend is a priority and a key
component of delivering shareholder value. That is
why we maintained our dividend in 2009, when many
companies reduced or suspended dividends due
to economic conditions. In November 2010, the Board
voted to increase our quarterly dividend 10 percent,
to $0.11 per share from $0.10 per share, effective
with the dividend payable in March 2011.
12
Neenah Paper, Inc. 2010 Annual Report
TECHNICAL PRODUCTS
WINNING THROUGH SPECIALIZATION
Success in our Technical Products business is
determined by the ways in which we use Neenah’s
exceptional technical knowledge and process
capabilities to bring unique solutions to our custom-
ers and the market. This solution-oriented approach
creates a strong long-term partnership, and provides
the basis for serving specialized market segments
and applications. Over time, this has enabled us to
move to a mix of higher performing and, therefore,
higher margin products. Focus on innovation remains
a priority, both to grow the business and to replace
our more mature products. In our Technical Products
business, new products contributed more than
$10 million to sales last year.
In 2010, we were very pleased to receive
both the “Growth and Innovation Excellence” and
“Supplier of the Year” awards from Avery Dennison’s
office products division. While we are proud to
receive awards and accolades, the most important
“win” is the ability to create new business opportu-
nities such as helping Avery bring to market a new
name-badge product, which will support growth
in 2011.
In another example of innovation, we provided
a specialized base for a customer’s new premium
tape product, which now has national distribution
at a retail level. In Europe, we used our saturation
capabilities to create a new masking tape from
recycled fibers, which satisfies local requirements
for sustainable materials in publicly funded construc-
tion projects. For the Asian market, we developed
abrasive products that are making strong inroads
in the markets, by substituting an engineered, better-
performing solution for traditional silica-on-kraft
paper products.
During the year we announced a $10 million
investment to expand our meltblown nonwoven
capacity in Germany. The meltblown process enables
us to combine specialized nonwoven polymers onto
other substrates, enhancing our ability to meet
complex performance needs, ranging from automo-
tive and industrial filtration to filters in high-end
single-serving coffee makers. The new capacity came
online as planned in the first quarter of 2011 and
will allow us to continue to support the growth of our
higher value filtration products.
Net sales of Technical Products increased
21 percent in 2010, to $384 million. Volumes
increased in most product lines, including our largest
product group, transportation filtration, which rose
more than 20 percent and reflected growing demand
in markets outside of our European base. In
addition to higher volumes, we realized a more
profitable product mix, higher average selling prices
and continued improvements in cost efficiencies.
These factors helped us make progress toward
our key objective of double-digit operating margins
in Technical Products, with an improvement to 8 per-
cent in 2010, versus 5 percent last year. Operating
income of $29 million set an all-time record and more
than doubled from the prior year, overcoming
more than $20 million of higher input costs.
Neenah Paper, Inc. 2010 Annual Report
13
FINE PAPER
LEVERAGING OUR LEADERSHIP
Neenah’s competitive strength in Fine Paper starts
with our industry-leading brands – such as CLASSIC®,
ENVIRONMENT®, ESSE® and SUNDANCE® Papers –
which have the strongest name recognition in the
marketplace, reinforced by our unparalleled commit-
ment to quality, marketing support and service.
By building on our traditional strong position in text
and cover products, while expanding in promising
new areas, we met our objective to deliver growth in
excess of the overall fine paper market. Revenues
in growth areas such as packaging, labels and interna-
tional markets were up 18 percent year-over-year.
In 2010, we continued to refine our text and
cover product lines to build on our market leadership.
Neenah launched the industry’s most comprehensive
range of papers for digital printing, featuring
16 different colors and 13 textures. A new brand,
CONSERVATION® Paper, was introduced to offer a
value alternative in the 100 percent post consumer
category. Late in the year, we began to supply
envelopes in Neenah Paper grades directly to our
customers. And we have continued to build on
our partnership with Crane & Co. to exclusively manu-
facture, market and sell their highly regarded line
of fine business papers.
An element of our strategy is to move beyond
the traditional printing environment, where our
paper is used to present printed content in a premium
manner, into applications where paper quality and
characteristics become part of the essence of a
customer’s brand itself. This focus on “image-making”
opens up new revenue streams and growth potential,
as reflected in the expansion of our labels and
packaging solutions, which are becoming a larger
part of our business. Many brands of wines and
spirits, organic foods and other premium consumer
products now include labeling provided by Neenah.
We also have introduced packaging for cosmetics and
other high-end consumer products, using a 100 per-
cent post-consumer content folding board.
International markets are a growing part of
our Fine Paper business. Our team has focused on
selected regions such as Asia and South America,
expanding our presence in a cost-effective manner
by redeploying sales, marketing, logistics and other
resources to those markets. In Asia, for example,
where the increasing affluence of the population
is creating demand for fine writing papers, we
relaunched our STARWHITE® and SUNDANCE® brands
and are emphasizing our breadth of color and
texture offerings. We achieved growth in excess of
18 percent in our international business in 2010
and we will continue to resource and focus on
this opportunity.
Innovative marketing and service initiatives
continue to be key drivers of our progress in Fine
Paper. Our redesigned neenahpaper.com website has
been very well received by the design community. It
features an expanded Personal Proof program, which
enables designers to order a custom print of their
artwork on a wide range of Neenah papers. In cus-
tomer service, we have enhanced our industry leading
quality and delivery guarantees. An example of our
confidence in Neenah quality – and our willingness to
stand behind our products – is our new 110 percent
print guarantee on CLASSIC CREST® Papers.
Net sales for Fine Paper were $273 million
in 2010, an increase of 7 percent, driven primarily by
volume growth, as our teams continue to show that
they can outperform the market. Operating income
for the business was $37 million, increasing 7 percent
from 2009 after excluding the impact of the
Ripon mill closure and sale. The increase was achieved
despite more than $15 million in higher pulp costs,
reflecting the power of our brands and the success of
our teams in delivering benefits from higher volume,
increased selling prices and cost efficiencies.
14
Neenah Paper, Inc. 2010 Annual Report
SAFETY AND SUSTAINABILITY
We are proud of our continuing progress in the area
We are proud of our continuing progress in the area
of safety, which remains a top priority. In 2010, our
of safety, which remains a top priority. In 2010, our
reportable safety incident rate improved 14 percent.
reportable safety incident rate improved 14 percent.
We are pleased with our ongoing improvement in
We are pleased with our ongoing improvement in
safety, and we continue to work toward our goal of
safety, and we continue to work toward our goal of
world-class performance.
world-class performance.
In 2010, we maintained our commitment to
In 2010, we maintained our commitment to
environmental sustainability, both in our products
environmental sustainability, both in our products
and our processes. With our new CONSERVATION®
and our processes. With our new CONSERVATION®
brand of fine papers, we have expanded our offer-
brand of fine papers, we have expanded our offer-
ing of 100 percent post-consumer fiber products.
ing of 100 percent post-consumer fiber products.
We continue to use more FSC-certified pulp in our
We continue to use more FSC-certified pulp in our
products, including our new “green” masking tape.
products, including our new “green” masking tape.
Operationally, we continue to make progress against
Operationally, we continue to make progress against
our environmental objectives, including reduced
our environmental objectives, including reduced
water usage and improved water treatment, eliminat-
water usage and improved water treatment, eliminat-
ing solid waste, and expanding the use of renewable
ing solid waste, and expanding the use of renewable
energy sources.
energy sources.
MANAGEMENT SUCCESSION
The Board of Directors announced an executive
succession plan in late 2010, under which John
O’Donnell, Senior Vice President and Chief Operating
Officer, will succeed me as President and Chief
Executive Officer in May 2011. At that time, I will
retire as CEO, but continue in the capacity of Non-
Executive Chairman of the Board.
John is well suited and prepared for the role.
He has more than two decades of experience in the
industry, has led major global businesses, and has
been a principal driver of the progress of our Fine Paper
business since late 2007, when we recruited him to
Neenah. The Board of Directors has worked for more
than a year, both internally and with outside advisors,
to ensure that this transition will be seamless and
successful. The Board and I are excited about working
with John, and we are confident that he and the
entire Neenah team are well equipped to achieve
great success in the future.
Neenah Paper, Inc. 2010 Annual Report
15
FOCUSED ON GROWTH
Neenah has come through the challenging economic
Neenah has come through the challenging economic
cycle in a strong position. We are leaders in our
cycle in a strong position. We are leaders in our
traditional markets and are penetrating new specialty
traditional markets and are penetrating new specialty
areas where we can produce increasing value. At
areas where we can produce increasing value. At
the same time, we have demonstrated our ability to
the same time, we have demonstrated our ability to
improve the efficiency of our operations, produce
improve the efficiency of our operations, produce
sustainable and significant cash flows, and achieve a
sustainable and significant cash flows, and achieve a
capital structure that offers the flexibility to pursue
capital structure that offers the flexibility to pursue
future growth opportunities. We worked very hard to
future growth opportunities. We worked very hard to
enhance both the product composition and risk pro-
enhance both the product composition and risk pro-
file of the Company by divesting pulp, and we expect
file of the Company by divesting pulp, and we expect
to maintain this improved profile and build on the
to maintain this improved profile and build on the
core businesses we have today.
core businesses we have today.
Going forward, we will build on this solid
Going forward, we will build on this solid
foundation. We will use our technical, supply chain
foundation. We will use our technical, supply chain
and marketing expertise to capture new opportunities.
and marketing expertise to capture new opportunities.
We will expand our market share by making Neenah
We will expand our market share by making Neenah
increasingly valuable and relevant to our customers.
increasingly valuable and relevant to our customers.
We will continue to pursue growth in the international
We will continue to pursue growth in the international
marketplace. We will ensure that the company has a
marketplace. We will ensure that the company has a
talented, capable and motivated team to lead Neenah
talented, capable and motivated team to lead Neenah
toward an exciting future. And we will operate in
toward an exciting future. And we will operate in
a disciplined manner, staying focused on delivering
a disciplined manner, staying focused on delivering
attractive returns on invested capital and rising
attractive returns on invested capital and rising
shareholder value.
shareholder value.
I would like to express my thanks for the hard
I would like to express my thanks for the hard
work and energy of our people, the loyalty of our
work and energy of our people, the loyalty of our
customers, the guidance of our Board of Directors and
customers, the guidance of our Board of Directors and
the support of our shareholders. It has been a privi-
the support of our shareholders. It has been a privi-
lege to work with the Neenah team as we spun off
lege to work with the Neenah team as we spun off
from Kimberly-Clark and then successfully trans-
from Kimberly-Clark and then successfully trans-
formed the Company into a leader in our Technical
formed the Company into a leader in our Technical
Products and Fine Paper markets. We have achieved
Products and Fine Paper markets. We have achieved
our objective of creating a transformed company,
our objective of creating a transformed company,
focused on profitable markets, that is supported
focused on profitable markets, that is supported
by our strong financial base, and a great team with a
by our strong financial base, and a great team with a
commitment to quality and service and an innovative,
commitment to quality and service and an innovative,
“can do” spirit. I am confident that Neenah Paper
“can do” spirit. I am confident that Neenah Paper
will continue to deliver on its exciting potential in the
will continue to deliver on its exciting potential in the
years ahead.
years ahead.
ABOUT THAT ANNUAL REPORT...
ABOUT THAT ANNUAL REPORT...
I would be remiss if I ended without mentioning last
I would be remiss if I ended without mentioning last
year’s “hardcover” annual report. I received a few
year’s “hardcover” annual report. I received a few
letters from shareholders commenting on the beauty
letters from shareholders commenting on the beauty
of it, but some also questioned the cost and the need
of it, but some also questioned the cost and the need
for what one shareholder referred to as a “bullet-
for what one shareholder referred to as a “bullet-
proof” cover. I’m glad it got your attention, as this
proof” cover. I’m glad it got your attention, as this
is what we do for a living with our products! We work
is what we do for a living with our products! We work
hard to manage spending, and the total cost did
hard to manage spending, and the total cost did
not exceed the prior year’s level. The cover material
not exceed the prior year’s level. The cover material
was one of the Technical Products grades, so it was
was one of the Technical Products grades, so it was
a great showcase for our capabilities. We are proud
a great showcase for our capabilities. We are proud
to say that the report got the attention of others
to say that the report got the attention of others
too – as it won the overall “Best in Class” award at
too – as it won the overall “Best in Class” award at
the leading international annual report competi-
the leading international annual report competi-
tion conducted by the graphic design industry, and
tion conducted by the graphic design industry, and
more importantly was recognized by our customers
more importantly was recognized by our customers
throughout the year. We are proud of what we make
throughout the year. We are proud of what we make
and sell, and our annual reports reflect it. Thanks.
and sell, and our annual reports reflect it. Thanks.
Sincerely,
Sincerely,
Sean T. Erwin
Sean T. Erwin
Chairman, President and
Chairman, President and
Chief Executive Officer
Chief Executive Officer
16
Neenah Paper, Inc. 2010 Annual Report
PART III: NEENAH PAPER AT A GLANCE
PART III: NEENAH PAPER AT A GLANCE
Superior products and strong performance
Superior products and strong performance
working together
working together
Neenah Paper, Inc. 2010 Annual Report
Neenah Paper, Inc. 2010 Annual Report
17
17
NEENAH PAPER AT A GLANCE
NEENAH PAPER AT A GLANCE
AT NEENAH, OUR MISSION
AT NEENAH, OUR MISSION
IS TO BE
IS TO BE
THE FIRST CHOICE
THE FIRST CHOICE
FOR PREMIUM BRANDED
FOR PREMIUM BRANDED
AND CUSTOMIZED PRODUCTS.
AND CUSTOMIZED PRODUCTS.
OUR GOAL
OUR GOAL
IS TO CREATE VALUE
IS TO CREATE VALUE
FOR OUR CUSTOMERS AND
FOR OUR CUSTOMERS AND
STOCKHOLDERS
STOCKHOLDERS
THROUGH INNOVATION, SERVICE
THROUGH INNOVATION, SERVICE
AND EXCELLENCE
AND EXCELLENCE
IN EXECUTION.
IN EXECUTION.
IT IS OUR EMPLOYEES WHO
IT IS OUR EMPLOYEES WHO
DRIVE THIS VALUE.
DRIVE THIS VALUE.
18
18
Neenah Paper, Inc. 2010 Annual Report
Neenah Paper, Inc. 2010 Annual Report
NEENAH
NEENAH
TECHNICAL PRODUCTS
TECHNICAL PRODUCTS
NEENAH
NEENAH
FINE PAPER
FINE PAPER
Neenah Paper, Inc. 2010 Annual Report
Neenah Paper, Inc. 2010 Annual Report
19
19
NEENAH TECHNICAL PRODUCTS
NEENAH TECHNICAL PRODUCTS
Neenah is a leading producer of Technical
Neenah is a leading producer of Technical
Products, using paper, film, nonwovens
Products, using paper, film, nonwovens
and other substrates to produce specialized,
and other substrates to produce specialized,
industrial and graphic materials that
industrial and graphic materials that
employ saturation, coating and other
employ saturation, coating and other
function-enhancing processes to deliver
function-enhancing processes to deliver
specified performance.
specified performance.
Our products include filtration media,
Our products include filtration media,
specialty tape and coated abrasive
specialty tape and coated abrasive
backings, as well as durable tag, label and
backings, as well as durable tag, label and
wall coverings. Specific end uses include
wall coverings. Specific end uses include
transportation, household and industrial
transportation, household and industrial
applications, medical packaging, retail image
applications, medical packaging, retail image
transfer papers and many others.
transfer papers and many others.
The Technical Products group serves
The Technical Products group serves
customers in as many as 70 countries through
customers in as many as 70 countries through
manufacturing facilities in the U.S. and
manufacturing facilities in the U.S. and
Germany, supported by R&D efforts focused
Germany, supported by R&D efforts focused
on developing the new processes
on developing the new processes
and products that will meet customers’
and products that will meet customers’
needs and drive our growth.
needs and drive our growth.
20
20
20
Neenah Paper, Inc. 2010 Annual Report
Neenah Paper, Inc. 2010 Annual Report
Filtration
Filtration
Specialty
Specialty
Tape
Tape
Technical Products
Technical Products
Component
Component
Materials
Materials
Graphics &
Graphics &
Wall
Wall
Covering
Covering
Air Filter Media
Air Filter Media
Oil Filter Media
Oil Filter Media
Fuel Filter Media
Fuel Filter Media
Cabin Filter Media
Cabin Filter Media
Power Tool Filters
Power Tool Filters
Vacuum Cleaner Bags
Vacuum Cleaner Bags
Blood Filtration
Blood Filtration
Industrial Filtration
Industrial Filtration
Beverage Filtration
Beverage Filtration
Indoor Painting
Indoor Painting
Outdoor Painting
Outdoor Painting
Automotive Lacquering
Automotive Lacquering
Carton Sealing Tapes
Carton Sealing Tapes
Color Coding
Color Coding
Protective Surface Covering
Protective Surface Covering
Adhesive Coated
Adhesive Coated
Vinyl Graphics Transfer
Vinyl Graphics Transfer
Packaging
Packaging
Coated Abrasives
Coated Abrasives
Medical Packaging
Medical Packaging
Veneer Backing
Veneer Backing
Automotive Dashboards
Automotive Dashboards
Printing Blankets
Printing Blankets
Furniture Surface Overlay
Furniture Surface Overlay
Release Papers
Release Papers
Screen Printing Plates
Screen Printing Plates
Carbon Fiber Base
Carbon Fiber Base
Heat Transfer
Heat Transfer
Bookcovering Material
Bookcovering Material
Outdoor Maps
Outdoor Maps
Hospital ID Bracelets
Hospital ID Bracelets
Passport Covers
Passport Covers
Pressure Sensitive Labels
Pressure Sensitive Labels
Pharmaceutical Labels
Pharmaceutical Labels
Garment Brand Labeling
Garment Brand Labeling
Racing Numbers
Racing Numbers
Finished Wallpapers
Finished Wallpapers
Paintable Wallpapers
Paintable Wallpapers
Embossed Wallpapers
Embossed Wallpapers
Wallpapers on Demand
Wallpapers on Demand
Wall Decals
Wall Decals
Digitally Printed Wallpapers
Digitally Printed Wallpapers
Liner for Glazing
Liner for Glazing
Backing for Flexible Flooring
Backing for Flexible Flooring
Acoustic Ceilings
Acoustic Ceilings
Neenah Paper, Inc. 2010 Annual Report
Neenah Paper, Inc. 2010 Annual Report
21
21
NEENAH FINE PAPER
NEENAH FINE PAPER
Neenah is the leader in the North American
Neenah is the leader in the North American
Fine Paper market. We are a world-class
Fine Paper market. We are a world-class
manufacturer of premium writing, text and
manufacturer of premium writing, text and
cover materials, cotton fiber papers and
cover materials, cotton fiber papers and
specialty items.
specialty items.
Built on a tradition of quality and service,
Built on a tradition of quality and service,
we market some of the most recognized and
we market some of the most recognized and
preferred premium papers in North America,
preferred premium papers in North America,
with distinguished brands including CLASSIC®,
with distinguished brands including CLASSIC®,
CLASSIC CREST®, ESSE®, SUNDANCE® and
CLASSIC CREST®, ESSE®, SUNDANCE® and
ENVIRONMENT® Papers.
ENVIRONMENT® Papers.
A pioneer in eco-friendly paper products,
A pioneer in eco-friendly paper products,
our ENVIRONMENT® Paper is the premier
our ENVIRONMENT® Paper is the premier
offering of recycled content papers
offering of recycled content papers
in the market. Neenah’s leadership role is
in the market. Neenah’s leadership role is
supported by our broad range of colors,
supported by our broad range of colors,
textures and other product features.
textures and other product features.
Our products are in demand wherever
Our products are in demand wherever
image counts: for high-end printing needs,
image counts: for high-end printing needs,
business identification materials, private
business identification materials, private
watermark stationery, marketing and
watermark stationery, marketing and
promotional materials, reports, brochures
promotional materials, reports, brochures
and specialized uses such as upscale
and specialized uses such as upscale
packaging and labels.
packaging and labels.
22
22
Neenah Paper, Inc. 2010 Annual Report
Neenah Paper, Inc. 2010 Annual Report
Stationery
Stationery
Business Cards
Business Cards
Annual Reports
Annual Reports
Brochures
Brochures
Luxury Retail Packaging
Luxury Retail Packaging
Wine Labels
Wine Labels
Pocket Folders
Pocket Folders
Direct-Mail Advertising
Direct-Mail Advertising
Shopping Bags
Shopping Bags
Menus
Menus
Sustainability Reports
Sustainability Reports
Music Packaging
Music Packaging
Greeting Cards
Greeting Cards
Coasters
Coasters
Fine Paper
Fine Paper
CLASSIC CREST® Papers
CLASSIC CREST® Papers
CLASSIC® Linen Papers
CLASSIC® Linen Papers
CLASSIC® Laid Papers
CLASSIC® Laid Papers
CLASSIC COLUMNS® Papers
CLASSIC COLUMNS® Papers
CLASSIC COTTON® Papers
CLASSIC COTTON® Papers
CONSERVATION® Papers
CONSERVATION® Papers
CRANE® Papers
CRANE® Papers
ENVIRONMENT® Papers
ENVIRONMENT® Papers
STARWHITE® Papers
STARWHITE® Papers
SUNDANCE® Papers
SUNDANCE® Papers
EAMES™ Papers
EAMES™ Papers
ESSE® Papers
ESSE® Papers
OXFORD® Papers
OXFORD® Papers
UV/ULTRA® II Translucent Papers
UV/ULTRA® II Translucent Papers
CLEARFOLD® Translucent Papers
CLEARFOLD® Translucent Papers
CAPITOL BOND® Papers
CAPITOL BOND® Papers
Neenah Paper, Inc. 2010 Annual Report
Neenah Paper, Inc. 2010 Annual Report
23
23
NEENAH FACILITIES
NEENAH FACILITIES
Customer Service
Customer Service
Center
Center
Research and
Research and
Development
Development
Finishing
Finishing
Center
Center
Manufacturing
Manufacturing
Corporate
Corporate
Headquarters
Headquarters
Alpharetta,
Alpharetta,
Georgia
Georgia
Weidach,
Weidach,
Germany
Germany
Whiting,
Whiting,
Wisconsin
Wisconsin
Appleton,
Appleton,
Wisconsin
Wisconsin
Neenah,
Neenah,
Wisconsin
Wisconsin
Munising,
Munising,
Michigan
Michigan
Lahnstein,
Lahnstein,
Germany
Germany
Bruckmuehl,
Bruckmuehl,
Germany
Germany
24
24
Neenah Paper, Inc. 2010 Annual Report
Neenah Paper, Inc. 2010 Annual Report
FINANCIAL INFORMATION
26
51
Business Summary
Consolidated
Balance Sheets
29
Selected Financial Data
32
Management’s Discussion
and Analysis of
Financial Condition and
Results of Operations
47
Management’s Annual Report
on Internal Control
Over Financial Reporting
48
Reports of Independent
Registered
Public Accounting Firm
50
Consolidated Statements
of Operations
52
Consolidated Statements
of Changes in
Stockholders’ Equity
53
Consolidated Statements
of Cash Flows
54
Notes to Consolidated
Financial Statements
90
Leadership
91
Shareholder
Information
Neenah Paper, Inc. 2010 Annual Report
25
BUSINESS SUMMARY
In this report, unless the context requires otherwise, refer-
ences to “we,” “us,” “our,” “Neenah” or the “Company”
are intended to mean Neenah Paper, Inc. and its
consolidated subsidiaries.
