Good morning. My name is Megan, and I will be your conference operator today. At this time, I would like to welcome everyone to the Neenah Paper Fourth Quarter 2014 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' prepared remarks, there will be a question-and-answer period. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded today February 18, 2014 [sic] 2015. Thank you. I will now turn the call over to Mr. Bill McCarthy, Vice President, Financial Analyst and Investor Relations. Please go ahead, Mr. McCarthy.

Okay. Thank you. Good morning everyone and welcome to Neenah's 2014 fourth quarter earnings call. We released earnings yesterday afternoon and also posted backup materials in the Investor Relations section of our Web site. Today after I recap a few headlines, John O'Donnell, our Chief Executive Officer and Bonnie Lind, our Chief Financial Officer will discuss activities and financial results in detail. As usual following these prepared remarks, we'll open up the call for questions. In the fourth quarter, consolidated net sales grew 6% to $217 million with adjusted earnings per share of $0.75. GAAP earnings were much higher at $1.57 per share and included benefits from prior research and development tax credits as well as one-time charges for pension settlement, restructuring and integration and debt extinguishment. For the full year, net sales topped $900 million with adjusted EBIT of $94 million, adjusted EBITDA of just under $130 million and adjusted earnings per share of $3.28. In addition, 2014 was the first year that our market cap topped $1 billion. We use adjusted figures to aid and comparability between periods, but these are a non-GAAP measure and are reconciled to corresponding GAAP figures in our press release. I will also note that our call today contains not only the usual backward looking statements but forward-looking statements as well. Risks and uncertainties that could cause actual results to differ from these forward-looking statements are outlined in our SEC filings and in the Safe Harbor disclaimer on our Web site. And with that, I'll turn things over to John.

Thanks, Bill. 2014 was a terrific year at Neenah and I'm pleased that we ended with a very solid fourth quarter as well. Bonnie will cover results for the quarter in detail. I would like to summarize some key accomplishments during the past year and talk about a few of our strategic initiatives as we move forward. In 2014, all of our teams executed well, delivering organic sales growth of 6% in technical products and 2% in fine paper. Including revenues from our attractive mid-year filtration acquisition, consolidated sales grew 7%. This good top-line performance translated into an impressive bottom-line as well. Adjusted operating income and earnings both grew by more than 10% with improved margins and efficiencies. Cash from operation was almost $95 million and we deployed it through attractive organic capital investment opportunities, a value-adding acquisition and a 50% increase in dividend payments all the while maintaining a very strong balance sheet. Last but not least, we maintained our return on invested capital at around 12% as improvements in our heritage businesses offset the short-term effects from the acquisition. As we start 2015, our strategic priorities remain consistent. First, we'll continue to expand our meaningful positions in product categories at a core to Neenah. Our largest core categories are filtration, performance [packings] [ph] and premium fine papers. In our call in November, I spoke about transportation filtration, our largest end-use market. This morning, I would like to share more about our plans to grow this business in North America by expanding our footprint and supporting our global growth plans with added capacity. Transportation filtration based in Bavaria has grown at an annual rate of more than 8% over the past ten years. While serving a global market with global customers, our business has been concentrated in Europe where…

Thanks, John. Let me start with technical products today. Fourth quarter sales of $111 million increased 12% compared with $99 million last year. Excluding sales from our filtration acquisition and impacts of currency translation, technical products organic revenues grew a very impressive 5%. This growth reflected increased volumes across most categories as well as higher value mix and product pricing. Currency translation reduced U.S. dollar sales by about $5 million as the euro averaged 1.25 in the quarter, down 8% from the prior year. Excluding restructuring and integration costs of $300,000, mostly related to the acquisition, operating income of $10.3 million was flat with the prior year. However, results from the quarter included costs for our annual filtration down in Germany which occurred in the third quarter last year. The down was extended in 2014 to increase the capabilities and capacity of one of our production mines. Year-on-year, the fourth quarter impact of this was almost $2 million. Turning to fine paper and packaging, sales in the quarter were $100 million, essentially flat with the prior year. Our commercial print brands continue to perform strongly and premium packaging also did really well growing 20% in the quarter. Growth in these areas was offset in part by reduced sales of non-branded business which tends to be lower value and can come in big chunks at various times throughout the year. Operating income at fine paper of $15.4 million increased 5% from the prior year. Increased costs due to input prices and timing of advertising spending were more than offset by excellent operational performance at our mills. Unallocated corporate costs of $4.4 million compared with $3.6 million last year with increased costs in 2014 primarily due to the timing of spend. 2014 costs excluded $4.3 million of one-time charges for a pension…