OV E R V I E W
We are a leading producer of technical products and pre-
mium fine papers. We have two primary operations: our
technical products business and our fine paper business.
Our technical products business is a leading
international producer of transportation and other filter
media, durable, saturated and coated substrates for a
variety of end uses, and nonwoven wall coverings. Our
technical products business is organized into five global
strategic business units (“SBUs”) which sell into 17 prod-
uct 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
filter media, specialty tape, label, abrasive, medical packag-
ing, nonwoven wall coverings and image transfer technical
products markets. We are also a global supplier of mate-
rials used for customer-specific applications in furniture
and book covers. Our customers are located in more than
70 countries. Our technical products manufacturing facili-
ties are located in Munising, Michigan and near Munich and
Frankfurt, Germany.
Our fine 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, labels 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 pri-
marily to authorized paper distributors, converters and
specialty businesses. Our fine paper manufacturing facilities
are located in Appleton, Neenah and Whiting, Wisconsin.
P R O D U C T S
T E C H N I C A L P R O D U C T S . The technical products busi-
ness is a leading producer of filtration 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 $384 million, $318 million and
$397 million in 2010, 2009 and 2008, respectively. JET-
PRO®, SofStretch™, KIMDURA®, MUNISING LP®, PREVAIL™,
NEENAH®, Gessner® and varitess® are brands of our techni-
cal products business.
In general, the products of our technical prod-
ucts business are sold to other manufacturers as key com-
ponents for their finished products. The technical products
business is organized into five SBUs: Filtration; Tape;
Component Materials, Graphics and Identification; and
Wall Covering to sell its products into major market seg-
ments. Several of the key market segments served, including
tape and abrasives, are global in scope.
The Filtration SBU produces filtration media pri-
marily for induction air, fuel, oil, and cabin air applications in
automotive transportation. Transportation filtration media
are sold to suppliers of automotive companies as original
equipment on new cars and trucks as well as to the auto-
motive aftermarket. This business is primarily in Europe.
The Tape SBU produces both saturated and
unsaturated crepe and flat paper tapes and sells them
to manufacturers to produce finished pressure sensitive
products for sale in automotive, automotive aftermarket,
transportation, manufacturing, building construction, and
industrial general purpose applications.
The Component Materials SBU is a leading pro-
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 over wrap for products during the
manufacturing process and for applying signs, labeling
and other finished products. Medical packaging paper is a
polymer impregnated base sheet that provides a breathable
sterilization barrier. When sealed together with film, this
paper becomes a medical packaging material that allows
sterilization from steam, ethylene oxide, or gamma radia-
tion and at the same time provides unique barrier proper-
ties. The Component Materials SBU also produces a line of
release papers and furniture backers.
The Graphics and Identification 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
26
Neenah Paper, Inc. 2010 Annual Report
B U S I N E S S S U M M A R Y
for high quality variable and digital printing. The synthetic
label stock is recognized as a high quality, UV (ultra-violet)
stable product used for outdoor applications. The business
sells its label and tag stock to pressure sensitive coaters ,
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 Identification
SBU produces and applies a proprietary imaging coating to
its image transfer papers for use in digital printing applica-
tions. Image transfer papers are primarily sold through large
retail outlets and through master distributors. Decorative
components papers are made from light and medium
weight latex saturated papers which can then be coated for
printability. Decorative components papers are primarily
sold to coater converters, distributors, publishers and print-
ers for use in book covers, stationery and fancy packaging.
The Graphics and Identification 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 non wovens
and markets to converters serving primarily European com-
mercial and do-it-yourself markets.
F I N E PA P E R . The fine paper business manu-
factures and sells world-class branded premium writing,
text, cover and specialty papers used in corporate identity
packages, corporate annual reports, invitations, personal
stationery, labels and high-end packaging for point of pur-
chase advertising. Our fine paper business had net sales of
approximately $273 million, $256 million and $336 million in
2010, 2009 and 2008, respectively.
Premium writing papers are used for business
and personal stationery, corporate identity packages, enve-
lopes and similar end-use applications. Market leading writ-
ing papers are sold by the fine 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. Our fine paper
business has an exclusive agreement to manufacture, market
and distribute Crane & Co.’s CRANE’S CREST®, CRANE’S
BOND®, CRANE’S LETTRA®, CRANE’S PALETTE™ and
CRANE’S® Choice Papers branded fine papers. The fine
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 finishes 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 finishes, and duplex/laminated papers. The fine paper
business also produces and sells other specialty papers, includ-
ing translucent papers, art papers, papers for optical
scanning and other specialized applications, under the UV/
ULTRA® II translucent paper trademark and other brands.
M A R K E T S A N D C U S T O M E R S
T E C H N I C A L P R O D U C T S . The technical products business
relies on five SBUs to sell its products globally into 17 prod-
uct categories. Such categories, broadly defined as polymer
impregnated and synthetic paper, include papers used as
raw materials in the following applications: filtration, tape,
component materials for manufactured products, graphics
and identification, and wall covering.
Several products (filtration 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
office 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 film 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 five percent of the sales of the technical products busi-
ness are sold through industrial distributors.
The technical products business has over
500 customers worldwide. The distribution of sales in 2010
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
Neenah Paper, Inc. 2010 Annual Report
27
B U S I N E S S S U M M A R Y
and film into finished rolls and sheets by adding adhesives,
coatings and finishes. These transformed products are then
sold to end-users.
F I N E PA P E R . Premium writing, text and cover
papers represent approximately three percent of the
North American uncoated free sheet market. The uncoated
free sheet market has been declining two to four percent
annually due to the increasing use of electronic media for
communication. For 2010, the American Forestry and Paper
Associations (the “AF&PA”) reported a six percent year-
over-year industry decline in the premium text and cover
uncoated free sheet paper category. Lower industry volume
reflected a decline in consumption for a number of key end-
use market segments, including real estate, hospitality and
advertising. The stationery segment of the uncoated free
sheet market is divided into cotton and sulfite grades. The
text and cover paper segment of the market, used in cor-
porate identification applications, is split between smooth
papers and textured papers. Text papers have traditionally
been utilized for special, high-end collateral 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 cor-
porate annual reports.
The fine 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 per-
cent of revenue in the fine paper business. Approximately
six percent of the sales of our fine paper business are
exported to international distributors.
Sales to the fine paper business’s two largest
customers (both of which are distributors) represented
approximately 30 percent of its total sales in 2010. We prac-
tice 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 fur-
ther offset over a several month period with the addition of
new distributors.
C O N C E N T R AT I O N . For the years ended
December 31, 2010, 2009 and 2008, no customer accounted
for more than ten percent of our consolidated net sales.
The following tables present further informa-
tion about our businesses by geographic area (dollars
in millions):
Net sales
United States
Europe
Consolidated
Total Assets
United States
Canada
Europe
Total
Year Ended December 31,
2010
2009
2008
$413.6
244.1
$657.7
$360.9
213.0
$573.9
$467.3
265.0
$732.3
December 31,
2010
2009
2008
$308.9
0.1
297.7
$606.7
$330.0
5.4
301.2
$636.6
$371.8
3.3
314.9
$690.0
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
of Notes to Consolidated Financial Statements, “Business
Segment and Geographic Information,” for information with
respect to net sales, profits (losses) and total assets by busi-
ness segment.
28
Neenah Paper, Inc. 2010 Annual Report
SELECTED FINANCIAL DATA
The following table sets forth our selected historical financial
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 financial statements and the
notes to those consolidated financial statements included
elsewhere in this Annual Report. The statement of operations
data for the years ended December 31, 2010, 2009 and 2008
and the balance sheet data as of December 31, 2010 and
2009 set forth below are derived from our audited historical
consolidated financial statements included elsewhere in this
Annual Report. The balance sheet data as of December 31,
2008, 2007 and 2006 and the statement of operations data
for the years ended December 31, 2007 and 2006 set forth
below are derived from our historical consolidated financial
statements not included in this Annual Report.
During the preparation of the interim finan-
cial statements for the three and nine months ended
September 30, 2010, the Company identified a $2.8 million
overstatement of accounts payable that was primarily the
result of invalid inventory pricing adjustments beginning
in 2006 and certain inventory transactions in 2008. These
errors resulted in an overstatement of accounts payable and
cost of products sold of $0.4 million and $2.4 million for the
years ended December 31, 2006 and 2008, respectively.
The net effect of these corrections on the statement of
operations for the years ended December 31, 2008 and
2006 and on the consolidated balance sheet data as of
December 31, 2006, 2007, 2008 and 2009 is presented in
the following table. We believe the effects of these prior
period corrections are not material to any prior period
consolidated financial statements. See Note 1 of Notes
to Consolidated Financial Statements, “Background and
Basis of Presentation – Prior Year Adjustments.”
(Dollars in millions, except per share data)
2010
2009
2008
2007
2006
Year Ended December 31,
Consolidated Statement of Operations Data
Cost of products sold
Operating income
Income from continuing operations before income taxes
Provision for income taxes
Income from continuing operations
Net income
Earnings from continuing operations per basic share
Earnings from continuing operations per diluted share
(Dollars in millions)
Consolidated Balance Sheet Data
Working capital
Total assets
Total liabilities
Total stockholders’ equity
$ –
–
–
–
–
–
–
–
$ –
–
–
–
–
–
–
–
$ (2.4)
2.4
2.4
0.9
1.5
1.5
0.10
0.10
December 31,
$ –
–
–
–
–
–
–
–
$ (0.4)
0.4
0.4
–
0.4
0.4
0.02
0.02
2010
2009
2008
2007
2006
$ –
–
–
–
$ 2.8
(0.9)
(2.8)
1.9
$ 2.8
(0.9)
(2.8)
1.9
$ 0.4
–
(0.4)
0.4
$ 0.4
–
(0.4)
0.4
Neenah Paper, Inc. 2010 Annual Report
29
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)
2010
2009
2008
2007 (f)
2006 (g)
Year Ended December 31,
Consolidated Statement of Operations Data
Net sales
Cost of products sold
Gross profit
Selling, general and administrative expenses
Other income – net
Loss (gain) on closure and sale of the Ripon Mill (b)
Goodwill and other intangible asset impairment charge (c)
Operating income (loss)
Interest expense – net
Income (loss) from continuing operations before income taxes
Provision (benefit) for income taxes
Income (loss) from continuing operations
Income (loss) from discontinued operations, net of taxes (a) (d) (e) (j)
Net income (loss)
$657.7
537.7
120.0
69.3
(1.0)
(3.4)
–
55.1
20.3
34.8
9.8
25.0
134.1
$159.1
$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
630.8
101.5
75.2
(11.3)
–
54.5
(16.9)
25.0
(41.9)
3.9
(45.8)
(111.2)
$(157.0)
$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
305.0
100.0
54.4
(0.5)
–
–
46.1
16.9
29.2
9.4
19.8
43.1
$ 62.9
Earnings (loss) from continuing operations per basic share
$ 1.69
$ (0.12)
$ (3.14)
$ 2.15
$ 1.33
Earnings (loss) from continuing operations per diluted share
$ 1.61
$ (0.12)
$ (3.14)
$ 2.11
$ 1.33
Cash dividends per common share
$ 0.40
$ 0.40
$ 0.40
$ 0.40
$ 0.40
Other Financial Data
Net cash flow provided by (used for):
Operating activities
Capital expenditures
Other investing activities (a) (d) (f) (g)
Financing activities (f) (g)
Ratio of earnings to fixed charges (h) (i)
(Dollars in millions)
Consolidated Balance Sheet Data
Working capital
Total assets
Long-term debt
Total liabilities
Total stockholders’ equity (a)
(a) In March 2010, Neenah Canada sold approximately 475,000 acres of
woodland assets in Nova Scotia (the “Woodlands”) to Northern Pulp,
for C$82.5 million ($78.6 million). The sale resulted in a pre-tax gain,
net of fees and other transaction costs, of $74.1 million. The sale of
the Woodlands resulted in the substantially complete liquidation
of the Company’s investment in Neenah Canada. In accordance with
Accounting Standards Codification (“ASC”) Topic 830, Foreign Currency
Matters (“ASC Topic 830”), $87.9 million of cumulative currency transla-
tion adjustments attributable to the Company’s Canadian subsidiaries
have been reclassified into earnings and recognized as part of the gain
on sale of the Woodlands. The transaction did not generate a cash tax
liability because the tax basis for the Woodlands was approximately
equal to the sale price. See Note 5 of Notes to Consolidated Financial
Statements, “Discontinued Operations.”
30
Neenah Paper, Inc. 2010 Annual Report
$ 54.5
(17.4)
83.9
(78.3)
2.6x
$ 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
2010
2009
2008
2007 (f)
2006 (g)
December 31,
$129.9
606.7
231.3
447.5
159.2
$ 98.8
636.6
263.6
527.0
109.6
$147.1
689.1
340.5
584.1
105.0
$120.9
937.8
321.2
656.7
281.1
$ 93.3
742.5
282.3
559.4
183.1
(b) In October 2010, we sold the remaining assets of the Ripon Mill to
Diamond Pet Food Processors of Ripon, LLC (“Diamond”) for gross
proceeds of approximately $9 million. Pursuant to the terms of the
transaction, Diamond acquired all the assets and assumed responsibility
for substantially all the remaining liabilities associated with the Ripon
Mill. We recognized a pre-tax gain on the sale of $3.4 million in the
fourth quarter of 2010.
In May 2009, we permanently closed 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 car-
rying value of property, plant and equipment, a curtailment loss of
$0.8 million related to postretirement benefit plans in which employ-
ees of the Ripon Mill participated and cash payments for contract
terminations, severances and other employee costs of approximately
$10.5 million.
S E L E C T E D F I N A N C I A L D A T A
(1) In March 2010, Neenah Canada sold the Woodlands to Northern
Pulp for C$82.5 million ($78.6 million) resulting in a pre-tax gain
of $74.1 million. The substantially complete liquidation of the
Company’s investment in Neenah Canada resulted in the reclassifica-
tion of $87.9 million of cumulative currency translation adjustments
attributable to the Company’s Canadian subsidiaries in accordance
with ASC Topic 830. See Note 5 of Notes to Consolidated Financial
Statements, “Discontinued Operations.”
(2) During the first 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 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 the year ended December 31, 2008, we
recorded a pre-tax loss of $29.4 million to recognize the loss on dis-
posal of the Pictou Mill.
(3) In conjunction with the sale of the Pictou Mill, Northern Pulp
assumed responsibility for all pension and other postretirement
benefit obligations for active and retired employees of the mill.
We accounted for the transfer of the Nova Scotia, Canada, defined
benefit pension plan (the “Nova Scotia Plan”) to Northern Pulp as a
settlement of postretirement benefit obligations pursuant to ASC
Topic 715, Compensation – Retirement Benefits (“ASC Topic 715”).
For the year ended December 31, 2008, we recognized a non-cash,
pre-tax settlement loss of $53.7 million for the reclassification of
deferred pension and other postretirement benefit adjustments
related to the Nova Scotia Plan from accumulated other comprehen-
sive income to the loss on disposal of the Pictou Mill.
(4) In December 2007, the Ontario Plan was terminated and all out-
standing pension obligations for active employees were settled
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.
(5) In August 2006, Neenah Canada made a payment to the pension
trust of approximately $10.8 million for the purchase of annuity con-
tracts 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.
(6) 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 mil-
lion 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, 2007 and 2006, Neenah Canada recog-
nized $6.2 million and $2.9 million, respectively, of such deferred
gain in income.
(c) For the year ended December 31, 2008, we recognized a pre-tax loss of
$52.7 million (we did not recognize a tax benefit related to the non-tax-
deductible loss) to write off the excess of the carrying value of goodwill
assigned to Neenah Germany over the estimated 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 million for the impair-
ment of certain trade names and customer-based intangible assets
acquired in the Neenah Germany acquisition.
(d) In February 2008, we committed to a plan to sell our pulp mill in Pictou,
Nova Scotia (the “Pictou Mill”) and the Woodlands. In June 2008,
Neenah Canada sold the Pictou Mill to Northern Pulp. Neenah Canada
made a payment of approximately $10.3 million to Northern Pulp in
connection with the sale of the Pictou Mill. In addition, we paid approxi-
mately $3.3 million of transaction costs. In August 2006, we transferred
our Terrace Bay mill and related woodlands operations to Buchanan in
exchange for a payment of approximately $18.6 million.
(e) For the years ended December 31, 2010, 2009 and 2008, the results of
operations of the Pictou Mill and the Woodlands and the loss on dis-
posal 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
reflect 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.
(f) In March 2007, we acquired the stock of Fox Valley Corporation and
its subsidiary, Fox River, for approximately $54.7 million in cash. We
financed 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 financial results since the acquisition date.
(g) In October 2006, we purchased the outstanding interests of
Neenah Germany from FiberMark, Inc. and FiberMark International
Holdings LLC for approximately $220.1 million in cash. We financed the
acquisition 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 financial results since the acquisition
date.
(h) For purposes of determining the ratio of earnings to fixed charges,
earnings consist of income before income taxes (less interest) plus fixed
charges. Fixed charges consist of interest expense, including amor-
tization of debt issuance costs, and the estimated interest portion of
rental expense.
For the years ended December 31, 2009 and 2008, fixed charges
exceeded earnings by $6.8 million and $41.9 million, respectively.
The following table presents the results of discontinued operations:
(i)
(j)
(Dollars in millions)
2010
2009
2008
2007
2006
Year Ended December 31,
Discontinued operations:
Income (loss)
from operations (2)(4)(5)(6) $ 1.0
$ 2.8 $ (97.8) $(31.6) $ 76.3
Gain on disposal of
the Woodlands (1)
Reclassification of cumulative
translation adjustments
related to investments
in Canada (1)
Loss on disposal –
Terrace Bay Mill
Loss on disposal –
Pictou Mill (2)
74.1
87.9
–
–
–
–
–
–
–
–
(0.3)
(29.4)
Loss on settlement of
post-employment
benefit plans (3)
Gain (loss) on disposal
Income (loss) before
income taxes
(Provision) benefit for
income taxes
–
162.0
–
(0.3)
(53.7)
(83.1)
163.0
2.5
(180.9)
(31.6)
69.8
(28.9)
(1.9)
69.7
9.6
(26.7)
–
–
–
–
–
–
–
–
(6.5)
–
–
(6.5)
Income (loss) from discontinued
operations, net of taxes
$134.1
$ 0.6 $(111.2) $(22.0) $ 43.1
Neenah Paper, Inc. 2010 Annual Report
31
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, 2010, 2009 and 2008.
Also discussed is our financial position as of the end of those
periods. You should read this discussion in conjunction
with our consolidated financial statements and the notes to
those consolidated financial 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.
I N T R O D U C T I O N
This Management’s Discussion and Analysis of Financial
Condition is intended to provide investors with an under-
standing of the historical performance of our business, its
financial 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 E R V I E W O F B U S I N E S S
We are a leading producer of technical products and pre-
mium fine papers. We have two primary operations: our
technical products business and our fine paper business.
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 manag-
ing 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.
• M A R K E T L E A D E R S H I P. Achieving and maintaining mar-
ket leadership through strong brands, product quality
and performance, innovation and supply chain manage-
ment is an important factor in our results. Our fine paper
business, with its well-known brands, has long been
recognized as a leading manufacturer of world-class pre-
mium writing, text and cover papers used in corporate
identity packages, corporate annual reports, invitations,
personal stationery, labels and high-end packaging.
Our technical products business is also recognized as a
leading international supplier in the tape, filtration, com-
ponent materials, graphics and identification and wall
covering markets with products that meet unique and
exacting customer requirements.
• C O M P E T I T I V E E N V I R O N M E N T. Our past results
have been and our future prospects will be significantly
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 diversified. Our businesses also face
competitive pressures from lower value products.
• E C O N O M I C C O N D I T I O N A N D I N P U T C O S T S . The
markets for all of our products are affected to a signifi-
cant degree by economic conditions, including fluctua-
tions in exchange rates, particularly for the Euro. Rapid
changes in input costs, particularly for pulp, latex and
natural gas, also affect our results.
B U S I N E S S S E G M E N T S
Our technical products business is a leading international
producer of transportation and other filter media; durable,
saturated and coated base papers for a variety of end uses
and nonwoven wall coverings. We sell our technical prod-
ucts globally in 17 product categories through five 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 filtration media, nonwo-
ven wall coverings, medical packaging and image transfer
technical products markets. We are also a global supplier
of materials used for customer-specific applications in fur-
niture and book covers. Our customers are located in more
than 70 countries. Our technical products manufacturing
facilities are located in Munising, Michigan and near Munich
and Frankfurt, Germany.
Our fine 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, labels and high-end pack-
aging. 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 distribu-
tors, converters and specialty businesses, with sales to
32
Neenah Paper, Inc. 2010 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 LY S I S
distributors and distributor-owned paper stores accounting
for more than two-thirds of sales. We believe that our fine
paper manufacturing facilities located in Appleton, Neenah
and Whiting, Wisconsin are among the most efficient in
their markets and make us one of the lowest cost producers
in the product categories in which we compete.
R E S U LT S O F O P E R AT I O N S A N D
R E L AT E D I N F O R M AT I O N
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.
E X E C U T I V E S U M M A R Y
Results of operations for the year ended December 31,
2010 showed substantial improvement from the depressed
amounts reported in the prior year due to increased
volume. Results for the year ended December 31, 2009
reflected sharply reduced market demand due to severe
global economic weakness, particularly in the first half of
2009. In addition, higher selling prices and the benefits of
cost reduction initiatives implemented in 2009 and 2010
allowed us to partially offset the impact of higher manu-
facturing input costs.
In March 2010, Neenah Canada sold the Woodlands
to Northern Pulp for C$82.5 million ($78.6 million). The sale of
the Woodlands completed our transformation from an inte-
grated pulp and paper company into a technical products
and premium fine paper company. Proceeds from the sale
were used to repay in full $40 million of outstanding term
loan borrowings and repay approximately $26 million in
outstanding revolving credit borrowings which reduced the
balance of outstanding revolving credit borrowings to zero.
R E S U LT 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, 2010, consolidated net
sales increased approximately $84 million from the prior
year to $657.7 million primarily due to substantially higher
shipments in both paper businesses which benefited from
improved market conditions higher selling prices, the suc-
cessful execution of strategic initiatives and by our direct
customers replenishing the supply chain. For the year
ended December 31, 2010, average net selling prices were
$25.9 million higher than the prior year period due to an
approximately three percent increase in average selling
prices and a more favorable sales mix in our Technical
Products business. These favorable variances were partially
offset by an $11.7 million decrease in sales in 2010 due
to a weakening of exchange rates for the Euro versus the
U.S. dollar.
Consolidated operating income of $55.1 million
for the year ended December 31, 2010 more than tripled
from the prior year. Consolidated operating income for the
years ended December 31, 2010 and 2009 include gains
(losses) related to the closure of the Ripon Mill of $3.4 mil-
lion and $(17.1) million, respectively. Excluding these items,
consolidated operating income increased $18.2 million or
54 percent primarily due to increased volume, including the
benefit of improved paper machine utilization, and continu-
ing benefits from initiatives implemented in 2009 to reduce
spending, which more than offset the effect of higher man-
ufacturing input costs. For the year ended December 31,
2010, consolidated operating margins, excluding items
related to the closure and sale of the Ripon Mill, of 7.9 per-
cent increased more than two percentage points from the
prior year.
R E S U LT 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
The sale of the Woodlands resulted in a pre-tax gain, net of
fees and other transaction costs, of $74.1 million. The sale
of the Woodlands resulted in the substantially complete
liquidation of our investment in Neenah Canada. In accor-
dance with ASC Topic 830, $87.9 million of cumulative cur-
rency translation adjustments attributable to our Canadian
subsidiaries were reclassified into earnings and recognized
as part of the gain on sale of the Woodlands. The sale did
not generate a cash tax liability because the tax basis for
the Woodlands was approximately equal to the sale price.
In addition, there were no tax consequences related to the
repatriation of funds from the sale of the Woodlands.
For the year ended December 31, 2010, timber
sales to Northern Pulp pursuant to a stumpage agreement
resulted in net sales from discontinued operations of $1.4 mil-
lion compared to net sales of $3.7 million in the prior year.
For the year ended December 31, 2010, pre-tax income from
discontinued operations, excluding the gain on sale of the
Woodlands, was $1.0 million compared to earnings from dis-
continued operations of $2.8 million in the prior year.
Neenah Paper, Inc. 2010 Annual Report
33
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 LY S I S
A N A LY S I S O F N E T S A L E S – Y E A R S E N D E D
The following table presents our net sales by seg-
ment for the periods indicated:
D E C E M B E R 3 1 , 2 0 1 0 , 2 0 0 9 A N D 2 0 0 8
The following table presents net sales by segment,
expressed as a percentage of total net sales before inter-
segment eliminations:
Year Ended December 31,
2010
2009
2008
58%
42%
100%
55%
45%
100%
54%
46%
100%
Net sales
Technical Products
Fine Paper
Consolidated
Year Ended December 31,
2010
2009
2008
$384.3
273.4
$657.7
$318.3
255.6
$573.9
$396.8
335.5
$732.3
Technical Products
Fine Paper
Total
C O M M E N T A R Y :
Y E A R 2 0 1 0 V E R S U S 2 0 0 9
Technical Products
Fine Paper
Consolidated
Year Ended
December 31,
2010
2009
$384.3
273.4
$657.7
$318.3
255.6
$573.9
Change in Net Sales Compared to the Prior Year
Change Due To
Total
Change
$66.0
17.8
$83.8
Volume
$57.7
11.9
$69.6
Average
Net Price
$20.0
5.9
$25.9
Currency
$(11.7)
–
$(11.7)
Consolidated net sales of $657.7 million for the
year ended December 31, 2010 were $83.8 million higher
than the prior year primarily due to increased volume in both
segments which benefited from improved market condi-
tions and our direct customers replenishing the supply chain.
For the year ended December 31, 2010, average net selling
prices were $25.9 million higher than the prior year period
due to an approximately three percent increase in average
selling prices and a more favorable sales mix in our technical
products business.
• Net sales in our technical products business of $384.3 mil-
lion increased $66.0 million or 21 percent primarily due
to an 18 percent increase in shipments. Higher sales
volume reflected strong growth in transportation filter
media, abrasive backing, wall covering and tape ship-
ments. Average net selling prices increased due to a more
favorable product mix and a two percent improvement
in average selling prices. These favorable variances were
partially offset by an $11.7 million decrease in sales due
to a weakening of exchange rates for the Euro versus the
U.S. dollar.
• Net sales in our fine paper business of $273.4 million
increased $17.8 million or seven percent due to a five per-
cent increase in shipments and higher average net sell-
ing prices. The improved sales volume reflected higher
shipments of both premium and value specialty papers,
as well as non-branded products. In addition, we benefit-
ted from increased export sales to markets outside North
America and strong growth in label, packaging and enve-
lope shipments, which in the aggregate grew by more
than 20 percent in 2010. We believe that we were able to
improve our market share position based on the AF&PA
report of a six percent year-over-year industry decline in
the premium writing, text and cover uncoated free sheet
paper category. Average selling prices were approxi-
mately four percent higher than the prior year primarily as
a result of pricing actions implemented in the second half
of 2009 and throughout 2010 for both branded and non-
branded products. Higher average selling prices were par-
tially offset by a less favorable sales mix which reflected
higher growth rates for lower-priced products relative to
our branded products.
34
Neenah Paper, Inc. 2010 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 LY S I S
Y E A R 2 0 0 9 V E R S U S 2 0 0 8
Technical Products
Fine Paper
Consolidated
Year Ended
December 31,
Change in Net Sales Compared to the Prior Year
Change Due To
2009
2008
$318.3
255.6
$573.9
$396.8
335.5
$732.3
Total
Change
$ (78.5)
(79.9)
$(158.4)
Volume
$ (64.5)
(84.4)
$(148.9)
Average
Net Price
$(3.0)
4.5
$ 1.5
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 reflected unfavorable currency translation effects
due to the weakening of the Euro versus the U.S. dollar.
• Net sales in our technical products business of
$318.3 million decreased $78.5 million, or 20 percent,
primarily due to a 16 percent decrease in shipments.
Lower sales volume reflected decreased demand in most
markets due to weaker economic conditions and inven-
tory destocking by our direct customers, particularly in
the first half of 2009. Sales were also lower as a result of
unfavorable currency translation effects due to average
Euro/U.S. dollar exchange rates that were five 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 in the
Tape and Wall Cover SBUs, which were influenced by
currency factors for export prices and additional market
capacity, respectively.
Net sales in our fine 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 reflected a
sharp decline in consumption for a number of key end-use
market segments, including advertising, financial institu-
tions and the transportation and real estate segments.
Market demand began to decline in late 2008 and con-
tinued throughout 2009. The increase in average net price
reflected the realization of price increases on branded
•
and non-branded products that were implemented in
2008. Price increases of approximately three percent on
branded products announced late in 2009 did not mean-
ingfully impact results until 2010.
A N A LY 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 1 0 , 2 0 0 9 A N D 2 0 0 8
The following table sets forth line items from our consoli-
dated statements of operations as a percentage of net sales
for the periods indicated and is intended to provide a per-
spective of trends in our historical results:
Net sales
Cost of products sold
Gross profit
Selling, general and
administrative expenses
Other income – net
Loss (gain) on closure and
sale of the Ripon Mill
Goodwill and other intangible
asset impairment charge
Operating income (loss)
Interest expense – net
Income (loss) from continuing
operations before
income taxes
Provision (benefit) for
income taxes
Income (loss) from
Year Ended December 31,
2010
2009
2008
100.0%
81.8
18.2
100.0%
82.3
17.7
100.0%
86.1
13.9
10.5
(0.2)
(0.5)
–
8.4
3.1
5.3
1.5
12.1
(0.2)
3.0
–
2.8
4.0
10.3
(1.5)
–
7.4
(2.3)
3.4
(1.2)
(5.7)
(0.9)
0.6
continuing operations
3.8%
(0.3)%
(6.3)%
Neenah Paper, Inc. 2010 Annual Report
35
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 LY S I S
The following table sets forth our operating
In accordance with Generally Accepted
income (loss) by segment for the periods indicated:
Operating income (loss)
Technical Products
Fine Paper
Unallocated corporate costs
Consolidated operating
Year Ended December 31,
2010
2009
2008
$ 29.2
40.5
(14.6)
$ 14.4
17.5
(15.5)
$(41.7)
35.8
(11.0)
income (loss) as reported
55.1
16.4
(16.9)
Adjustments for Unusual Items
Fine Paper adjustments
Loss (gain) on closure and
sale of the Ripon Mill
Gain on sale of
Fox River assets
Total
Technical Products adjustment
Goodwill impairment charge
Unallocated corporate
costs adjustment
Settlement of Terrace Bay
retiree litigation
Total Adjustments
Consolidated operating
(3.4)
17.1
–
(3.4)
–
17.1
–
(6.3)
(6.3)
–
–
54.5
–
(3.4)
–
17.1
(4.3)
43.9
income as adjusted
$ 51.7
$ 33.5
$ 27.0
Accounting Principles in the United States (“GAAP”),
consolidated operating income (loss) includes the pre-
tax effects of unusual items. We believe that by adjusting
reported operating income (loss) to exclude the effects of
these items, the resulting adjusted operating income is on a
basis that reflects the results of our ongoing operations. We
believe that investors gain additional perspective of under-
lying business trends and results by providing a measure of
operating results that excludes 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
accordance with GAAP. Other companies may use differ-
ent methodologies for calculating their non-GAAP financial
measures and, accordingly, our non-GAAP financial mea-
sures may not be comparable to their measures.
C O M M E N T A R Y :
Y E A R 2 0 1 0 V E R S U S 2 0 0 9
Technical Products
Fine Paper(c)
Unallocated corporate costs
Consolidated
Year Ended
December 31,
2010
2009
$ 29.2
40.5
(14.6)
$ 55.1
$ 14.4
17.5
(15.5)
$ 16.4
Total
Change
$14.8
23.0
0.9
$38.7
Change in Operating Income Compared to the Prior Year
Change Due To
Material
Volume
Net Price(a)
Costs(b)
Currency
Other(c)
$24.1
5.4
–
$29.5
$13.1
4.0
–
$17.1
$(20.2)
(12.7)
–
$(32.9)
$(0.2)
–
–
$(0.2)
$ (2.0)
26.3
0.9
$25.2
(a) Includes price changes, net of changes in product mix.
(b) Includes price changes for raw materials and energy.
(c) For the year ended December 31, 2010 and 2009, results for the Fine Paper segment include gains (losses) of $3.4 million and $(17.1) million, respectively,
related to the closure and sale of the Ripon Mill.
Consolidated operating income of $55.1 mil-
lion for the year ended December 31, 2010 increased
$38.7 million compared to the prior year. Operating results
for the years ended December 31, 2010 and 2009 include
gains (losses) of $3.4 million and $(17.1) million, respec-
tively, related to the closure of the Ripon Mill in May 2009.
Excluding these items, consolidated operating income for
the year ended December 31, 2010 increased $18.2 mil-
lion from the prior year due to favorable volume (including
the benefit of improved paper machine utilization), higher
selling prices and the benefits of actions taken across all
businesses to reduce costs and control spending. These
favorable factors were only partially offset by higher manu-
facturing input costs, particularly for pulp and latex.
36
Neenah Paper, Inc. 2010 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 LY S I S
• Operating income for our technical products business
of $29.2 million increased $14.8 million compared to the
prior year due to favorable volume (including the benefit
of improved paper machine utilization) and higher sell-
ing prices. These favorable factors were partially offset
by higher manufacturing input costs, principally for pulp
and latex volume. For the year ended December 31, 2010,
operating margins in our Technical Products segment of
7.6 percent increased more than three percentage points
from the prior year.
• Operating income for our fine paper business of
$40.5 million increased $23.0 million from the prior
year period. Operating results for the years ended
December 31, 2010 and 2009 include gains (losses) of
$3.4 million and $(17.1) million, respectively, related
to the closure of the Ripon Mill in May 2009. Excluding
these items, operating income increased $2.5 million
from the prior year primarily due to higher selling prices,
favorable volume and a more efficient cost structure fol-
lowing cost reduction initiatives implemented in 2009
and 2010. These favorable variances more than offset
approximately $12.7 million in higher manufacturing
input costs, including for hardwood pulp; and a less
favorable product mix due to faster growth rates for
relatively lower priced products. For the year ended
December 31, 2010, operating margins in our Fine
Paper segment, excluding unusual items, of approxi-
mately 13.6 percent were essentially unchanged from
the prior year.
• Unallocated corporate expenses decreased $0.9 million
compared to the prior year due to the benefits of cost
control initiatives implemented in 2009.
Y E A R 2 0 0 9 V E R S U S 2 0 0 8
Technical Products(e)
Fine Paper(d)
Unallocated corporate costs(f)
Consolidated
Year Ended
December 31,
2009
2008
$ 14.4
17.5
(15.5)
$ 16.4
$(41.7)
35.8
(11.0)
$(16.9)
Total
Change
$ 56.1
(18.3)
(4.5)
$ 33.3
Change in Operating Income (Loss) Compared to the Prior Year
Change Due To
Material
Volume
Net Price(a)
Costs(b)
Currency
Other(c)
$(23.2)
(23.4)
–
$(46.6)
$(6.3)
5.4
–
$(0.9)
$12.6
13.3
–
$25.9
$(0.1)
–
–
$(0.1)
$ 73.1
(13.6)
(4.5)
$ 55.0
(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 for the Fine Paper segment 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 charge of $54.5 million.
(f) For the year ended December 31, 2008, unallocated corporate costs include a gain of $4.3 million for a settlement of certain benefits earned by Terrace
Bay retirees.
Consolidated operating income of $16.4 million
for the year ended December 31, 2009 increased $33.3 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 benefits. Excluding such items, consoli-
dated operating income for the year ended December 31,
2009 increased $6.5 million from the prior year due to
actions taken across all businesses to reduce costs and con-
trol spending and from lower manufacturing input costs,
particularly for pulp and latex. These favorable factors were
partially offset by lower volume and reductions in paper
machine operating schedules.
• Operating income for our technical products business
of $14.4 million increased $56.1 million compared to
the prior year. Excluding the asset impairment charge,
operating income for our technical products business
increased $1.6 million from the prior year primarily due
to lower spending resulting from the implementation
of cost reduction initiatives and from lower manufac-
turing 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.
Neenah Paper, Inc. 2010 Annual Report
37
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 LY S I S
• Operating income for our fine paper business of
• In general, our effective tax rate differs from the
U.S. statutory tax rate of 35 percent primarily due to
the benefits of our corporate tax structure and the pro-
portion 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, 2010, we recorded an
income tax provision related to continuing operations
of $9.8 million which resulted in an effective income tax
rate of approximately 28 percent. For the year ended
December 31, 2009, we recorded an income tax benefit
related to continuing operations of $5.0 million which
resulted in an effective income tax (benefit) rate of
approximately (74) percent. Our effective tax benefit
rate for the year ended December 31, 2009 was signifi-
cantly affected by the proportion of earnings generated
in tax jurisdictions with tax rates that differ from the
35 percent statutory tax rate in the United States, the
effects of accruals for uncertain tax positions and the
level of pretax losses. For the year ended December 31,
2008, we recorded an income tax provision related to
continuing operations of $3.9 million which resulted in an
effective income tax rate of approximately nine percent.
Our effective tax rate for the year ended December 31,
2008 was significantly affected by the non tax deduct-
ible nature of the goodwill impairment charge and
an increase in the limitation on available tax benefits
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. For a
reconciliation of effective tax provision (benefit) rate to
the U.S. federal statutory provision (benefit) tax rate, see
Note 6 of Notes to Consolidated Financial Statements,
“Income Taxes.”
L I Q U I D I T Y A N D C A P I TA L R E S O U R C E S
Net cash flow provided
by (used in):
Operating activities
Investing activities
Capital expenditures
Proceeds from asset sales
Other investing activities
Total
Year Ended December 31,
2010
2009
2008
$ 54.5
$ 64.9
$ 13.1
(17.4)
86.7
(2.8)
66.5
(8.4)
0.8
(0.7)
(8.3)
(30.0)
0.2
(0.6)
(30.4)
Financing activities
(78.3)
(54.2)
18.2
$17.5 million decreased $18.3 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 fine paper business increased $5.1 million primar-
ily due to lower manufacturing input costs, principally
for hardwood pulp, lower operating and administrative
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.
• 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 benefits we
retained following the sale of our Terrace Bay pulp mill.
Excluding this gain, unallocated corporate expenses
were essentially unchanged from the prior year.
A D D I T I O N A L S TAT E M E N T O F O P E R AT I O N S C O M M E N TA R Y:
• Selling, general and administrative (“SG&A”) expense of
$69.3 million for the year ended December 31, 2010 was
essentially unchanged from the prior year. For the year
ended December 31, 2010, SG&A expense as a percent-
age of net sales was approximately 10.5 percent and
was 1.6 percentage points lower than the prior year. For
the year ended December 31, 2009, SG&A expense of
$69.1 million was $6.1 million lower than the prior year
primarily due to cost control initiatives implemented
in 2009.
• For the years ended December 31, 2010, 2009 and 2008,
we incurred $20.5 million, $23.4 million and $25.0 mil-
lion, respectively, of interest expense. The decrease
in interest expense for 2010 as compared to 2009 was
primarily due to lower average debt levels in 2010 as a
result of the repayment of all term loan and U.S. revolv-
ing credit borrowings with proceeds from the sale of the
Woodlands. The decrease in interest expense for 2009
as compared to 2008 was due to lower average borrow-
ings and lower average interest rates. In addition, during
the fourth quarter of 2009, we recognized additional
interest expense of approximately $1.4 million for costs
incurred in conjunction with amending and restating
our bank credit agreement and to write-off deferred
financing costs associated with our previous bank
credit agreement.
38
Neenah Paper, Inc. 2010 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 LY S I S
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 $54.5 million for
the year ended December 31, 2010 was $10.4 million less
than cash provided by operating activities of $64.9 mil-
lion in the prior year. Cash provided by operations in the
prior year reflected a $27.4 million decrease in our invest-
ment in working capital, including the receipt of a refund
of U.S. income taxes of approximately $10.9 million. For
the year ended December 31, 2010, our investment in
working capital increased $3.9 million. Excluding work-
ing capital changes, cash provided by operations for
the current year increased $20.9 million from the prior
year primarily due to higher operating earnings in the
current year.
• 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 reflected a $27.4 million decrease in our
investment in working capital, including a refund of U.S.
income taxes. For the year ended December 31, 2008,
our investments in working capital increased $22.6 mil-
lion. Excluding working capital changes, cash provided
by operations for 2009 increased $1.8 million from the
prior year.
• As of December 31, 2010, we had approximately
$96.7 million of U.S. Federal and $95.4 million of
U.S. State NOLs that may be carried forward to offset
future taxable income through 2030.
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, 2010, cash provided by
investing activities was $66.5 million, compared to cash
used by investing activities of $8.3 million in the prior year.
Cash provided by investing activities for the year ended
December 31, 2010 includes net proceeds from the sale
of the Woodlands and the Ripon Mill of $78.0 million and
$8.7 million, respectively.
• Capital expenditures for the year ended December 31,
2010 were $17.4 million compared to spending of
$8.4 million in the prior year. We have aggregate planned
capital expenditures for 2011 of approximately $20 mil-
lion to $25 million. We believe that the level of our
capital spending for 2011 will allow us to expand capa-
bilities to successfully pursue strategic initiatives and
to maintain the efficiency and cost effectiveness of our
manufacturing assets.
• For the year ended December 31, 2010, we invested
$3.5 million in long-term marketable securities.
• 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
in capital spending of $21.6 million.
• 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 con-
nection with the transfer of the Pictou Mill. In addition,
we paid approximately $3.3 million in transaction costs.
Such payments were more than offset by proceeds from
asset sales of $13.8 million, primarily from the sale of
certain Fox River assets.
F I N A N C I N G C O M M E N T A R Y :
Our liquidity requirements are provided by cash generated
from operations and short- and long-term borrowings.
We used the net proceeds of $78.0 million from the sale of
the Woodlands to extinguish our senior secured term loan
(the “Term Loan”) by repaying in full $40 million of out-
standing Term Loan borrowings and repaying approxi-
mately $26 million in outstanding revolving credit
borrowings which reduced the balance of outstanding
revolving credit borrowings to zero. In addition, we made
$3.1 million in contract termination payments related to
the closure of the Ripon Mill that became due and payable
upon the sale of the Woodlands.
• For the year ended December 31, 2010, cash and
equivalents increased $42.7 million from $5.6 mil-
lion at December 31, 2009 to $48.3 million at
December 31, 2010.