Thanks Bonnie. We covered our expectations for financial items like pensions and capital spending and taxes. So let me add a couple of comments about some of the external influences we see this year. Europe continues to get a lot of headlines. Geographically, Neenah has more than 60% of sales in North America and this percentage increased with last year's filtration acquisition. However, Europe does represent about 25% of consolidated sales in half of our technical products business. I just returned from Germany last week and from what we are seeing, the economic growth in Europe is not predicted to be dramatically different than last year. The region has continued to grow modestly and Germany where our operations are located continues to be among the best performers. Filtration which is our largest business there also tends to be the most resilient. We do however expect to see an impact from currency translation. The euro was currently trading below 115 versus an average of almost 135 in 2014. As a rule of thumb $0.10 decline in the euro reduces translated U.S. dollar sales for Neenah by approximately $25 million with an impact on operating earnings equal to 10% of that amount. So while it's difficult to overcome large translation effects due to currency changes, our teams in the past have worked successfully to maintain margins and mitigate any additional impacts through effective cost control actions such as an increased exports. Turning next to input cost, we expect oil-based materials such as some synthetic fibers and latex to benefit from the drop in crude oil prices, prices for items don't move as quickly as oil due to their specialized nature and in some cases we also have longer term contracts or selling price adjustors. Nonetheless, we should see a net benefit from…

[Operator Instructions] Your first question comes from the line Daniel Jacome with Sidoti & Company.

Hi, Dan.

Can you hear me?

Yes, Dan.

Great. Appreciate the time. Nice job.

Thank you.

Thank you.

Couple of quick questions. I guess first input costs, you mentioned both benefits press release and then just – right now. Are you seeing any difference softwood versus hardwood? I think you guys use both and where are your seeing most of the benefit right now and then when do we begin to see that in your numbers?

Yes. Both are going down modestly, so and you're right, we do use both. And you'll see that as we go through the year. We're seeing the decline beginning to see the decline come through. I've said in past calls that we actually lag announced declines by three months and we announce – or we lag announced increases by three months and that enables us to continue to reduce the impact on our margins. So you should see them in the early part of this year. Probably have a bigger impact on our energy in the first quarter.

Energy would be more of a benefit in the first quarter?

Yes.

Okay.

That's correct, Dan.

Got you. And then moving, fine paper segment obviously pretty stable. Just maybe we could walk back into the third quarter. I think in that quarter you had got maybe some bulk orders of lower grade and then products shipped to the composition of the segment of the papers. And this quarter, correct me if I'm wrong, but maybe it was kind of like a reverse effect where you didn't have enough of the large orders so maybe give us a little bit of nuance there would be great.

Sure. If you're talking about a very stable business, fine paper first half, second half is typically doesn't have a lot of cyclicality. We do have especially in our packaging business where we have large I think Bonnie characterized it as chunks of businesses. What we do see in typical – and that was a third quarter description, carrying it to the fourth quarter we saw very a very strong mix of branded in the fourth quarter. Majority of our sales and fine paper sold through wholesale distributors. They manage our inventories at year-end either reduce or increase depending on the demand and 80% of our fine paper sales are in branded. So what you saw in the back half third quarter and fourth quarter is probably fairly typical some periods with high packaging demand and some periods with high branded demand. So --

Got you.

Pretty typical.

Okay. And then lastly, M&A opportunities, have you seen, what are you seeing like a trajectory of these evaluations out in the marketplace right now? I'm just wondering maybe on the non-woven side and domestic producers, if you've seen any changes in their valuations maybe perhaps because of what's going on in volatility and currency or anything you could provide there would help us.