• For the year ended December 31, 2010, debt decreased
$74.3 million from $319.2 million at December 31, 2009
to $244.9 million at December 31, 2010.
• Availability under our revolving credit facility varies over
time depending on the value of our inventory, receiv-
ables and various capital assets. As of December 31,
2010, no amounts were outstanding under our revolving
credit agreement and we had $81.5 million of borrowing
availability. In addition, we have €6.0 million ($8.0 million,
based on exchange rates at December 31, 2010) of avail-
able credit under our German revolving line of credit.
In November 2010, Neenah Germany renewed the
German revolving line of credit on an “evergreen” basis.
Subsequent to November 2011, the agreement may be
terminated by either the Company or HypoVereinsbank
upon giving proper notice.
Neenah Paper, Inc. 2010 Annual Report
39
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 LY S I S
• We paid aggregate annual cash dividends of $0.40 per
share or approximately $5.9 million, $5.9 million and
$6.0 million for the years ended December 31, 2010,
2009 and 2008, respectively. In November 2010, we
announced a ten percent increase in the annual cash
dividend to $0.44 per share. Dividends will be paid
in four equal quarterly installments effective with the
March 2011 dividend payment.
• For the year ended December 31, 2010, we purchased
$2 million principal amount of our Senior Notes at slightly
less than par value. From time to time we may purchase
additional Senior Notes.
In February 2011, we elected to conduct an early
redemption on March 10, 2011 (the “Partial Redemption”)
of $65 million in aggregate principal amount of our
Senior Notes. There are $223 million of Senior Notes out-
standing with a call premium of 2.458% as of the date of the
Partial Redemption. The Partial Redemption is expected
to be financed by approximately $40 million of cash on
hand, with the remainder to be provided by borrowings
under our existing revolving credit facility. Following the
Partial Redemption, $158 million in Senior Notes will be
outstanding and interest expense on the Senior Notes will
be reduced by approximately $5 million per year. Following
the Partial Redemption, we expect to continue to have
adequate liquidity to satisfy our cash needs.
• We have required debt payments through December 31,
2011 of $13.6 million. Such payments include required
amortization payments on our German Loan Agreement
of approximately $1.7 million and $11.9 million on our
German Line of Credit which was extended for an addi-
tional 12 months in November 2010. As a result of the
Partial Redemption, debt payments for the year ending
December 31, 2011 will be $78.6 million.
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 2011 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.
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 flows are fixed or determinable as of December 31, 2010:
(In millions)
Long-term debt payments (a)
Interest payments on long-term debt (a)(b)
Open purchase orders (c)
Other post-employment benefit obligations (d)
Contributions to pension trusts
Liability for uncertain tax positions
Operating leases
Minimum purchase commitments (e)
Total contractual obligations
2011
$ 13.6
17.3
59.2
2.9
3.3
8.6
1.4
4.8
$111.1
2012
$ 1.7
16.7
–
2.3
3.3
–
0.9
1.6
$26.5
2013
$ 1.6
16.7
–
2.6
3.4
–
0.8
0.1
$25.2
2014
$224.7
15.9
–
2.9
3.3
–
0.6
–
$247.4
2015
$1.7
0.1
–
3.0
–
–
0.5
–
$5.3
Beyond
2015
$ 1.6
–
–
18.1
–
–
0.7
–
$20.4
Total
$244.9
66.7
59.2
31.8
13.3
8.6
4.9
6.5
$435.9
(a) In February 2011, we elected to conduct a Partial Redemption of $65 million in aggregate principal amount of our Senior Notes. The Partial Redemption
is expected to be financed by approximately $40 million of cash on hand, with the remainder to be provided by borrowings under our existing revolving
credit facility. Following the Partial Redemption, $158 million in Senior Notes will be outstanding and required debt payments of approximately $159.7 mil-
lion during the year ending December 31, 2014.
(b) Interest payments on long-term debt include interest on variable-rate debt at December 31, 2010 weighted-average interest rates.
(c) 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.
(d) The above table includes future payments that we will make for postretirement benefits other than pensions. Those amounts are estimated using actuarial
assumptions, including expected future service, to project the future obligations.
(e) The minimum purchase commitments in 2011 are primarily for natural gas contracts. Although we are primarily liable for payments on the above operat-
ing leases and minimum purchase commitments, based on historic operating performance and forecasted future cash flows, we believe our exposure to
losses, if any, under these arrangements is not material.
40
Neenah Paper, Inc. 2010 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 LY S I S
A D O P T I O N O F N E W
AC C O U N T I N G P R O N O U N C E M E N T S
For the year ended December 31, 2010, we did not adopt
any amendments to the ASC that had a material effect on
our financial position, results of operations, cash flows or
financial statement disclosures.
C R I T I C A L AC C O U N T I N G P O L I C I E S A N D
U S E O F E S T I M AT E S
The preparation of financial statements in conformity with
Generally Accepted Accounting Principles (“GAAP”) in
the United States requires estimates and assumptions
that affect the reported amounts and related disclosures
of assets and liabilities at the date of the financial state-
ments 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 financial statements are those that are
important both to the presentation of financial condition
and results of operations and require significant judgments
with regard to estimates used. These critical judgments
relate to the reported amounts of assets and liabilities, dis-
closure of contingent assets and liabilities, and the reported
amounts of expenses.
The following summary provides further infor-
mation about the critical accounting policies and should
be read in conjunction with the notes to the Consolidated
Financial Statements. We believe that the consistent appli-
cation of our policies provides readers of our financial
statements with useful and reliable information about our
operating results and financial condition.
We have discussed the application of these criti-
cal accounting policies with our Board of Directors and
Audit Committee.
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 financial 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 $57.0 million and $58.2 mil-
lion at December 31, 2010 and 2009, respectively and
exceeded such LIFO value by $12.3 million and $8.7 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, 2010, we have recorded aggregate
deferred income tax assets of $64.3 million related to
temporary differences, net operating losses and credits.
We have established a valuation allowance of $1.7 million
against certain state deferred income tax assets in states
where we no longer have operations. As of December 31,
2009, our aggregate deferred income tax assets were
$99.7 million and had a valuation allowance against such
deferred income tax assets of $1.5 million. In determining
the need for valuation allowances, we consider many fac-
tors, including specific taxing jurisdictions, sources of tax-
able 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, 2010 and 2009, our liability
for uncertain income taxes positions was $8.6 million and
$10.5 million, respectively. In evaluating and estimating tax
positions and tax benefits, 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 defined benefit pension plans and/or
defined contribution retirement plans. Neenah Germany
has defined benefit plans designed to provide a monthly
pension benefit upon retirement to substantially all of its
employees in Germany. In addition, we maintain a supple-
mental retirement contribution plan (the “SERP”) which is
a non-qualified defined benefit plan. We provide benefits
under the SERP to the extent necessary to fulfill the intent
of its defined benefit retirement plans without regard to the
limitations set by the IRS on qualified defined benefit plans.
Our funding policy for qualified defined benefit
plans is to contribute assets to fully fund the accumulated
benefit obligation, as required by the Pension Protection
Act of 2006. Subject to regulatory and tax deductibil-
ity limits, any funding shortfall is to be eliminated over a
Neenah Paper, Inc. 2010 Annual Report
41
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 LY S I S
reasonable number of years. Nonqualified plans providing
pension benefits in excess of limitations imposed by the tax-
ing authorities are not funded. There is no legal or govern-
mental obligation to fund Neenah Germany’s benefit plans
and, as such, the plans are currently unfunded.
factors, including reduced pension liabilities arising from
higher discount rates used to calculate our pension obliga-
tions or (iii) other actuarial gains, including whether such
accumulated actuarial losses at each measurement date
exceed the “corridor” determined under ASC Topic 715.
Consolidated pension expense for defined
benefit pension plans was $6.3 million, $9.2 million and
$7.8 million for the years ended December 31, 2010, 2009
and 2008, respectively. The weighted-average expected
long-term rate of return on pension fund assets used to
calculate pension expense was 8.00 percent, 7.92 percent
and 8.02 percent for the years ended December 31, 2010,
2009 and 2008, respectively. 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 consultants and projected long-
term returns of broad equity and bond indices. We also
considered the plans’ historical ten-year and 15-year com-
pounded 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 eight percent.
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 ten percent, and 40 percent
with fixed income managers, with an expected long-term
rate of return of about six percent. The actual asset alloca-
tion is regularly reviewed and periodically rebalanced to the
targeted allocation when considered appropriate. We eval-
uate our investment strategy and long-term rate of return
on pension 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 pension 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, 2010, our pension
plans had cumulative unrecognized investment losses
and other actuarial losses of approximately $33.3 million.
These unrecognized net losses may increase our future pen-
sion expense if not offset by (i) actual investment returns
that exceed the assumed investment returns, (ii) other
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 benefit 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 benefit
payments. The weighted-average discount rate utilized
to determine the present value of future pension obliga-
tions at December 31, 2010 and 2009 was 5.86 percent and
6.17 percent, respectively.
Our consolidated pension expense in 2011 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 2011 will depend on future investment per-
formance, 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 defined benefit
plans at December 31, 2010 of approximately $192 million
increased approximately $24 million from the fair value of
about $168 million at December 31, 2009, as investment
gains and employer contributions exceeded benefit pay-
ments. At December 31, 2010, the projected benefit obliga-
tions of our defined benefit plans exceeded the fair value
of plan assets by approximately $60 million, which was
approximately $6 million smaller than the $66 million deficit
at December 31, 2009. The accumulated benefit obligation
exceeded the fair value of plan assets by approximately
$48.2 million and $51.3 million at December 31, 2010 and
2009, respectively. Contributions to pension trusts for the
year ended December 31, 2010 were $12.6 million, com-
pared with $10.2 million for the year ended December 31,
2009. In addition, we made direct benefit payments for
unfunded supplemental retirement benefits of approxi-
mately $2.5 million and $2.3 million for the years ended
December 31, 2010 and 2009, respectively.
42
Neenah Paper, Inc. 2010 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 LY S I S
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 flows. Impairment testing requires significant
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 flows
can be measured and are independent of cash flows of
other assets. An asset impairment would be indicated if the
sum of the expected future net pre-tax cash flows 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 flow scenarios that reflect 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
impairment analysis are consistent with the business plans
and estimates we use to manage our business opera-
tions. 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 out-
comes 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 identifiable assets acquired and liabilities assumed
in accordance with ASC Topic 805, Business Combinations
(“ASC Topic 805”). 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 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 operating 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. We estimate the fair value of the
reporting unit using a market approach in combination with
a discounted operating cash flow approach. 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 indefinite lives are annually reviewed for impair-
ment in accordance with ASC Topic 350.
Our annual test of goodwill for impairment at
November 30, 2010 and 2009 indicated that the carrying
amount of goodwill assigned to Neenah Germany was con-
sidered recoverable. Significant assumptions used in devel-
oping the discounted operating cash flow 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-
efit 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 esti-
mated cost of capital we used to calculate the present value
of Neenah Germany’s estimated future cash flows which
resulted in a substantially lower estimated fair value. The
higher estimated cost of capital reflected market/finan-
cial conditions at the time the annual impairment test was
performed which indicated higher risk premiums for debt
and equity.
As of December 31, 2010, a one percentage
point increase in the estimate for our cost of capital used
in the impairment test would result in an approximately
$35 million change in the estimated fair value of the
Neenah Paper, Inc. 2010 Annual Report
43
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, 2010, a hypothetical
ten 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 $1.4 million. We do
not hedge our exposure to exchange risk on reported oper-
ating 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, 2010. The effect is
calculated by multiplying our net monetary asset or liability
position by a ten percent change in the exchange rate of
the Euro versus the U.S. dollar. As of December 31, 2010, a
ten percent unfavorable change in the exchange rate of the
U.S. dollar against the Euro involving balance sheet transac-
tional exposures would have resulted in net pre-tax losses
of approximately $3 million.
The translation of the balance sheets of our
German operations from Euros into U.S. dollars is also
sensitive to changes in the exchange rate of the U.S. dollar
against the Euro. Consequently, we performed a sensitiv-
ity test to determine if changes in the exchange rate would
have a significant 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 trans-
lation adjustments (“UTA,” a component of comprehensive
income) within stockholders’ equity. The hypothetical
change in UTA is calculated by multiplying the net assets
of our German operations by a ten percent change in the
exchange rate of the Euro versus the U.S. dollar. As of
December 31, 2010, a ten percent unfavorable change in
the exchange rate of the U.S. dollar against the Euro would
have decreased our stockholders’ equity by approximately
$18 million. The hypothetical decrease in UTA is based on
the difference between the December 31, 2010 exchange
rate and the assumed exchange rate.
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 LY S I S
Neenah Germany and a corresponding reduction in the
implied value of goodwill but would not result in an impair-
ment of goodwill.
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 finite useful lives are amor-
tized on a straight-line basis over their respective esti-
mated useful lives to their estimated residual values, and
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 ten and 15 years.
Our annual test of other intangible assets for
impairment at November 30, 2010 and 2009 indicated
that the carrying amount of such assets was recoverable.
During our annual test of other intangible assets for impair-
ment at November 30, 2008, we determined that certain
trade names and customer based intangible assets were
impaired. 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 requi-
site service period for the entire award.
Q UA N T I TAT I V E A N D Q UA L I TAT I V E
D I S C LO S U R E S A B O U T M A R K E T R I S 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,
including operating and financing 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.
Following is a description of our most signifi-
cant risks.
44
Neenah Paper, Inc. 2010 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 LY S I S
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 significant influence 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, financial posi-
tion and cash flows.
Based on 2010 pulp purchases, a ten percent
increase in the average market price for pulp (approximately
$90 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 manufac-
turing 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 significant influence over our
costs for such manufacturing inputs. Therefore, an increase
in other manufacturing inputs could occur at the same time
that prices for our products are decreasing and have an
adverse effect on our results of operations, financial posi-
tion and cash flows.
While we believe that alternative sources of criti-
cal supplies would be available, an interruption in supply of
single source specialty grade latex or specialty softwood
pulp to our technical products business or cotton fiber for
our fine paper business could disrupt and eventually cause
a shutdown of production of certain technical products and
fine paper products.
We generate substantially all of the electrical
energy used by our Munising mill and approximately 40 per-
cent and 20 percent of the electrical energy at our Appleton
and Bruckmühl mills, respectively. 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 fluctu-
ate significantly based on fluctuations in demand and other
factors. There is no assurance 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 fixed rate debt
and our variable-rate bank debt. At December 31, 2010,
we had $233.0 million of fixed rate debt outstanding and
$11.9 million of variable-rate borrowings outstanding. We
are exposed to fluctuations in the fair value of our fixed rate
long-term debt resulting from changes in market interest
rates, but not to fluctuations in our earnings or cash flows.
At December 31, 2010, the estimated fair market value
of our fixed rate debt was $237.1 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 $0.1 million.
We could in the future, reduce our exposure to
interest rate fluctuations 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 significant capital expenditures
to comply with environmental laws, rules and regulations.
Due to changes in environmental laws and regulations,
including potential future legislation to limit GHG emissions,
the application of such regulations and changes in envi-
ronmental control technology, we are not able to predict
with certainty the amount of future capital spending to be
incurred for environmental purposes. Taking these uncer-
tainties into account, we have planned capital expenditures
for environmental projects during the period 2011 through
2013 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 financial position, results of operations or
cash flows.
Neenah Paper, Inc. 2010 Annual Report
45
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 LY S I S
F O R WA R D - LO O K I N G S TAT E M E N T S
Certain statements in this annual report may constitute
“forward-looking” statements as defined 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 Securities
Exchange Commission (“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 state-
ments within the meaning of the PSLRA. Any such forward-
looking statements reflect 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 be materially different from those
presented herein including but not limited to: (i) increases in
commodity prices, (particularly for pulp, energy and latex)
due to constrained global supplies or unexpected supply
disruptions; (ii) the cost and/or availability of raw materials
and energy; (iii) changes in market demand for our prod-
ucts due to global economic conditions; (iv) fluctuations
in exchange rates (in particular changes in the U.S. dollar/
Euro currency exchange rates) and interest rates; (v) the
competitive environment; (vi) capital and credit market
volatility; (vii) fluctuations in global equity and fixed-income
markets; (viii) unanticipated expenditures related to the cost
of compliance with environmental and other governmental
regulations; (ix) our ability to control costs and implement
measures designed to enhance operating efficiencies;
(x) the loss of current customers or the inability to obtain
new customers; (xi) increases in the funding requirements
for our pension and postretirement liabilities; (xii) changes
in asset valuations including write-downs of assets includ-
ing fixed assets, inventory, accounts receivable, deferred
tax assets or other assets for impairment or other reasons;
(xiii) our existing and future indebtedness; (xiv) strikes, labor
stoppages and changes in our collective bargaining agree-
ments and relations with our employees and unions; and
(xv) other risks that are detailed from time to time in reports
we file with the SEC. These and other factors could cause
or contribute to actual results differing materially from any
forward-looking statements are discussed in more detail
in our filings 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 different from any future results, per-
formance 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 benefits of the “safe harbor”
provisions of such laws. The Company cautions investors
that any forward-looking statements we make are not guar-
antees or indicative of future performance.
46
Neenah Paper, Inc. 2010 Annual Report
MANAGEMENT’S ANNUAL REPORT ON
INTERNAL CONTROL OVER FINANCIAL REPORTING
The Company’s management is responsible for establish-
ing and maintaining effective internal control over financial
reporting as defined in Rules 13a-15(f) or 15a-15(f) under
the Securities Exchange Act of 1934. The Company’s inter-
nal control over financial 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 financial statements.
Because of its inherent limitations, internal con-
trol over financial reporting may not prevent or detect
misstatements. Therefore, even those systems deter-
mined to be effective can provide only reasonable assur-
ance with respect to financial statement preparation and
presentation.
Management assessed the effectiveness of the
Company’s internal control over financial reporting as of
December 31, 2010. The scope of management’s assess-
ment of the effectiveness of internal control over financial
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, 2010,
the Company’s internal controls over financial reporting
were effective.
The effectiveness of internal control over financial
reporting as of December 31, 2010, has been audited by
Deloitte & Touche LLP, the independent registered public
accounting firm who also audited the Company’s consoli-
dated financial statements. Deloitte & Touche’s attestation
report on the Company’s internal control over financial
reporting follows.
Neenah Paper, Inc
March 9, 2011
Neenah Paper, Inc. 2010 Annual Report
47
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Neenah Paper, Inc., Alpharetta, Georgia
We have audited the internal control over financial reporting
of Neenah Paper, Inc. and subsidiaries (the “Company”) as of
December 31, 2010, 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 financial reporting and for its
assessment of the effectiveness of internal control over finan-
cial 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 financial 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 assur-
ance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit
included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and
operating effectiveness of internal control 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 financial
reporting is a process designed by, or under the supervi-
sion of, the company’s principal executive and principal
financial officers, 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 financial reporting and the
preparation of financial statements for external purposes
in accordance with generally accepted accounting prin-
ciples. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accu-
rately and fairly reflect the transactions and dispositions of
the assets of the company; (2) provide reasonable assurance
that transactions are recorded as necessary to permit
preparation of financial statements in accordance with gen-
erally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accor-
dance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regard-
ing prevention or timely detection of unauthorized acquisi-
tion, use, or disposition of the company’s assets that could
have a material effect on the financial statements.
Because of the inherent limitations of internal
control over financial 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 financial 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 financial
reporting as of December 31, 2010, 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 stan-
dards of the Public Company Accounting Oversight Board
(United States), the consolidated financial statements as of
and for the year ended December 31, 2010 of the Company
and our report dated March 9, 2011 expressed an unqualified
opinion on those consolidated financial statements.
Atlanta, Georgia
March 9, 2011
48
Neenah Paper, Inc. 2010 Annual Report
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Neenah Paper, Inc., Alpharetta, Georgia
We have audited the accompanying consolidated balance
sheets of Neenah Paper, Inc. and subsidiaries (the
“Company”) as of December 31, 2010 and 2009, and the
related consolidated statements of operations, changes in
stockholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2010. These finan-
cial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion
on the financial 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made
by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide
a reasonable basis for our opinion.
In our opinion, such consolidated financial state-
ments present fairly, in all material respects, the finan-
cial position of Neenah Paper, Inc. and subsidiaries as
of December 31, 2010 and 2009, and the results of their
operations and their cash flows for each of the three years
in the period ended December 31, 2010, 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 financial reporting as of December 31, 2010, 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 9, 2011 expressed an unqualified opinion on
the Company’s internal control over financial reporting.
Atlanta, Georgia
March 9, 2011
Neenah Paper, Inc. 2010 Annual Report
49
TT
CONSOLIDATED STATEMENTS OF
OPERATIONS
(In millions, except share and per share data)
Net sales
Cost of products sold
Gross profit
Selling, general and administrative expenses
Other income – net
Loss (gain) on closure and sale of the Ripon Mill
Goodwill and other intangible asset impairment charge
Operating income (loss)
Interest expense
Interest income
Income (loss) from continuing operations before income taxes
Provision (benefit) 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,
2010
2009
2008
$657.7
537.7
120.0
69.3
(1.0)
(3.4)
–
55.1
20.5
(0.2)
34.8
9.8
25.0
134.1
$159.1
$ 1.69
9.05
$10.74
$ 1.61
8.60
$10.21
$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
630.8
101.5
75.2
(11.3)
–
54.5
(16.9)
25.0
–
(41.9)
3.9
(45.8)
(111.2)
$(157.0)
$ (3.14)
(7.59)
$(10.73)
$ (3.14)
(7.59)
$(10.73)
14,744
15,512
14,655
14,655
14,642
14,642
50
50
Neenah Paper, Inc. 2010 Annual Report
Neenah Paper, Inc. 2010 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 4 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 Benefits and Other Obligations
TOTAL LIABILITIES
Contingencies and Legal Matters (Notes 12)
Stockholders’ Equity
Common stock, par value $0.01 – authorized: 100,000,000 shares; issued and outstanding:
15,237,203 shares and 15,085,709 shares
Treasury stock, at cost: 426,201 shares and 410,654 shares
Additional paid-in capital
Accumulated deficit
Accumulated other comprehensive income (loss)
Total Stockholders’ Equity
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
See Notes to Consolidated Financial Statements
December 31,
2010
2009
$ 48.3
70.7
69.4
–
19.5
14.1
–
222.0
261.9
43.1
41.5
24.0
14.2
$606.7
$ 13.6
30.4
48.1
92.1
231.3
19.4
104.7
447.5
$ 5.6
67.7
70.7
0.8
61.7
13.7
10.0
230.2
284.4
36.5
44.9
27.5
13.1
$ 636.6
$ 55.6
27.2
48.6
131.4
263.6
23.7
108.3
527.0
0.1
(10.4)
249.0
(62.0)
(17.5)
159.2
$606.7
0.1
(10.2)
243.4
(215.2)
91.5
109.6
$ 636.6
Neenah Paper, Inc. 2010 Annual Report
Neenah Paper, Inc. 2010 Annual Report
51
51
CONSOLIDATED STATEMENTS OF CHANGES IN
TT
STOCKHOLDERS’ EQUITY
(In millions,
shares in thousands)
December 31, 2007
Net loss
Other comprehensive income (loss)
Unrealized foreign
currency translation
Adjustment to pension and other
benefit liabilities
Loss on cash flow hedges
Dividends declared
Excess tax benefits from stock-
based compensation
Share purchases
Restricted stock vesting (Note 10)
Stock-based compensation
December 31, 2008
Net loss
Other comprehensive income (loss)
Unrealized foreign
currency translation
Adjustment to pension and
other benefit liabilities
Dividends declared
Restricted stock vesting (Note 10)
Stock-based compensation
December 31, 2009
Net income
Other comprehensive loss
Unrealized foreign currency translation
Adjustment to pension and other
benefit liabilities
Reclassification of cumulative
translation adjustments related
to investments in Canada
Dividends declared
Stock options exercised
Restricted stock vesting (Note 10)
Stock-based compensation
December 31, 2010
Common Stock
Shares
Amount
Treasury
Stock
Additional
Accumulated
Other
Paid-In Accumulated Comprehensive Comprehensive
Income/(Loss)
Capital
Income
Deficit
14,969
$0.1
$ (0.4)
$235.3
$ (45.1)
(157.0)
$ 98.5
$(157.0)
86
(9.4)
(0.3)
15,055
0.1
(10.1)
(0.6)
4.0
238.7
31
(0.1)
15,086
0.1
(10.2)
4.7
243.4
(6.0)
(208.1)
(1.2)
(5.9)
(215.2)
159.1
(30.1)
(30.1)
16.3
(0.3)
16.3
(0.3)
$(171.1)
84.4
4.1
3.0
91.5
$
(1.2)
4.1
3.0
$ 5.9
$ 159.1
(15.1)
(15.1)
(6.0)
(6.0)
86
65
(0.2)
15,237
$0.1
$(10.4)
0.7
4.9
$249.0
$ (62.0)
$(17.5)
(5.9)
(87.9)
(87.9)
$ 50.1
See Notes to Consolidated Financial Statements
52
52
Neenah Paper, Inc. 2010 Annual Report
Neenah Paper, Inc. 2010 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:
Year Ended December 31,
2010
2009
2008
$159.1
$(1.2)
$(157.0)
Depreciation and amortization
Stock-based compensation
Deferred income tax provision (benefit)
Gain on sale of the Woodlands (Note 5)
Reclassification of cumulative translation adjustments related to
investments in Canada (Note 1 and Note 5)
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 benefit plans
Ripon Mill (gain) on sale and non-cash closure charges
Gain on curtailment of post employment benefit plan
(Gain) loss on other asset dispositions
Net cash provided by (used in) changes in operating working capital (Note 15)
Pension and other post-employment benefits
Other
NET CASH PROVIDED BY OPERATING ACTIVITIES
INVESTING ACTIVITIES
Capital expenditures
Net proceeds from sale of the Woodlands (Note 5)
Increase in investments
Proceeds from asset sales
Payments in conjunction with the transfer of the Pictou Mill
Other
NET CASH PROVIDED BY (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
Share 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
31.3
4.9
37.0
(74.1)
(87.9)
–
–
–
–
–
(3.4)
–
0.2
(3.9)
(7.8)
(0.9)
54.5
(17.4)
78.0
(3.5)
8.7
–
0.7
66.5
0.1
–
(71.5)
13.3
(14.8)
(5.9)
–
0.7
(0.2)
(78.3)
–
42.7
5.6
$ 48.3
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)
(22.6)
(7.6)
(1.6)
13.1
(30.0)
–
–
13.8
(13.6)
(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. 2010 Annual Report
Neenah Paper, Inc. 2010 Annual Report
53
53
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”) is a
Delaware corporation incorporated in April 2004. The
Company has two primary operations: its technical products
business and its fine paper business.
The technical products business is an inter national
producer of transportation and other filter media, durable,
saturated and coated substrates for a variety of end uses
and nonwoven wall coverings. The fine paper business is
a producer of premium writing, text, cover and specialty
papers used in corporate identity packages, corporate
annual reports, invitations, personal stationery, labels and
high-end packaging for point of sale advertising.
In February 2008, the Company commit-
ted to a plan to sell its pulp mill in Pictou, Nova Scotia
(the “Pictou Mill”) and approximately 475,000 acres of
woodland assets in 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 exist-
ing customer contracts, supply agreements, labor agree-
ments and pension obligations. The sale did not include
the Woodlands.
In March 2010, Neenah Canada sold the
Woodlands to Northern Timber Nova Scotia Corporation,
an affiliate of Northern Pulp, for C$82.5 million ($78.6 mil-
lion). The sale resulted in a pre-tax gain, net of fees and
other transaction costs, of $74.1 million. The sale of the
Woodlands resulted in the substantially complete liquida-
tion of the Company’s investment in Neenah Canada. In
accordance with Accounting Standards Codification (“ASC”)
Topic 830, Foreign Currency Matters (“ASC Topic 830”),
$87.9 million of cumulative currency translation adjustments
attributable to the Company’s Canadian subsidiaries have
been reclassified into earnings and recognized as part of
the gain on sale of the Woodlands. The transaction did not
generate a cash tax liability because the tax basis for the
Woodlands was approximately equal to the sale price. For
the year ended December 31, 2010, the results of opera-
tions, the gain on sale of the Woodlands ($74.1 million) and
the reclassification into earnings of cumulative currency
translation adjustments attributable to the Company’s
Canadian subsidiaries ($87.9 million) are reported as discon-
tinued operations in the consolidated statement of opera-
tions. 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 for the years ended
December 31, 2009 and 2008. 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 financial statements include the financial
statements of the Company and its wholly owned and major-
ity owned subsidiaries. All significant 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 preparation of the interim financial statements
for the three and nine months ended September 30, 2010,
the Company identified a $2.8 million overstatement of
accounts payable that was primarily the result of invalid
inventory pricing adjustments beginning in 2006 and cer-
tain inventory transactions in 2008. These errors resulted in
an overstatement of accounts payable and cost of products
sold of $0.4 million and $2.4 million for the years ended
December 31, 2006 and 2008, respectively. The Company
has restated the statement of operations for the year ended
December 31, 2008 for the $2.4 million overstatement of
cost of products sold. The Company has reflected the cor-
rection of the errors on the consolidated balance sheet
as of December 31, 2009 with a decrease in accounts pay-
able of $2.8 million, a decrease of $0.9 million in noncurrent
deferred income taxes and an increase of $1.9 million in
stockholders’ equity. The Company believes the effects of
these prior period corrections are not material to any prior
period consolidated financial statements.
54
Neenah Paper, Inc. 2010 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
TWO
Summary of Significant Accounting Policies
U S E O F E S T I M A T E S
The preparation of financial 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 financial 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. Significant management judgment is required
in determining the accounting for, among other things, pen-
sion and postretirement benefits, retained insurable risks,
allowances for doubtful accounts and reserves for sales
returns and cash discounts, purchase price allocations, use-
ful lives for depreciation and amortization, future cash flows
associated with impairment testing for tangible and intan-
gible long-lived assets, income taxes, contingencies, inven-
tory obsolescence and market reserves and the valuation 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 fixed
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
Codification (“ASC”) Topic 260, Earnings Per Share (“ASC
Topic 260”). In accordance with ASC Topic 260, share-based
awards with non-forfeitable dividends are classified 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, RSUs with performance conditions and com-
mon stockholders based on their respective ownership per-
centage, 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-average
participating securities along with the additional share
equivalents from the assumed conversion of stock options
calculated using the “Treasury Stock” method, subject to
the anti-dilution provisions of ASC Topic 260.
Diluted EPS was calculated to give effect to all
potentially dilutive common shares using the “Treasury
Stock” method. Outstanding stock options, stock appre-
ciation rights (“SARs”) and certain RSUs with performance
conditions represent the only potentially dilutive non-
participating security effects on the Company’s weighted-
average shares. For the years ended December 31, 2010,
2009 and 2008, approximately 1,590,000, 1,700,000 and
1,510,000 potentially dilutive options, respectively, were
excluded from the computation 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 continuing operations for the
years ended December 31, 2009 and 2008, approximately
160,000 and 130,000 incremental shares resulting from the
assumed exercise or vesting of potentially dilutive securities
were excluded from the diluted earnings per share calcula-
tion, as the effect would have been anti-dilutive.
Neenah Paper, Inc. 2010 Annual Report
55
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 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):
Income (loss) from
continuing operations
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
Distributed and undistributed
Year Ended December 31,
2010
2009
2008
$ 25.0
$ (1.8)
$ (45.8)
(0.1)
–
(0.1)
24.9
(1.8)
(45.9)
134.1
0.6
(111.2)
amounts allocated to
participating securities (a)
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
(0.6)
–
–
$158.4
$ (1.2)
$(157.1)
14,744
14,655
14,642
768
15,512
–
14,655
–
14,642
$ 1.69
9.05
$10.74
$ 1.61
8.60
$10.21
$(0.12)
0.04
$(0.08)
$(0.12)
0.04
$(0.08)
$ (3.14)
(7.59)
$(10.73)
$ (3.14)
(7.59)
$(10.73)
(a) In accordance with ASC Topic 260, for the years ended December 31,
2009 and 2008, undistributed losses have been allocated entirely to
common stockholders due to the fact that the holders of participat-
ing securities are not contractually obligated to share in the losses of
the Company.
56
Neenah Paper, Inc. 2010 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 financial institu-
tions. As of December 31, 2010 and 2009, $0.7 million and
$0.8 million, respectively, of the Company’s cash and cash
equivalent is restricted to the payment of postretirement
benefits for certain former Fox River executives.
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 financial report-
ing purposes, or market. German inventories are val-
ued at the lower of cost, using a weighted-average cost
method, or market. The FIFO value of inventories valued
on the LIFO method was $57.0 million and $58.2 million at
December 31, 2010 and 2009, 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.
F O R E I G N C U R R E N C Y
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 trans lation 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.
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 are sold or retired, the costs and
the related accumulated depreciation are removed from the
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
accounts, and the gains or losses are recorded in other
(income) expense – net. For financial 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, nine 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 changed when warranted. Long-lived assets are
reviewed for impairment whenever events or changes in cir-
cumstances indicate that their cost may not be recoverable.
An impairment loss would be recognized when estimated
undiscounted future pre-tax cash flows from the use of the
asset are less than its carrying amount. Measurement of
an impairment 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 flows.
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.
The Company accounts for asset retirement obli-
gations (“AROs”) in accordance with ASC Topic 410, Asset
Retirements and Environmental Obligations, which requires
companies to make estimates regarding future events in
order to record a liability for AROs in the period in which a
legal obligation is created. Such liabilities are recorded at
fair value, with an offsetting increase to the carrying value
of the related long-lived asset. As of December 31, 2010,
the Company is unable to estimate its AROs for environ-
mental liabilities at its manufacturing facilities.
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 (“ASC Topic 805”), in recording
goodwill arising from a business combination as the excess
of purchase price and related costs over the fair value of
identifiable 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 (collec-
tively, “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 operating 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 com-
bination with a discounted operating cash flow approach.
Impairment of goodwill is measured as the excess of the
carrying amount of goodwill over the fair values of rec-
ognized and unrecognized assets and liabilities of the
reporting unit. An adjustment 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 conjunction 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, 2010 and no
impairment was indicated. The Company’s test of good-
will for impairment as of November 30, 2008 indicated an
impairment of goodwill. See Note 4, “Goodwill and Other
Intangible Assets.”
Intangible assets with finite useful lives are amor-
tized 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, Property,
Plant, and Equipment. Intangible assets consist primar-
ily of customer relationships, trade names and acquired
intellectual property. Such intangible assets are amortized
using the straight-line method over estimated useful lives
of between ten and 15 years. Certain trade names are esti-
mated to have indefinite useful lives and as such are not
amortized. Intangible assets with indefinite lives are reviewed
for impairment at least annually in accordance with ASC
Topic 350. See Note 4, “Goodwill and Other Intangible Assets.”
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. 2010 Annual Report
57
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 reflected 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, 2010 and 2009.
Senior Notes (7.375% fixed rate)
Neenah Germany project financing (3.8% fixed rate)
Revolving bank credit facility (variable rates)
Term Loan (variable rates)
Neenah Germany revolving line of credit (variable rates)
Other debt (2.9% fixed rate)
Long-term debt
December 31,
2010
2009
Carrying
Value
Fair
Value
Carrying
Value
$223.0
10.0
–
–
11.9
–
$244.9
$227.5
9.6
–
–
11.9
–
$249.0
$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
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 )
Comprehensive income (loss) includes, in addition to net income (loss), gains and losses recorded directly into stockhold-
ers’ 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 “available-for-sale” securities and cash flow hedges, and adjustments related to pensions and other post-
retirement benefits. The Company does not provide income taxes for foreign currency translation adjustments related to
indefinite investments in foreign subsidiaries. The sale of the Woodlands resulted in the substantially complete liquidation
of the Company’s investment in Neenah Canada. In accordance with ASC Topic 830, for the year ended December 31, 2010,
$87.9 million of cumulative currency translation adjustments attributable to the Company’s Canadian subsidiaries have been
reclassified into earnings and recognized as part of the gain on sale of the Woodlands. There were no tax consequences
related to the repatriation of funds from the sale of the Woodlands.
Changes in the components of other comprehensive income (loss) are as follows:
Pretax
Amount
2010
Tax
Effect
Net
Amount
Pretax
Amount
2009
Tax
Effect
Net
Amount
Pretax
Amount
2008
Tax
Effect
Net
Amount
Year Ended December 31,
$ (15.1)
$ –
$ (15.1)
$4.1
$ –
$4.1
$(30.1)
$ –
$(30.1)
(9.0)
3.0
(6.0)
4.6
(1.6)
3.0
26.4
(10.1)
16.3
Foreign currency
translation
Adjustment to pension
and other
benefit liabilities
Reclassification of
cumulative translation
adjustments related to
investments in Canada
Deferred loss on cash
flow hedges
Other comprehensive
(87.9)
–
–
–
(87.9)
–
–
–
–
–
–
–
–
–
–
(0.5)
0.2
(0.3)
income (loss)
$(112.0)
$3.0
$(109.0)
$8.7
$(1.6)
$7.1
$ (4.2)
$ (9.9)
$(14.1)
58
Neenah Paper, Inc. 2010 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:
Company paid approximately $3.5 million and $6.5 million
of such costs during the years ended December 31, 2010
and 2009, respectively.
Foreign currency translation
Adjustment to pension and other
benefit liabilities (net of income
tax benefits of $17.0 million and
$14.0 million, respectively)
Accumulated other comprehensive
December 31,
2010
2009
$ 9.8
$112.8
(27.3)
(21.3)
income (loss)
$(17.5)
$ 91.5
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
As of December 31, 2010, 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, financial position or cash flows.
THREE
Closure of the Ripon Mill
In May 2009, the Company permanently closed its Fine
Paper mill located in Ripon, California (the “Ripon Mill”).
The closure resulted in a pre-tax charge of $17.1 million for
the year ended December 31, 2009. The charge was com-
prised 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 benefit plans in which employ-
ees of the Ripon Mill participated (see Note 8) and cash
payments for contract terminations and severance and
other employee costs of approximately $10.5 million. The
In October 2010, the Company sold the remain-
ing long-lived assets of the Ripon Mill, primarily composed
of land and buildings, to Diamond Pet Food Processors
of Ripon, LLC (“Diamond”) for gross proceeds of approxi-
mately $9 million. Pursuant to the terms of the transaction,
Diamond acquired all the assets and assumed responsibility
for substantially all the remaining liabilities associated with
the Ripon Mill. The Company recognized a pre-tax gain on
the sale of approximately $3.4 million.
The Company accounted for the costs associated
with the closure of the Ripon Mill in accordance with ASC
Topic 420, Exit or Disposal Cost Obligations. The Company
paid approximately $1.8 million in severance benefits to
97 former employees of the Ripon Mill. The following table
presents the status of such closure costs as of and for the
years ended December 31, 2010 and 2009:
Contract
termination
and other
costs
Severance
benefits
Total
$ 1.8
$ 8.7
$10.5
(1.7)
(4.8)
(6.5)
0.1
3.9
4.0
(0.1)
(3.4)
(3.5)
Amounts accrued during
the year ended
December 31, 2009
Payments for the year ended
December 31, 2009
Accrued exit costs at
December 31, 2009
Payments for the year ended
December 31, 2010
Change in estimates
recognized in income
–
(0.5)
(0.5)
Accrued exit costs at
December 31, 2010
$ –
$ –
$ –
Neenah Paper, Inc. 2010 Annual Report
59
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
FOUR
Goodwill and Other Intangible Assets
As of December 31, 2010, the Company had goodwill of
$41.5 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, 2010, 2009 and 2008:
Accumulated
Impairment
Losses
Gross
Amount
Balance at December 31, 2007
Goodwill impairment charge
Foreign currency translation
Balance at December 31, 2008
Foreign currency translation
Balance at December 31, 2009
Foreign currency translation
$106.6
–
(10.1)
96.5
2.4
98.9
(7.5)
Balance at December 31, 2010 $ 91.4
$ –
(52.7)
–
(52.7)
(1.3)
(54.0)
4.1
$(49.9)
Net
$106.6
(52.7)
(10.1)
43.8
1.1
44.9
(3.4)
$ 41.5
I M P A I R M E N T
As of December 31, 2010 and 2009, the carrying amount
of goodwill assigned to Neenah Germany was considered
recoverable. As of December 31, 2010, a one percent-
age point increase in the Company’s estimate for its cost
of capital used in the impairment test would result in an
approximately $35 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.
The Company’s annual test of goodwill for impair-
ment 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 operating cash flow approach for a number of
scenarios representing differing operating and economic
assumptions. Significant assumptions used in developing
the discounted operating cash flow 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 carrying 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 benefit related to the non
tax deductible loss) for the impairment of goodwill assigned
to Neenah Germany. The impairment loss was primar-
ily 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 flows which
resulted in a substantially lower estimated fair value. The
higher estimated cost of capital reflected market/finan-
cial conditions at the time the annual impairment test was
performed which indicated higher risk premiums for debt
and equity.
60
Neenah Paper, Inc. 2010 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, 2010, the Company had net identifiable intangible assets of $24.0 million. All such intangible assets were
acquired in the Neenah Germany and Fox River acquisitions. The following table details amounts related to those assets.
Amortizable intangible assets
Customer based Intangibles
Trade names and Trademarks
Acquired Technology
Unamortizable intangible assets
Trade names
Total
Weighted-average
amortization
period (years)
15
10
10
10
Not amortized
December 31,
2010
2009
Gross Accumulated
Amount Amortization
Gross Accumulated
Amount Amortization
$14.4
6.1
1.1
21.6
9.3
$30.9
$(4.1)
(2.3)
(0.5)
(6.9)
–
$(6.9)
$15.5
6.6
1.2
23.3
9.9
$33.2
$(3.4)
(1.9)
(0.4)
(5.7)
–
$(5.7)
As of December 31, 2010, $21.1 million and
$2.9 million of such intangible assets are reported
within the Technical Products and Fine Paper seg-
ments, respectively. See Note 14, “Business Segment
and Geographic Information.” Aggregate amortization
expense of acquired intangible assets for the years
ended December 31, 2010, 2009 and 2008 was $1.6 mil-
lion, $1.8 million and $1.9 million, respectively and was
reported in Cost of Products Sold on the Consolidated
Statement of Operations. Estimated annual amortiza-
tion expense for each of the next five years is approxi-
mately $1.6 million.
The Company’s annual test of other intan-
gible assets for impairment at November 30, 2010
and 2009 indicated that the carrying amount of such
intangible assets was recoverable. The Company deter-
mined 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
In March 2010, Neenah Canada sold the Woodlands
to Northern Pulp for C$82.5 million ($78.6 million).
The sale resulted in a pre-tax gain, net of fees and
other transaction costs, of $74.1 million. The sale of
the Woodlands resulted in the substantially com-
plete liquidation of the Company’s investment in
Neenah Canada. In accordance with ASC Topic 830,
$87.9 million of cumulative currency translation adjust-
ments attributable to the Company’s Canadian subsid-
iaries were reclassified into earnings and recognized
as part of the gain on sale of the Woodlands. The sale
of the Woodlands represented the cessation of the
Company’s operating activities in Canada; however, the
Company will have certain continuing post-employment
benefit obligations related to its Canadian operations.
The transaction did not generate a cash tax liability
because the tax basis for the Woodlands was approxi-
mately equal to the sale price.
Neenah Paper, Inc. 2010 Annual Report
61
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
Net proceeds from the sale were used to
repay in full $40 million of outstanding term loan bor-
rowings and repay approximately $26 million in out-
standing revolving loans which reduced the balance
of such outstanding loans under the Company’s bank
credit agreement to zero. In addition, the Company
made approximately $3.1 million in contract termi-
nation payments related to the closure of the Ripon
Mill that became due and payable upon the sale of
the Woodlands.
In June 2008, Neenah Canada sold the Pictou
Mill to Northern Pulp, an operating company jointly
owned by Atlas Holdings LLC and Blue Wolf Capital
Management LLC. In connection with the transfer of the
Pictou Mill, Neenah Canada made payments of approxi-
mately $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.
In conjunction with the sale of the Pictou Mill,
the Company entered into a stumpage agreement (the
“Stumpage Agreement”) which allowed Northern Pulp to
harvest softwood timber from the Woodlands. For calen-
dar 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 Stumpage Agreement was
terminated in March 2010 in conjunction with the sale of the
Woodlands. For the years ended December 31, 2010 and
2009, the Company recognized revenue of approximately
$1.4 million and $3.7 million, respectively, related to timber
sales pursuant to the Stumpage Agreement.
During the first quarter of 2008, the Company
The following table presents the results of discon-
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 mil-
lion to write-off the carrying value of the Pictou Mill’s
long-lived assets. In addition, for the year ended
December 31, 2008, the Company recorded a pre-tax
loss of $29.4 million to recognize the loss on disposal of
the Pictou Mill.
In conjunction with the sale of the Pictou
Mill, Northern Pulp assumed responsibility for all pen-
sion and other postretirement benefit obligations for
active and retired employees of the mill. The Company
accounted for the transfer of the Nova Scotia, Canada
defined benefit pension plan (the “Nova Scotia Plan”)
as a settlement of postretirement benefit obligations
pursuant to ASC Topic 715, Compensation–Retirement
Benefits (“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
reclassification of deferred pension and other postre-
tirement benefit adjustments related to the Nova Scotia
Plan from accumulated other comprehensive income to loss
from discontinued operations in the consolidated state-
ment of operations.
62
Neenah Paper, Inc. 2010 Annual Report
tinued operations:
Net sales, net of
Year Ended December 31,
2010
2009
2008
$ 1.4
intersegment sales
Discontinued operations:
Income (loss) from operations $ 1.0
Gain on disposal of
the Woodlands
Reclassification of
74.1
$ 3.7
$ 101.9
$ 2.8
$ (97.8)
–
–
cumulative translation
adjustments related
to investments in Canada (a)
Loss on disposal – Pictou Mill (b)
Loss on settlement of post-
employment benefit plans
Gain (loss) on disposal
Income (loss) before
income taxes
(Provision) benefit for
income taxes
Income (loss) from discontinued
87.9
–
–
162.0
–
(0.3)
–
(0.3)
–
(29.4)
(53.7)
(83.1)
163.0
2.5
(180.9)
(28.9)
(1.9)
69.7
operations, net of
income taxes
$134.1
$ 0.6
$(111.2)
(a) The reclassification of cumulative foreign currency translation gains had
no tax consequences.
(b) For the year ended December 31, 2008, the loss from operations
includes aggregate non-cash, pre-tax impairment charges of $91.2 mil-
lion to write-off the carrying value of the Pictou Mill’s long-lived assets.
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. Income tax expense (benefit)
represented 28.2 percent, (73.5) percent and 9.3 percent of income (loss) from continuing operations before income taxes
for the years ended December 31, 2010, 2009 and 2008, respectively. The following table presents the principal reasons for
the difference between the effective income tax provision (benefit) rate and the U.S. federal statutory income tax provision
(benefit) rate:
U.S. federal statutory income tax (benefit) rate
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 benefits available to Fox River
Foreign tax rate and structure differences
Other differences – net
Effective income tax (benefit) rate
Year Ended December 31,
2010
2009
2008
35.0%
1.9%
(1.1)%
–
–
(10.3)%
2.7%
28.2%
$12.2
0.7
(0.4)
–
–
(3.6)
0.9
$ 9.8
(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)%
0.6%
–
35.0%
9.3%
1.1%
(1.7)%
9.3%
$(14.6)
0.3
–
14.6
3.9
0.4
(0.7)
$ 3.9
The Company’s effective income tax (benefit) 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 filed tax returns
and changes in tax laws.
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
2010
2009
2008
$20.6
14.2
$34.8
$(13.3)
6.5
$ (6.8)
$ 5.5
(47.4)
$(41.9)
Year Ended December 31,
Deferred:
the provision (benefit) for income taxes:
Year Ended December 31,
2010
2009
2008
Provision (benefit) for
income taxes:
Current:
Federal
State
Foreign
Total current tax provision
$(0.4)
(0.1)
3.6
3.1
$ 2.5
1.0
1.9
5.4
(7.5)
(0.6)
(2.3)
$ 1.7
(0.3)
1.2
2.6
3.9
1.3
(3.9)
1.3
Federal
State
Foreign
Total deferred tax
provision (benefit)
Total provision (benefit) for
7.2
1.2
(1.7)
6.7
(10.4)
income taxes
$ 9.8
$ (5.0)
$ 3.9
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.
Neenah Paper, Inc. 2010 Annual Report
63
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, 2010, 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,
2010
2009
Net current deferred income tax assets
Canadian timberlands
Intangible assets
Net operating losses
Accrued liabilities
Employee benefits
Inventory
Other
$ –
–
14.3
2.4
1.1
1.0
1.0
Net current deferred income tax assets
before valuation allowance
Valuation allowance
Net current deferred income
19.8
(0.3)
$ 28.2
20.1
7.7
3.9
1.3
(0.1)
1.3
62.4
(0.7)
tax assets
19.5
61.7
Net noncurrent deferred income tax assets
Net operating losses and credits
Employee benefits
Other long-term obligations
Accumulated depreciation
Other
Net noncurrent deferred income tax
assets before valuation allowance
Valuation allowance
Net noncurrent deferred income
32.9
32.5
0.2
(21.0)
(0.1)
44.5
(1.4)
tax assets
Total deferred income tax assets
43.1
$ 62.6
Net noncurrent deferred income tax liability
Accumulated depreciation
Intangibles
Interest limitation
Employee benefits
Other
$ 20.4
5.4
(4.0)
(2.3)
(0.1)
27.1
32.3
0.6
(22.7)
–
37.3
(0.8)
36.5
$ 98.2
$ 22.8
6.2
(3.2)
(1.7)
(0.4)
Net noncurrent deferred income
tax liabilities
$ 19.4
$ 23.7
As of December 31, 2010, a valuation allowance
of $1.7 million has been provided against certain state
deferred income tax assets in states where the Company no
longer has operations. In determining the need for valuation
allowances, the Company considers many factors, includ-
ing specific taxing jurisdictions, sources of taxable income,
income tax strategies and forecasted earnings for the enti-
ties 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.
64
Neenah Paper, Inc. 2010 Annual Report
$96.7 million of U.S. Federal and $95.4 million of U.S. State
net operating losses (“NOLs”). If not used, substantially all
of the NOLs will expire in various amounts between 2028
and 2030. The Company also has preacquisition and rec-
ognized built-in carryovers of approximately $15.1 million,
net of expected limitations. In addition, the Company has
$2.8 million of AMT carryovers, which can be carried for-
ward indefinitely.
No provision for U.S. income taxes has been
made for undistributed earnings of certain of the Company’s
foreign subsidiaries which have been indefinitely rein-
vested. The Company is unable to estimate the amount of
U.S. income taxes that would be payable if such undistrib-
uted 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, 2010, 2009 and 2008:
Balance at January 1,
Increases in prior period
Year Ended December 31,
2010
$10.5
2009
$13.9
2008
$13.3
tax positions
1.7
4.2
0.2
Decreases in prior period
tax positions
(3.5)
(0.1)
(1.0)
Increases in current period
tax positions
–
0.5
1.4
Decreases due to settlements
with tax authorities
Balance at December 31,
(0.1)
$ 8.6
(8.0)
$10.5
–
$13.9
If recognized, approximately $3.8 million of the
benefit for uncertain tax positions at December 31, 2010
would favorably affect the Company’s effective tax rate in
future periods. While the timing is uncertain, the Company
expects the settlement of audits in the next 12 months will
result in the elimination of substantially all of the liabilities
for uncertain income tax positions that were accrued as of
December 31, 2010.
The Company or one of its subsidiaries files
income tax returns in the U.S. federal jurisdiction, vari-
ous U.S. state jurisdictions and foreign jurisdictions. The
Company is no longer subject to U.S. federal examination
for years before 2007 and with few exceptions, state and
local examinations for years before 2000 and non-U.S.
income tax examinations for years before 2004. As of
December 31, 2010, the 2007 and 2008 tax years were
being audited by the U.S. Internal Revenue Service (“IRS”)
and the 2004 through 2007 tax years were being audited by
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 German tax authorities. For a discussion of uncertain-
ties related to tax matters see Note 12, “Contingencies and
Legal Matters.”
the condensed consolidated statement of operations. As
of December 31, 2010, $223 million of Senior Notes were
issued and outstanding.
The Company recognizes accrued interest and
penalties related to uncertain income tax positions in the
Provision (benefit) for income taxes on the consolidated
statements of operations. As of December 31, 2010 and
2009, the Company had $0.7 million accrued for interest
related to uncertain income tax positions.
SEVEN
Debt
Long-term debt consisted of the following:
Senior Notes (7.375% fixed rate) due 2014
Revolving bank credit facility
(variable rates), due 2013
Term Loan (variable rates), due 2013 (a)
Neenah Germany project financing
(3.8% fixed rate) due in 16 equal
semi-annual installments
beginning June 2009
Neenah Germany revolving line of
credit (variable rates)
Other debt
Total Debt
Less: Debt payable within one year
Long-term debt
December 31,
2010
2009
$223.0
$225.0
–
–
27.9
40.0
10.0
12.5
11.9
–
244.9
13.6
$231.3
12.9
0.9
319.2
55.6
$263.6
(a) The Company extinguished the Term Loan in March 2010 by repaying
in full $40 million of outstanding Term Loan borrowings with proceeds
from the sale of the Woodlands.
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 under-
written offering of ten-year senior unsecured notes (the
“Senior Notes”) at an aggregate face amount of $225 mil-
lion. 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 our non-
Canadian international subsidiaries. During the year ended
December 31, 2010, the Company purchased $2 million
principal amount of Senior Notes for slightly less than par
value. The Company recognized a pre-tax loss of approxi-
mately $25 thousand in connection with these purchases,
including the write-off of related unamortized debt issu-
ance costs. The loss is recorded in Other income – net on
In February 2011, the Company elected to con-
duct an early redemption on March 10, 2011 (the “Partial
Redemption”) of $65 million in aggregate principal amount
of the Senior Notes. The Company expects to finance the
Partial Redemption with approximately $40 million of cash
on hand, with the remainder to be provided by borrow-
ings under our existing revolving credit facility. Following
the Partial Redemption, $158 million in Senior Notes will
be outstanding.
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 LV 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
modified 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 JPMorgan
Chase Bank, N.A., as agent for the lenders. The Restated
Credit Agreement consists of a $100 million senior, secured
revolving credit facility (the “Revolver”) and (ii) a $40 million
senior secured term loan (the “Term Loan”). The Company’s
ability to borrow under the Revolver is limited to the low-
est 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 Revolver by up to $50 mil-
lion. The total commitment under the Restated Credit
Agreement cannot exceed $150 million. The Restated
Credit Agreement terminates on November 30, 2013.
In March 2010, the Company used proceeds
from the sale of the Woodlands to extinguish the Term
Loan by repaying in full $40 million of outstanding Term Loan
borrowings. As of December 31, 2009, the Company had
$40.0 million in outstanding Term Loan borrowings at a
weighted-average interest rate of 4.5 percent per annum.
The Revolver bears interest at either (1) a prime
rate-based index plus a percentage ranging from 1.50%
to 2.00%, or (2) LIBOR plus a percentage ranging from
3.00% to 3.50%, depending upon the amount of availability
under the Revolver. The Company is also required to pay a
monthly facility fee on the unused amount of the Revolver
commitment at a per annum rate ranging between 0.50%
and 0.75%, depending upon usage under the Revolver.
Neenah Paper, Inc. 2010 Annual Report
65
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 Restated Credit Agreement is secured
by substantially all of the assets of the Company and the sub-
sidiary borrowers, including the capital stock of such subsidiar-
ies, 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 borrower or a guaran-
tor; 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.
As of December 31, 2009, the weighted-average
interest rate on outstanding Revolver borrowings was
4.6 percent per annum. Interest on amounts borrowed under
the Revolver is paid monthly. Amounts outstanding under
the Revolver may be repaid, in whole or in part, at any time
without premium or penalty except for specified make-whole
payments on LIBOR-based loans. All principal amounts out-
standing under the Revolver are due and payable on the date
of termination of the Restated Credit Agreement. Borrowing
availability under the Revolver varies over time depending on
the value of the Company’s inventory, receivables and various
capital assets (the “Borrowing Base”). Borrowing availability
under the Revolver is reduced by outstanding letters
of credit and reserves for certain other items as defined in
the Restated Credit Agreement. As of December 31, 2010, the
Company had approximately $0.8 million of letters of credit
and other items outstanding which reduced availability and
$81.5 million of borrowing availability under the Revolver.
The Restated Credit Agreement contains events
of default customary for financings 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 specified restricted payments and
capital expenditures, authorize or issue capital stock, enter
into transactions with affiliates, 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 fixed charge coverage ratio if
availability under the Restated Credit Agreement is less
than $20 million. At December 31, 2010, 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, 2010, 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.
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 financ-
ing with a term of ten years for the construction of a satu-
rator. 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 semi-annually. As of December 31, 2010,
€7.5 million ($10.0 million, based on exchanges rates at
December 31, 2010) 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 cor-
porate purposes. The German Line of Credit is secured by
the domestic accounts receivable of Neenah Germany. As of
December 31, 2010 and 2009, the weighted-average interest
rate on outstanding Line of Credit borrowings was 3.8 per-
cent per annum and 4.1 percent per annum, respectively. In
November 2010, Neenah Germany renewed the German Line
of Credit on an “evergreen” basis. Subsequent to November
2011, the agreement may be terminated by either the
Company or HypoVereinsbank upon giving proper notice.
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 percent. Interest is payable quarterly
and principal may be repaid at any time without penalty.
As of December 31, 2010, €9.0 million ($11.9 million, based
on exchange rates at December 31, 2010) was outstanding
under the Line of Credit and €6.0 million ($8.0 million, based
on exchanges rates at December 31, 2010) of credit was avail-
able. 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 defined
in the agreement without lender approval or repayment of
the amount outstanding under the line, which was €9.0 mil-
lion ($11.9 million, based on exchange rates at December 31,
2010) at December 31, 2010. In addition, the terms of the
German Line of Credit require Neenah Germany to maintain
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, 2010.
66
Neenah Paper, Inc. 2010 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
P R I N C I P A L P AY M E N T S
The following table presents the Company’s required debt payments:
Debt payments
2011(b)
$13.6
2012
$1.7
2013(a)
2014(a)(c)
2015
Thereafter
Total
$1.6
$224.7
$1.7
$1.6
$244.9
(a) Includes principal payments on the Senior Notes of $223 million.
(b) As a result of the Partial Redemption, debt payments for the year ending December 31, 2011 will be $78.6 million.
(c) The Company believes the Partial Redemption will reduce required debt payments in the year ending December 31, 2014 by approximately $65 million.
EIGHT
Pension and Other Postretirement Benefits
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 defined benefit pen-
sion plans and/or defined contribution retirement plans.
Neenah Germany has defined benefit 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 nonqualified defined benefit plan.
The Company provides benefits under the SERP to the
extent necessary to fulfill the intent of its defined benefit
retirement plans without regard to the limitations set by the
Internal Revenue Code on qualified defined benefit plans.
For the year ended December 31, 2010, benefit
payments under the SERP exceeded the sum of expected
service cost and interest costs for the plan for calendar
2010. In accordance with ASC Topic 715, Compensation –
Retirement Benefits (“ASC Topic 715”), the Company mea-
sured the liabilities of the SERP as of September 30, 2010
and recognized a settlement loss of $0.3 million.
The closure of the Ripon Mill (see Note 3,
“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 defined benefit
pension plans and postretirement medical plan. In accor-
dance 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 curtail-
ment loss of approximately $0.8 million for the year ended
December 31, 2010.
The Company’s funding policy for qualified
defined benefit plans for its U.S. paper operations is to
contribute assets to fully fund the accumulated benefit obli-
gation. Subject to regulatory and tax deductibility limits,
any funding shortfall is to be eliminated over a reasonable
number of years. Nonqualified plans providing pension
benefits in excess of limitations imposed by taxing authori-
ties are not funded. There is no legal or governmental
obligation to fund Neenah Germany’s benefit plans and
as such the Neenah Germany defined benefit 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, 2010, the Company’s
pension plans had cumulative unrecognized investment
losses and other actuarial losses of approximately $33.3 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 maintains health care and life insurance ben-
efit plans for active employees of the Company and former
employees of the Canadian pulp operations. The plans are
generally noncontributory for employees who were eligible
to retired on or before December 31, 1992 and contributory
for most employees who became eligible to retire on or
after January 1, 1993. The Company does not provide a sub-
sidized benefit to most employees hired after 2003.
The Company’s obligations for postretirement
benefits other than pensions are measured annually as of
December 31. At December 31, 2010, the assumed inflation-
ary health care cost trend rates used to determine obliga-
tions at December 31, 2010 and costs for the year ended
December 31, 2011 were 8.4 percent gradually decreasing
to an ultimate rate of 4.5 percent in 2027. The assumed
inflationary health care cost trend rates used to determine
obligations at December 31, 2009 and cost for the year
ended December 31, 2010 were 8.7 percent gradually
decreasing to an ultimate rate of 4.5 percent in 2027.
Neenah Paper, Inc. 2010 Annual Report
67
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 reconciles the benefit obligations, plan assets, funded status and net liability information of
the Company’s pension and other postretirement benefit plans.
Change in Benefit Obligation:
Benefit obligation at beginning of year
Service cost
Interest cost
Currency
Actuarial loss (gain)
Benefit payments from plans
Plan participant contributions
Plan amendments
(Gain) loss on plan curtailment
Gain on plan settlement
Benefit 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
Benefit payments
Settlement payments
Fair value of plan assets at end of year
Funded Status:
Reconciliation of Funded Status
Fair value of plan assets
Projected benefit obligation
Net liability recognized in statement of financial position
Amounts recognized in statement of financial position consist of:
Current liabilities
Noncurrent liabilities
Net amount recognized
Pension Benefits
Postretirement
Benefits Other
than Pensions
Year Ended December 31,
2010
2009
2010
2009
$234.7
4.4
14.0
(2.6)
13.0
(10.8)
–
0.9
(0.2)
(0.7)
$252.7
$168.2
20.5
12.6
(8.4)
(0.7)
$192.2
$192.2
252.7
$ (60.5)
$ (2.1)
(58.4)
$ (60.5)
$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)
$ 37.9
1.6
2.2
(0.2)
3.7
(3.4)
0.2
–
–
–
$ 42.0
$ –
–
–
–
–
$ –
$ –
42.0
$ 42.0
$ (2.9)
(39.1)
$(42.0)
$ 36.8
1.9
2.5
0.5
(1.5)
(2.9)
0.2
–
0.4
–
$ 37.9
$ –
–
–
–
–
$ –
$ –
37.9
$(37.9)
$ (2.6)
(35.3)
$(37.9)
Amounts recognized in accumulated other comprehensive income consist of:
Accumulated actuarial loss
Prior service cost
Total recognized in accumulated other comprehensive income
Pension Benefits
Postretirement
Benefits Other
than Pensions
December 31,
2010
$33.3
1.3
$34.6
2009
$28.3
0.6
$28.9
2010
$7.0
2.0
$9.0
2009
$3.3
2.4
$5.7
68
Neenah Paper, Inc. 2010 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
Summary disaggregated information about the pension plans follows:
Projected benefit obligation
Accumulated benefit 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
Assets
Exceed ABO
ABO
Exceeds Assets
December 31,
Total
2010
$101.4
91.1
95.2
2009
$94.6
82.0
82.9
2010
2009
2010
2009
$151.3
149.3
97.0
$140.1
137.5
85.3
$252.7
240.4
192.2
$234.7
219.5
168.2
Pension Benefits
Postretirement Benefits
Other than Pensions
Year Ended December 31,
Service cost
Interest cost
Expected return on plan assets (a)
Recognized net actuarial loss
Amortization of unrecognized transition asset
Amortization of prior service cost
Amount of curtailment (gain) loss recognized
Amount of settlement loss recognized
Net periodic benefit cost
Less: Cost related to discontinued operations
2010
2009
2008
$ 4.4
14.0
(13.8)
1.3
–
0.1
–
0.3
6.3
–
$ 4.5
14.3
(11.3)
1.4
–
0.1
0.2
–
9.2
–
$ 6.8
18.5
(19.8)
1.4
(0.1)
1.0
–
–
7.8
1.9
2010
$1.6
2.2
–
0.1
–
0.4
–
–
4.3
–
Net periodic benefit cost related to continuing operations
$ 6.3
$ 9.2
$ 5.9
$4.3
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
(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
benefit payments and contributions) by the expected long-term rate of return.
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
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 benefit expense
Accumulated actuarial gain
Prior service cost (credit)
Transition asset
Total recognized in other comprehensive income
Total recognized in net periodic benefit cost and
other comprehensive income
Pension Benefits
Postretirement Benefits
Other than Pensions
2010
$ 6.3
5.0
0.7
–
5.7
Year Ended December 31,
2009
$ 9.2
(2.6)
(0.3)
–
(2.9)
2008
$ 7.8
(14.5)
(9.6)
0.1
(24.0)
2010
$ 4.3
3.7
(0.4)
–
3.3
2009
$ 5.7
(1.7)
(0.7)
–
(2.4)
2008
$ 1.0
(7.6)
5.3
–
(2.3)
$12.0
$ 6.3
$(16.2)
$ 7.6
$ 3.3
$(1.3)
The estimated net actuarial loss and prior service cost for the defined benefit pension plans expected to be amor-
tized from accumulated other comprehensive income into net periodic benefit cost over the next fiscal year are $1.6 million
and $0.2 million, respectively. The estimated net actuarial loss and prior service cost for postretirement benefits other than
pension expected to be amortized from accumulated other comprehensive income into net periodic benefit cost over the
next fiscal year is $0.2 million and $0.4 million, respectively.
Neenah Paper, Inc. 2010 Annual Report
69
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
W E I G H T E D - AV 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
Pension Benefits
Postretirement
Benefits Other
than Pensions
2010
5.86%
3.91%
December 31,
2009
6.17%
3.91%
2010
5.70%
–
2009
5.92%
–
Pension Benefits
Postretirement Benefits
Other than Pensions
Year Ended December 31,
2010
2009
2008
2010
6.06%
8.00%
3.91%
6.80%
7.92%
3.43%
6.10%
8.02%
3.30%
5.92%
–
–
2009
6.00%
–
–
2008
6.00%
–
–
the lowest priority to unobservable inputs (Level 3 measure-
ments). The three levels of the fair value hierarchy under
ASC Topic 820 are described below:
Level 1 – Inputs to the valuation methodology are unad-
justed quoted prices for identical assets or liabilities in
active markets 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 corroborated
by observable market data by correlation or other means.
If the asset or liability has a specified (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 significant 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 significant to the fair value measurement. Valuation
techniques attempt to maximize the use of observable inputs
and minimize the use of unobservable inputs.
Discount rate
Expected long-term return on plan assets
Rate of compensation increase
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 considered
were the plans’ historical ten-year and 15-year compounded
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 eight percent. The expected
long-term rate of return on the assets in the plans was
based on an asset allocation assumption of approximately
60 percent with equity managers, with expected long-term
rates of return of approximately ten percent, and 40 percent
with fixed income managers, with an expected long-term
rate of return of about six percent. The actual asset alloca-
tion is regularly reviewed and periodically rebalanced to the
targeted 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 frame-
work for measuring fair value. ASC Topic 820 provides a fair
value hierarchy that prioritizes the inputs to valuation tech-
niques 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
70
Neenah Paper, Inc. 2010 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, 2010:
Equity securities:
Domestic
International
Debt securities
Cash and equivalents
Total assets at fair value
Assets at Fair Value as of December 31, 2010
Level 1
Level 2
Level 3
Total
$ –
–
–
1.9
$1.9
$ 84.3
34.3
71.7
–
$190.3
$ –
–
–
–
$ –
$ 84.3
34.3
71.7
1.9
$192.2
Pension plan asset allocations are as follows:
Percentage of Plan Assets
at December 31,
2010
2009
2008
Asset Category
Equity securities
Debt securities
Cash and money-market funds
Total
62%
37%
1%
100%
59%
37%
4%
100%
55%
44%
1%
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 benefit
obligations to participants, retirees and beneficiaries.
Specifically, these objectives include the desire to: (a) invest
assets in a manner such that future assets are available to
fund liabilities, (b) maintain liquidity sufficient to pay current
benefits when due and (c) diversify, over time, among asset
classes so assets earn a reasonable return with acceptable
risk to 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, 2010, no company or group
of companies in a single industry represented more than
five percent of plan assets.
The Company’s investment assumptions are
established by an investment committee composed
of members of senior management and are validated
periodically against actual investment returns. As of
December 31, 2010, 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 fixed 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 diversification, 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 a substan-
tial portion of plan assets should be allocated to such
active mandates;
(f) a component of passive, indexed management can ben-
efit the plans through greater diversification and lower
cost, and a portion of the plan assets should be allocated
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 diversification.
For the years ended December 31, 2010,
2009 and 2008, no plan assets were invested in the
Company’s securities.
C A S H F L O W S
At December 31, 2010, the Company expects to make
aggregate contributions to qualified and nonqualified pen-
sion trusts and payments of pension benefits for unfunded
pension plans of approximately $20 million (based on
exchange rates at December 31, 2010).
Neenah Paper, Inc. 2010 Annual Report
71
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 U T U R E B E N E F I T P AY M E N T S
The following benefit payments, which reflect expected
future service, as appropriate, are expected to be paid:
Pension Plans
Postretirement Benefits
Other than Pensions
2011
2012
2013
2014
2015
Years 2016–2020
$11.9
19.4
13.0
13.2
13.8
84.7
$2.9
2.3
2.6
2.9
3.0
18.1
H E A LT 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 benefit plans. A
one-percentage-point change in assumed health care cost
trend rates would have the following effects:
Effect on total of service and
interest cost components
Effect on postretirement
benefit obligation
One Percentage-Point
Increase
Decrease
$0.7
$(0.8)
1.6
(2.8)
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
Company contributions to defined contribution retirement
plans are primarily based on the age and compensation
of covered employees. Contributions to these plans, all of
which were charged to expense, were $1.5 million in 2010,
$1.4 million in 2009 and $1.6 million in 2008. In addition, the
Company maintains a supplemental retirement contribu-
tion plan (the “SRCP”) which is a non-qualified, unfunded
defined contribution plan. The Company provides benefits
under the SRCP to the extent necessary to fulfill the intent
of its defined contribution retirement plans without regard
to the limitations set by the Internal Revenue Code on quali-
fied defined contribution plans. For each of the years ended
December 31, 2010, 2009 and 2008, the Company recog-
nized 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, 2010,
2009 and 2008, costs charged to expense for company
matching contributions under these plans were $1.3 million,
$1.5 million and $1.8 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 compensa-
tion committee of the Company’s Board of Directors may
grant various types of equity-based compensation awards,
including incentive and nonqualified stock options, SARs,
restricted stock, RSUs, RSUs with performance conditions
(“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, 2010, approximately 1,300,000 shares of
Common Stock were reserved for future issuance under
the Omnibus Plan. As of December 31, 2010, the number
of shares available for future issuance was not reduced by
outstanding SARs because the closing 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 recog-
nition provisions of ASC Topic 718, Compensation – Stock
Compensation (“ASC Topic 718”).
For the years ended December 31, 2010, 2009
and 2008, the Company recognized in its provision (benefit)
for income taxes on the consolidated statement of opera-
tions excess tax benefits (costs) related to the exercise or
vesting of stock-based awards of approximately $(0.2) mil-
lion, $(0.7) million and $0.5 million, respectively.
72
Neenah Paper, Inc. 2010 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
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 first three anniversaries of
the date of grant. Options awarded to nonemployee mem-
bers of the Board of Directors expire in ten years and vest
on the first anniversary of the date of grant. The weighted-
average grant date fair value for stock options granted for
the years ended December 31, 2010 and 2009 was $5.72 per
share and $2.67 per share, respectively, and was estimated
using the Black-Scholes option valuation model with the fol-
lowing assumptions:
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 benefits.
Stock-based
compensation expense
Income tax benefit
Stock-based compensation,
net of income tax benefit
Year Ended December 31,
2010
2009
2008
$ 4.9
(1.9)
$ 4.7
(1.8)
$ 4.0
(1.5)
$ 3.0
$ 2.9
$ 2.5
Year Ended
December 31,
2010
5.9
2.9%
55.3%
2.9%
2009
5.9
2.4%
51.6%
4.9%
The following table summarizes total compen-
sation costs related to the Company’s equity awards and
amounts recognized in the year ended December 31, 2010.
Expected life in years
Interest rate
Volatility
Dividend yield
Unrecognized compensation
cost – December 31, 2009
Grant date fair value current year grants
Compensation expense recognized
Grant date fair value of shares forfeited
Unrecognized compensation
cost – December 31, 2010
Expected amortization period (in years)
Stock
Options
Restricted
Stock
$ 1.4
1.1
(1.5)
–
$ 1.0
1.7
$ 1.4
4.7
(3.4)
(0.3)
$ 2.4
1.8
S T O C K O P T I O N S
For the year ended December 31, 2010, the Company
awarded nonqualified stock options to Long-Term Incentive
Plan (the “LTIP”) participants to purchase approximately
202,000 shares of common stock (subject to forfeiture due
to termination of employment and other conditions). In
addition, the Company awarded to nonemployee members
of its Board of Directors nonqualified stock options to pur-
chase 5,600 shares of common stock. For the year ended
December 31, 2010, the weighted-average exercise price of
such nonqualified stock option awards was $13.68 per share.
The exercise price of the options was equal to the market
Expected volatility was estimated by refer-
ence 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, 2010:
Options outstanding –
December 31, 2009
Add: Options granted
Less: Options exercised
Less: Options forfeited/cancelled
Options outstanding –
December 31, 2010
Number of
Stock
Options
Weighted-
Average
Exercise
Price
2,269,848
207,190
86,071
50,330
$ 23.60
$13.68
$ 8.03
$ 6.14
2,340,637
$23.23
Neenah Paper, Inc. 2010 Annual Report
73
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, 2010, 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
961,970
345,886
686,080
328,943
2,322,879
8.4
5.1
3.4
3.2
5.7
$10.79
$26.29
$32.71
$37.34
$23.33
Aggregate
Intrinsic
Value(a)
$8.6
–
–
–
$8.6
Number of
Options
290,637
308,634
686,080
328,943
1,614,294
Weighted-
Average
Exercise
Price
$11.68
$26.36
$32.71
$37.34
$28.65
Aggregate
Intrinsic
Value(a)
$2.3
–
–
–
$2.3
(a) Represents the total pre-tax intrinsic value as of December 31, 2010 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 $19.68 on December 31, 2010.
The aggregate pre-tax intrinsic value of stock
options exercised for the year ended December 31, 2010 was
$0.9 million.
No stock options were exercised for the years
ended December 31, 2009 and 2008.
The following table summarizes the status of the
Company’s unvested stock options as of December 31, 2010
and activity for the year then ended:
Number of
Weighted-
Average
Stock Grant Date
Fair Value
Options
Outstanding – December 31, 2009
Add: Options granted
Less: Options vested
Less: Options forfeited/cancelled
Outstanding – December 31, 2010
906,051
207,190
375,657
11,241
726,343
$3.85
$5.72
$4.76
$6.35
$3.88
As of December 31, 2010, certain participants
met age and service requirements that allowed their
options to qualify for accelerated vesting upon retire-
ment. As of December 31, 2010, there were approximately
235,000 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
$0.9 million. For the year ended December 31, 2010, stock-
based compensation expense for such options was $0.4 mil-
lion. For the year ended December 31, 2010, the aggregate
grant date fair value of options vested, including options
subject to accelerated vesting, was $2.7 million. Stock
options that reflect accelerated vesting for expense recog-
nition become exercisable according to the contract terms
of the stock option grant.
74
Neenah Paper, Inc. 2010 Annual Report
P E R F O R M A N C E S H A R E S
For the year ended December 31, 2010, the Company
granted target awards of 183,500 Performance Units to LTIP
participants. The measurement period for the Performance
Units was January 1, 2010 through December 31, 2010. On
December 31, 2010, approximately 298,200 RSUs equal to
163 percent of the Performance Unit target were awarded
based on the Company’s return on invested capital, rev-
enue growth for the Technical Products segment, the level
of cash flow for the Fine Paper segment and total return to
shareholders relative to a peer group of companies and the
Russell 2000® Value small capitalization index during the
measurement period. The RSUs will vest on December 31,
2012. During the vesting period, the holders of such RSUs
are entitled to dividends-in-kind in the form of additional
RSUs, but the shares do not have voting rights and are for-
feited in the event the holder’s employment is terminated
for a reason other than death, disability or retirement. The
weighted-average grant date fair value for the Performance
Units was $23.03 per share. Compensation cost is recog-
nized pro rata over the vesting period.
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-aver-
age grant date fair value for the Performance Shares was
$10.59 per share.
For the year ended December 31, 2008, the
Company granted target awards of 72,025 Performance
Units (net of awards forfeited due to termination 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
employment) to LTIP participants. The measurement period
for the Performance Units was January 1, 2008 through
December 31, 2010. On December 31, 2010, 79,349 shares
of Common Stock equal to 100 percent of the Performance
Unit target plus dividends-in-kind were awarded based on
the Company’s growth in earnings before interest, taxes,
depreciation and amortization (“EDITDA”) 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 $13.75 per share.
R S U S
For the year ended December 31, 2010, the Company
awarded 8,910 RSUs to nonemployee members of the
Company’s Board of Directors (“Director Awards”). The
weighted-average grant date fair value of such awards was
$18.90 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 39 RSUs in lieu of dividends on
RSUs held by 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, 2010:
Outstanding – December 31, 2009
Add: Shares granted(a)
Shares vested
Performance Shares vested
Shares expired or cancelled
Outstanding – December 31, 2010(b)
Weighted-Average
Grant Date
Fair Value
RSUs
Performance
Shares
Weighted-Average
Grant Date
Fair Value
66,497
8,949
(65,423)
377,537
–
387,560
$ 35.70
$18.88
$35.87
$13.82
–
$13.97
279,425
183,500
–
(255,525)
(1,600)
205,800
$ 11.41
$23.03
–
$20.42
$11.52
$10.59
(a) Includes 39 RSUs granted to 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, 2010 was $5.9 million and $10.1 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, 2010.
The aggregate pre-tax intrinsic value of
On March 12, 2008, the Company’s sharehold-
restricted stock and RSUs that vested for the years ended
December 31, 2010, 2009 and 2008 was $2.5 million,
$0.4 million and $1.1 million, respectively.
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, 2010, 2009
and 2008, the Company acquired 15,547 shares, 4,910
shares and 31,652 shares of Common Stock, respectively,
at a cost of approximately $0.2 million, $0.1 million and
$0.3 million, respectively, for shares surrendered by employ-
ees to pay taxes due on vested restricted stock awards.
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 significant reduction in share-
holder record keeping and mailing expenses and provided
holders of fewer than 50 shares with a cost-effective way to
efficiently 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 only
with shares of Common Stock. The preferred stock pur-
chase rights become exercisable and separately certificated
Neenah Paper, Inc. 2010 Annual Report
75
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 upon a “Rights Distribution Date” as that term is
defined 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 beneficial ownership of 15 per-
cent 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, 2010, are as follows:
2011
2012
2013
2014
2015
Thereafter
Future minimum lease obligations
76
Neenah Paper, Inc. 2010 Annual Report
The following table presents the Company’s
rent expense under operating leases for the years ended
December 31, 2010, 2009 and 2008:
Rent expense
Less: Amounts related to
discontinued operations
Rent expense related to
continuing operations
Year Ended December 31,
2010
$3.5
2009
$2.5
–
–
2008
$3.3
0.5
$3.5
$2.5
$2.8
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, 2010. Commitments under these contracts
are approximately $4.8 million in 2011, $1.6 million in 2012
and $0.1 million in 2013.
Although the Company is primarily liable for
payments on the above-mentioned leases and purchase
commitments, 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 financial condi-
tion, results of operations or liquidity of the Company.
I N C O M E T A X E S
The Company is continuously undergoing examination by
the IRS as well as various state and foreign jurisdictions. The
IRS and other taxing authorities routinely challenge certain
deductions and credits reported by the Company on its
income tax returns. See Note 6, “Income Taxes,” for addi-
tional detail.
$1.4
0.9
0.8
0.6
0.5
0.7
$4.9
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
U S T A X A U D I T – T A X Y E A R S 2 0 0 7 A N D 2 0 0 8
In December 2010, the IRS issued a Revenue Agent’s
Report for the 2007 and 2008 tax years. In January 2011,
the Company submitted a protest to the Appeals Division
of the IRS with respect to certain unresolved issues which
involve a proposed IRS adjustment with respect to dual con-
solidated losses (“DCLs”) and the recapture of NOLs ema-
nating from the Company’s former Canadian operations.
The Company’s protest asserts that the IRS examination
team made several errors in its assessment of the DCL rules
and, as such, the proposed adjustment is erroneous. As of
December 31, 2010, no amounts were reserved related to
these issues. Management intends to vigorously contest this
proposed adjustment, however, the outcome is uncertain
and, should the Company not prevail, the outcome could
have a material adverse effect on the Company’s results of
operations, cash flows and financial position. Although it is
reasonably possible that these matters could be resolved
during the next 12 months, the timing is uncertain.
G E R M A N T A X A U D I T – T A X Y E A R S 2 0 0 4 T O 2 0 0 7
In November 2010, the Company received a tax examina-
tion report from the German tax authorities challenging
certain interest expense deductions claimed on the
Company’s tax returns for the years 2004 through 2007.
The Company believes that the finding in the report
is improper and will be rejected on appeal. As of
December 31, 2010, no amounts were reserved related to
these issues. Management intends to vigorously contest
the finding in the report, however, the outcome is uncertain
and, should the Company not prevail, the outcome could
have a material adverse effect on the Company’s results of
operations, cash flows and financial position. Although it is
reasonably possible that these matters could be resolved
during the next 12 months, the timing is uncertain.
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-
nification liabilities under these agreements are unknown,
remote or highly contingent. Furthermore, even in the
event that an indemnification claim is asserted, liability
for indemnification 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 indemnifiable liability or risk
under these agreements for which it believes a future pay-
ment is probable and a range of loss can be reasonably
estimated. As of December 2009, management believes the
Company’s liability under such indemnification obligations
was not material to the consolidated financial statements.
E N V I R O N M E N T A L , H E A LT 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 operating
expenditures in order to comply with environmental,
health and safety laws, regulations and ordinances, man-
agement 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 financial 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
Neenah Paper, Inc. 2010 Annual Report
77
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
additional costs which could have a material adverse effect
on the Company’s financial condition, results of operations
or liquidity.
The Company incurs capital expenditures
necessary to meet legal requirements and otherwise relat-
ing 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
financial condition, results of operations or liquidity.
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, 2010, the Company had approximately
1,660 regular full-time employees of whom 630 hourly and
310 salaried employees were located in the United States
and 480 hourly and 240 salaried employees were located
in Germany.
Hourly employees at the Whiting, Neenah,
Munising and Appleton paper mills are represented by the
United Steelworkers Union (the “USW”). In October 2010,
the Company and the USW signed a collective bargaining
agreement for the Appleton paper mill that is effective
through May 31, 2014. In May 2010, the Company and
the USW signed a collective bargaining agreement for the
Munising paper mill that is effective through July 14, 2013.
The collective bargaining agreements for the Whiting and
Neenah paper mills expire on January 31, 2013 and June 30,
2013, respectively. Separately, the Appleton, Neenah,
Whiting and Munising paper mills have bargained jointly
with the union on pension matters. The agreement on pen-
sion matters will remain in effect through 2019.
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”). In December 2010,
the IG BCE and a national trade association represent-
ing all employers in the industry signed a new collec-
tive bargaining agreement covering union employees of
Neenah Germany that expires in November 2011.
As of December 31, 2010, no hourly employees
in the United States were covered by collective bargain-
ing agreements that have expired or will expire within the
next 12-months. 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 col-
lective bargaining agreement with the IG BCE that expires
in November 2011 cannot be determined. The Company
believes it has satisfactory relations with its employees cov-
ered 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 opera-
tions or cash flows.
THIRTEEN
Transactions with Kimberly-Clark
For the year ended December 31, 2008, the Company
sold softwood and hardwood pulp to Kimberly-Clark
Corporation (“Kimberly-Clark”) from the Pictou Mill. Net
sales for the pulp sold to Kimberly-Clark for the year ended
December 31, 2008 $37 million. All such revenue is reported
as results of discontinued operations on the consolidated
statements of operations.
P U L P S U P P LY 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 LY - C L A R K
In 2004, 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 by Kimberly-Clark of its technical products and
fine paper businesses in the United States and its Canadian
pulp business (collectively, the “Pulp and Paper Business”).
These agreements provided for, among other things, (i) the
78
Neenah Paper, Inc. 2010 Annual Report
principal corporate transactions required to effect the sepa-
ration of the Pulp and Paper Business from Kimberly-Clark,
cross-indemnities principally designed to place financial
responsibility for the obligations and liabilities of the Pulp
and Paper Business with the Company and financial respon-
sibility for the obligations 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 tran-
sitional corporate support services and (iv) the Company’s
and Kimberly-Clark’s respective 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-
ified in their entirety by the respective agreements.
FOURTEEN
Business Segment and Geographic Information
The Company reports its operations in two segments:
Technical Products and Fine Paper. The technical products
business is an international producer of filtration media,
durable, saturated and coated substrates for a variety of
end uses, and nonwoven wall coverings. The fine paper
business is a producer of premium writing, text, cover and
specialty papers. Each segment employs different tech-
nologies and marketing strategies. Disclosure of segment
information is on the same basis that management uses
internally for evaluating segment performance and allocat-
ing resources. Transactions between segments eliminated
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 Significant Accounting Policies.”
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
B U S I N E S S S E G M E N T S
Net sales
Technical Products
Fine Paper
Consolidated
Year Ended December 31,
2010
2009
2008
$384.3
273.4
$657.7
$318.3
255.6
$573.9
$396.8
335.5
$732.3
Year Ended December 31,
2010
2009
2008
Operating income (loss)
Technical Products (b)
Fine Paper (a)
Unallocated corporate costs (c)
Consolidated
$ 29.2
40.5
(14.6)
$ 55.1
$ 14.4
17.5
(15.5)
$ 16.4
$(41.7)
35.8
(11.0)
$(16.9)
(a) Operating earnings for the years ended December 31, 2010 and 2009
include gains (losses) related to the closure and sale of the Ripon Mill of
$3.4 million and $(17.1) million, respectively.
(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
certain post-employment obligations for Terrace Bay retirees.
Year Ended December 31,
2010
2009
2008
Depreciation and amortization
Technical Products
Fine Paper
Corporate
Total Continuing Operations
Discontinued operations
Consolidated
$16.9
9.7
4.7
31.3
–
$31.3
$17.8
10.7
6.0
34.5
–
$34.5
$18.9
11.4
6.4
36.7
1.9
$38.6
Year Ended December 31,
2010
2009
2008
Capital expenditures
Technical Products
Fine Paper
Corporate
Total Continuing Operations
Discontinued operations
Consolidated
$10.7
6.7
–
17.4
–
$17.4
Total assets
Technical Products
Fine Paper
Assets held for sale
Corporate and other
Total
$4.3
4.0
0.1
8.4
–
$8.4
$15.0
8.9
4.7
28.6
1.4
$30.0
December 31,
2010
2009
$337.9
162.2
–
106.6
$606.7
$353.2
165.6
10.0
107.8
$636.6
Neenah Paper, Inc. 2010 Annual Report
79
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
G E O G R A P H I C I N F O R M A T I O N
FIFTEEN
Year Ended December 31,
2010
2009
2008
Supplemental Data
Net sales
United States
Europe
Consolidated
Total assets
United States
Canada
Europe
Total
$413.6
244.1
$657.7
$360.9
213.0
$573.9
$467.3
265.0
$732.3
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 M M A R Y O F A D V E R T I S I N G A N D R E S E A R C H E X P E N S E S
December 31,
2010
2009
$308.9
0.1
297.7
$606.7
$330.0
5.4
301.2
$636.6
Advertising expense
Research expense
Year Ended December 31,
2010
$6.1
5.3
2009
$6.5
5.5
2008
$8.7
6.5
S U M M A R Y O F O T H E R I N C O M E – N E T
Year Ended December 31,
Net sales are attributed to geographic areas
based on the physical location of the entities. Segment
identifiable assets are those that are directly used in the
segments operations. Corporate assets are primarily cash,
deferred income taxes and deferred financing costs.
C O N C E N T R A T I O N S
For the years ended December 31, 2010, 2009 and 2008,
sales to the fine 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, 2010, 2009 and 2008, no single customer
accounted for more than ten 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 significant 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 specialty
grade or of specialty softwood pulp to our technical prod-
ucts business or cotton fiber to our fine paper business
could disrupt and eventually cause a shutdown of produc-
tion of certain technical products and fine paper products.
80
Neenah Paper, Inc. 2010 Annual Report
(Gain) loss on property disposals $ 0.2
Net realized and unrealized
foreign currency gains
Litigation settlement
Terrace Bay employee benefits
Other income – net
Total other income – net
Less: (Income) expense related
to discontinued operations
Other income – net related to
continuing operations
2010
(0.2)
(0.3)
0.6
(1.3)
(1.0)
2009
$ 0.2
2008
$ (6.3)
(0.1)
–
0.7
(1.0)
(0.2)
(0.7)
–
(4.4)
(1.4)
(12.8)
–
0.8
(1.5)
$(1.0)
$(1.0)
$(11.3)
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
S U M M A R Y O F A C C O U N T S R E C E I V A B L E – N E T
Accounts Receivable:
From customers
Other
Less allowance for doubtful
accounts and sales discounts
Total
S U M M A R Y O F I N V E N T O R I E S
Inventories by Major Class:
Raw materials
Work in progress
Finished goods
Supplies and other
Excess of FIFO over LIFO cost
Total
December 31,
2010
2009
$71.6
1.0
(1.9)
$70.7
$69.4
0.2
(1.9)
$67.7
December 31,
2010
2009
$ 18.5
13.3
48.2
1.7
81.7
(12.3)
$ 69.4
$16.6
11.7
49.4
1.7
79.4
(8.7)
$70.7
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
S U M M A R Y O F P R E P A I D A N D O T H E R C U R R E N T A S S E T S
S U M M A R Y O F N O N C U R R E N T E M P L O Y E E B E N E F I T S
Prepaid and other current assets
Spare parts
Receivable from FiberMark for German taxes
Total
A S S E T S H E L D F O R S A L E
December 31,
2010
$ 8.0
5.6
0.5
$14.1
2009
$ 7.6
5.5
0.6
$13.7
A N D O T H E R O B L I G A T I O N S
Pension benefits
Post-employment benefits
other than pensions (a)
Other
Total
December 31,
2010
2009
$ 58.4
$ 64.3
44.3
2.0
$104.7
40.7
3.3
$108.3
December 31,
(a) Includes $5.0 million and $5.4 million in long-term disability benefits due
to Terrace Bay retirees as of December 31, 2010 and 2009, respectively.
The Woodlands (Note 5)
Ripon Mill property, plant and
equipment – net (Note 3)
Total
2010
$ –
–
$ –
2009
$ 3.8
6.2
$10.0
S U M M A R Y O F 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 – N E T
Land and land improvements
Buildings
Machinery and equipment
Construction in progress
Less accumulated depreciation
Net Property, Plant and Equipment
December 31,
2010
2009
$ 20.8
96.2
439.6
11.9
568.5
306.6
$261.9
$ 21.9
97.8
445.1
4.8
569.6
285.2
$284.4
Depreciation expense for the years ended
December 31, 2010, 2009 and 2008 was $28.0 million,
$30.1 million and $34.7 million, respectively. For the year
ended December 31, 2010, 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 for the years ended December 31, 2010,
2009 and 2008 was $0.1 million, $12 thousand and $0.5 mil-
lion, respectively.
S U M M A R Y O F A C C R U E D E X P E N S E S
Accrued salaries and employee benefits
Liability for uncertain income tax positions
Accrued interest
Accrued restructuring costs
Accrued income taxes
Other
Total
December 31,
2010
$21.5
8.6
2.1
0.2
2.4
13.3
$48.1
2009
$18.2
9.5
2.1
4.0
0.4
14.4
$48.6
S U P P L E M E N T A L C A S H F L O W D A T A
N E T C A S H P R O V I D E D B Y ( U S E D I N ) C H A N G E S
I N W O R K I N G C A P I T A L
Year Ended December 31,
2010
2009
2008
$(3.0)
Accounts receivable
1.3
Inventories
Income taxes receivable (payable) 2.8
(0.4)
Prepaid and other current assets
2.0
Accounts payable
(3.5)
Accrued expenses
Foreign currency effects on
working capital
(3.1)
$(3.9)
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
(35.8)
(22.6)
(2.5)
$(22.6)
S U P P L E M E N T A L D I S C L O S U R E O F C A S H F L O W I N F O R M A T I O N
Year Ended December 31,
2010
2009
2008
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
$18.9
$20.2
$23.0
0.5
(7.7)
6.6
2.9
1.8
2.7
Neenah Paper, Inc. 2010 Annual Report
81
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 Paper Company of 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 guar-
antees are full and unconditional. The following condensed consolidating financial information is presented in lieu of
consolidated financial statements for the Guarantor Subsidiaries as of December 31, 2010 and 2009 and for the years
ended December 31, 2010, 2009 and 2008. Certain deferred tax assets presented in the Guarantor Subsidiaries column
as of December 31, 2009 were presented in the Neenah Paper, Inc. column as of December 31, 2010 as such assets will
ultimately be realized by Neenah Paper, Inc. due to the substantially complete liquidation of Neenah Canada.
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, 2010
Neenah
Paper, Inc.
Guarantor Non-Guarantor
Subsidiaries
Subsidiaries
Consolidating
Adjustments
Consolidated
Amounts
Net sales
Cost of products sold
Gross profit
Selling, general and administrative expenses
Gain on sale of the Ripon Mill
Other (income) expense – net
Operating income
Equity in earnings of subsidiaries
Interest expense – net
Income from continuing operations before income taxes
Provision for income taxes
Income from continuing operations
Income from discontinued operations,
net of income tax provision
Net income
$269.4
204.9
64.5
44.2
–
(0.4)
20.7
(157.5)
19.0
159.2
0.1
159.1
–
$159.1
$144.2
117.1
27.1
10.7
(3.4)
0.6
19.2
–
0.3
18.9
7.9
11.0
134.1
$145.1
$244.1
215.7
28.4
14.4
–
(1.2)
15.2
–
1.0
14.2
1.8
12.4
–
$ 12.4
$ –
–
–
–
–
–
–
157.5
–
(157.5)
–
(157.5)
–
$(157.5)
$657.7
537.7
120.0
69.3
(3.4)
(1.0)
55.1
–
20.3
34.8
9.8
25.0
134.1
$159.1
82
Neenah Paper, Inc. 2010 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, 2009
Neenah
Paper, Inc.
Guarantor Non-Guarantor
Subsidiaries
Subsidiaries
Consolidating
Adjustments
Consolidated
Amounts
Net sales
Cost of products sold
Gross profit
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
Benefit 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)
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
$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)
Year Ended December 31, 2008
Neenah
Paper, Inc.
Guarantor Non-Guarantor
Subsidiaries
Subsidiaries
Consolidating
Adjustments
Consolidated
Amounts
Net sales
Cost of products sold
Gross profit
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 (benefit) for income taxes
Income (loss) from continuing operations
Loss from discontinued operations, net of income tax benefit
Net income (loss)
$ 284.2
228.3
55.9
47.6
–
0.6
7.7
146.3
21.6
(160.2)
(3.2)
(157.0)
–
$(157.0)
$ 183.1
160.5
22.6
12.3
–
(10.9)
21.2
–
1.9
19.3
9.7
9.6
(111.2)
$(101.6)
$265.0
242.0
23.0
15.3
54.5
(1.0)
(45.8)
–
1.5
(47.3)
(2.6)
(44.7)
–
$ (44.7)
$ –
–
–
–
–
–
–
(146.3)
–
146.3
–
146.3
–
$146.3
$ 732.3
630.8
101.5
75.2
54.5
(11.3)
(16.9)
–
25.0
(41.9)
3.9
(45.8)
(111.2)
$(157.0)
Neenah Paper, Inc. 2010 Annual Report
83
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
Deferred income taxes
Intercompany amounts receivable
Prepaid and other current assets
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 Benefits and Other Obligations
TOTAL LIABILITIES
STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
December 31, 2010
Neenah
Paper, Inc.
Guarantor Non-Guarantor
Subsidiaries
Subsidiaries
Consolidating
Adjustments
Consolidated
Amounts
$ 45.0
24.2
33.7
17.1
17.3
5.1
142.4
266.0
189.5
76.5
237.1
39.3
–
2.8
8.4
$506.5
$ –
14.5
47.5
27.5
89.5
223.0
–
34.8
347.3
159.2
$506.5
$ 2.4
16.5
9.0
2.4
47.5
1.8
79.6
101.5
66.3
35.2
–
3.8
–
–
0.1
$118.7
$ –
5.2
17.3
7.7
30.2
–
–
34.2
64.4
54.3
$118.7
$ 0.9
30.0
26.7
–
–
7.2
64.8
201.0
50.8
150.2
–
–
41.5
21.2
5.7
$283.4
$ 13.6
10.7
–
12.9
37.2
8.3
19.4
35.7
100.6
182.8
$283.4
$ –
–
–
–
(64.8)
–
(64.8)
–
–
–
(237.1)
–
–
–
–
$(301.9)
$ –
–
(64.8)
–
(64.8)
–
–
–
(64.8)
(237.1)
$(301.9)
$ 48.3
70.7
69.4
19.5
–
14.1
222.0
568.5
306.6
261.9
–
43.1
41.5
24.0
14.2
$606.7
$ 13.6
30.4
–
48.1
92.1
231.3
19.4
104.7
447.5
159.2
$606.7
84
Neenah Paper, Inc. 2010 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
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 Benefits and Other Obligations
TOTAL LIABILITIES
STOCKHOLDERS’ EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY
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
281.1
10.2
–
2.9
6.5
$525.5
$ 40.9
14.3
49.4
23.6
128.2
252.9
–
34.8
415.9
109.6
$525.5
$ 2.0
16.1
8.9
0.5
57.0
49.4
1.7
10.0
145.6
99.5
62.9
36.6
–
26.3
–
–
0.1
$208.6
$ –
4.5
68.7
14.8
88.0
–
–
38.7
126.7
81.9
$208.6
$ 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)
–
–
–
(281.1)
–
–
–
–
$(399.2)
$ –
–
(118.1)
–
(118.1)
–
–
–
(118.1)
(281.1)
$(399.2)
$ 5.6
67.7
70.7
0.8
61.7
–
13.7
10.0
230.2
569.6
285.2
284.4
–
36.5
44.9
27.5
13.1
$636.6
$ 55.6
27.2
–
48.6
131.4
263.6
23.7
108.3
527.0
109.6
$636.6
Neenah Paper, Inc. 2010 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
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
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization
Stock-based compensation
Deferred income tax provision (benefit)
Gain on sale of the Woodlands
Reclassification of cumulative translation adjustments
related to investments in Canada
Gain on sale of Ripon Mill
Loss on other asset dispositions
Net cash provided by (used in) changes in
operating working capital
Equity in earnings of subsidiaries
Pension and other post-employment benefits
Other
NET CASH PROVIDED BY OPERATING ACTIVITIES
INVESTING ACTIVITIES
Capital expenditures
Net proceeds from sale of the Woodlands
Increase in investments
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
Proceeds from exercise of stock options
Other
Intercompany transfers – net
NET CASH USED IN FINANCING ACTIVITIES
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, 2010
Neenah
Paper, Inc.
Guarantor Non-Guarantor
Subsidiaries
Subsidiaries
Consolidating
Adjustments
Consolidated
Amounts
$ 159.1
$145.1
$ 12.4
$(157.5)
$159.1
13.1
4.8
2.2
–
–
–
0.2
(0.3)
(157.5)
(0.9)
0.8
21.5
(6.7)
–
(3.5)
8.7
(0.3)
(1.8)
0.1
(69.9)
–
(1.0)
(5.9)
0.7
(0.2)
99.4
23.2
42.9
2.1
$ 45.0
4.4
–
36.5
(74.1)
(87.9)
(3.4)
–
1.0
–
(6.9)
(1.6)
13.1
(2.6)
78.0
–
–
–
75.4
–
–
–
–
–
–
–
(88.1)
(88.1)
0.4
2.0
$ 2.4
13.8
0.1
(1.7)
–
–
–
–
(4.6)
–
–
(0.1)
19.9
(8.1)
–
–
–
1.0
(7.1)
–
(1.6)
13.3
(13.8)
–
–
–
(11.3)
(13.4)
(0.6)
1.5
$ 0.9
–
–
–
–
–
–
–
–
157.5
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$ –
31.3
4.9
37.0
(74.1)
(87.9)
(3.4)
0.2
(3.9)
–
(7.8)
(0.9)
54.5
(17.4)
78.0
(3.5)
8.7
0.7
66.5
0.1
(71.5)
13.3
(14.8)
(5.9)
0.7
(0.2)
–
(78.3)
42.7
5.6
$ 48.3
86
Neenah Paper, Inc. 2010 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, 2009
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 benefit
Ripon Mill non-cash charges
Loss on other asset dispositions
Net cash provided by changes in operating working capital
Equity in earnings of subsidiaries
Pension and other post-employment benefits
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
$ (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
Neenah Paper, Inc. 2010 Annual Report
87
Year Ended December 31, 2008
Neenah
Paper, Inc.
Guarantor Non-Guarantor
Subsidiaries
Subsidiaries
Consolidating
Adjustments
Consolidated
Amounts
$(157.0)
$(101.6)
$(44.7)
$ 146.3
$(157.0)
7.4
–
(55.2)
–
91.2
29.4
(2.8)
53.7
(4.3)
(6.7)
7.5
–
(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
–
–
–
–
–
–
–
–
–
–
–
(146.3)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$ –
38.6
4.0
(56.1)
54.5
91.2
29.4
(2.8)
53.7
(4.3)
(6.3)
(22.6)
–
(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
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
15.4
4.0
3.1
–
–
–
–
–
–
0.4
(21.3)
146.3
(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
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 (benefit)
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 benefit plans
Gain on curtailment of postretirement benefit plan
(Gain) loss on other asset dispositions
Increase (decrease) in working capital
Equity in losses of subsidiaries
Pension and other postretirement benefits
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
88
Neenah Paper, Inc. 2010 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
Unaudited Quarterly Data
Net Sales
Gross Profit
Operating Income
Income From Continuing Operations
Earnings Per Common Share From Continuing Operations:
Basic
Diluted
Net Sales
Gross Profit
Operating Income (Loss)
Income (Loss) From Continuing Operations
Earnings (Loss) Per Common Share From Continuing Operations:
Basic
Diluted
(a) Includes a gain of $3.3 million on disposal of the Ripon Mill.
(b) Includes costs related to the closure of the Ripon Mill of $17.1 million.
First
$167.3
32.3
16.4
7.3
$ 0.50
$ 0.48
First
$134.1
20.5
4.9
(0.7)
$ (0.05)
$ (0.05)
Second
$168.6
32.2
13.7
6.3
$ 0.43
$ 0.41
Second (b)
$135.2
24.2
(10.5)
(8.6)
$ (0.58)
$ (0.58)
2010 Quarters
Third
$161.5
27.8
11.7
4.7
$ 0.32
$ 0.30
2009 Quarters
Third
$150.1
28.3
10.7
3.4
$ 0.23
$ 0.23
Fourth (a)
Year (a)
$160.3
27.7
13.3
6.7
$ 0.45
$ 0.43
Fourth
$154.5
28.6
11.3
4.1
$ 0.28
$ 0.28
$657.7
120.0
55.1
25.0
$ 1.69
$ 1.61
Year (b)
$573.9
101.6
16.4
(1.8)
$ (0.12)
$ (0.12)
Neenah Paper, Inc. 2010 Annual Report
89
LEADERSHIP
E X E C U T I V E T E A M
B OA R D O F D I R E C T O R S
Sean T. Erwin
Chairman of the Board,
President and
Chief Executive Officer
John P. O’Donnell
Senior Vice President and
Chief Operating Officer
Bonnie C. Lind
Senior Vice President,
Chief Financial Officer
and Treasurer
Steven S. Heinrichs
Senior Vice President,
General Counsel
and Secretary
Dennis P. Runsten
President,
Technical Products – U.S.
Julie A. Schertell
President, Fine Paper
Armin S. Schwinn
Managing Director,
Neenah Germany
Sean T. Erwin
Chairman of the Board,
President and
Chief Executive Officer,
Neenah Paper, Inc.
Edward Grzedzinski
Former Chief Executive
Officer, NOVA
Information Systems
Mary Ann Leeper, Ph.D.
Senior Strategic Advisor,
Female Health Company
and Former President and
Chief Operating Officer,
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.
John P. O’Donnell
Senior Vice President and
Chief Operating Officer,
Neenah Paper, Inc.
Stephen M. Wood, Ph.D.
President and
Chief Executive Officer,
FiberVisions Corporation
90
Neenah Paper, Inc. 2010 Annual Report
SHAREHOLDER INFORMATION
C O R P O R AT E
R E G I S T R A R A N D
H E A D Q UA R T E R S
Neenah Paper, Inc.
3460 Preston Ridge Road
Suite 600
Alpharetta, GA 30005
678.566.6500
www.neenah.com
A N N UA L M E E T I N G
O F S H A R E H O L D E R S
The 2011 annual meeting
of the shareholders of
Neenah Paper, Inc. will
be held Wednesday,
May 18, 2011, at 10:00 a.m.,
Eastern time at Neenah’s
headquarters in
Alpharetta, Georgia.
As of February 28, 2011,
Neenah had approximately
2,100 holders of record
of its common stock.
T R A N S F E R AG E N T
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/equityaccess
F I N A N C I A L A N D
O T H E R C O M PA N Y
I N F O R M AT I O N
Our Annual Report on
Form 10-K for the fiscal year
ended December 31, 2010
is available on our website
at www.neenah.com.
In addition, financial reports,
recent filings with the
Securities and Exchange
Commission (SEC), news
releases and other informa-
tion are available 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
C E R T I F I C AT I O N S
Neenah has included as
exhibits to its Annual Report
on Form 10-K for the fiscal
year ended December 31,
2010 filed with the SEC,
certifications of Neenah’s
Chief Executive Officer
and Chief Financial Officer
certifying the quality of
our public disclosure.
T R A D E M A R K S
Brand names mentioned
in this report are trade-
marks of Neenah Paper,
Inc. Crane is a registered
trademark of Crane and
Co., Inc.
S T O C K E XC H A N G E
Neenah Paper’s common
stock is traded on the
New York Stock Exchange
under the symbol NP.
I N D E P E N D E N T
R E G I S T E R E D P U B L I C
AC C O U N T I N G F I R M
Deloitte & Touche LLP
191 Peachtree Street
Suite 1500
Atlanta, GA 30303
C O M PA R I S O N O F F I V E Y E A R C U M U L AT I V E T O TA L R E T U R N *
Among Neenah Paper, Inc., the Russell 2000 Value Index,
an Old Peer Group and a New Peer Group
$180
$160
$140
$120
$100
$80
$60
$40
$20
$0
12
05
12
06
12
07
12
08
12
09
12
10
Neenah Paper, Inc.
Russell 2000 Value
Old Peer Group: AbitibiBowater Inc., International Paper Company,
P.H. Glatfelter Company, Schweitzer-Mauduit International, Inc. and Wausau
Paper Corp. The peer group average is weighted by market capitalization.
New Peer Group: AEP Industries Inc., Boise Inc., Buckeye Technologies Inc.,
CSS Industries, Inc., P.H. Glatfelter Company, KapStone Paper and Packaging
Corporation, Minerals Technologies Inc., OMNOVA Solutions Inc., Polypore
International, Inc., Schweitzer-Mauduit International, Inc., Verso Paper
Corp. and Wausau Paper Corp. The peer group average is weighted by
market capitalization.
* $100 invested on 12/31/05 in stock or index, including reinvestment
of dividends. Fiscal year ending December 31.
Neenah Paper, Inc. 2010 Annual Report
91
COLOPHON
To minimize our
environmental impact,
the Neenah Paper, Inc.
2010 Annual Report
was printed on papers
containing fibers
from environmentally
appropriate, socially
beneficial and
economically viable
forest resources.
SW-COC-000885 FSC Trademark
© 1996 Forest Stewardship Council A.C.
The mark of responsible forestr y.
PA P E R
C R E D I T S
Design and Production
Addison
www.addison.com
Copywriting
Edward Nebb
Printing
Classic Color
I L LU S T R AT I O N
Dust Jacket: Marcos Chin
Cover: Mike Perry
Page 1: MVM
Page 9: Mario Hugo
Page 16: Micah Lidberg
Dust Jacket
CLASSIC CREST® Paper
Solar White
24 lb. writing
Cover
CLASSIC CREST® Paper
Solar White
165 lb. double thick cover
End Papers
ESSE® Paper
Pearlized Juniper
80 lb. text
Pages 1–8
CLASSIC CREST® Paper
Classic Natural White
100 lb. text
Pages 9–16
ESSE® Paper
Willow
80 lb. text
Pages 17–24
CLASSIC CREST® Paper
Epic Black
80 lb. text
Pages 25–92
SUNDANCE® Paper
Warm White
80 lb. text
92
Neenah Paper, Inc. 2010 Annual Report
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NEENAH PAPER, INC.
3460 PRESTON RIDGE ROAD
SUITE 600
ALPHARETTA, GA 30005
678.566.6500