Yes. I don't know that I'm going to be able to give you a tremendous amount of insight there. Acquisitions are going to be a big part and have been a big part of our strategy, three in the last three years from that standpoint. We've got a dedicated resources focused on that process itself. We're really focused on the fit. So I'll probably put a lot more energy on the fit than from that standpoint. What we are seeing is – where we can deliver meaningful value or the company's a lot better up because we're the owner of it. That's where our energy is. Interest rates are low so multiples are still up from that standpoint.

Okay.

All right.

And then lastly, just quick housekeeping. So for the guidance parameters would have you – are you assuming 133 U.S. to euro or is it the current 115 level?

We wish 133.

Yes. I think our assumption is that we aren't going to see that 133 again. So you can make the assumption it's going to be where we are today or there are many suggestions that it gets to parity one day, who knows?

Yes, who knows? We'll see. Just checking. All right. Thank you very much.

Thanks Dan.

Thank you, Dan.

Your next question comes from the line of Jon Tanwanteng with CJS Securities.

Good morning, John and Bonnie. This is actually Jack O'Brien filling in for Jon.

Good morning.

Good morning.

Congratulations on the quarter.

Thank you.

Thank you.

First off, margins were pretty strong in the technical segment despite maintenance down in Germany, going forward, can we expect margins to rebound in short order or is there going to be more of a ramp up to get back up to where you were?

The big impact in technical products in the quarter was the maintenance down that we had. So from that standpoint, there wasn't a major change in our overall business or any impact from that standpoint. We've improved margins over the last few years to get to a double-digit margin for technical products expect the first half to be stronger than that where we ended the quarter.

Okay. And then over to Crane. I was hoping you guys could just give an update on how the acquisition is going, what the synergy opportunities in growth profiles are looking like versus your initial expectations of the business?

Sure. Acquisition is done. Integration is now done from that standpoint and as you know that lots of value can be lost in how you integrate a company very successful from that standpoint. We've actually are exceeding our expectations for the value we had placed on that. And we're probably the most encouraged by the R&D efforts in the future growth opportunities that between the Crane team and our German R&D team, what they've been able to pull together. So I would say it's definitely on the higher end of expectations.

All right, great. And then finally, moving over to cash flow, in your press release you mentioned that you're going to have strong free cash flow generation in 2015. I was just hoping you could elaborate a bit more on that. Given the impacts of FX and the increased capital spending you guys are going to have in 2015, are you guys going to see growth this year?

Well, when I was referencing strong, it was the performance of our operating groups I think from that standpoint. I don't know that you'll see everything trade off from that. We are increasing capital spending by $15 million to $20 million I think before and we are getting benefit from lower pension.

And we had $66.6 million of free cash flow for 2014. That did include some very strong collections at the end of the year that have shifted money into 2014 instead of 2015. We expect that our pension contributions will be down anywhere from $10 million to $15 million versus where we had contributed in 2014. But we think our cash taxes will be up by $10 million. So in as much as the capital spending goes up by more than the $5 million that we can save in the other two and the working capitals and --

Bonnie is good with numbers, but I think that's strong.

It's still strong. I don't think we're trying to guide you that it's going to be better or worse. We're just saying that it's good.

Okay. Well, thanks for your time.

You bet.

And your next question comes from the line of Steve Chercover with D.A. Davidson.

Hi, Steve.

Good morning, everyone.

How are you?

I'm well. Thank you for taking my call. First question, when will the Appleton machine conversion be complete?

Well, it's going to actually – we're going to invest in a number of phases. So the first phase will be in saturation capabilities. That will happen in this year itself. And then the paper machine conversion will happen at the end of 2016, start-up will be in the first quarter of 2017. So if complete, we'll have product that will bring from potentially bring from Germany to saturate at that facility. Then we'll produce the product on the paper machine to saturate that facility and we'll still bring some very high-end products from our German facilities, not alone combination products. But, we expect that by the beginning of 2017 with all that phased-in approach that we would be up and running.

And the actual saturation will be in an adjacent facility?

Yes. It will be right next to our paper manufacturing facility.

And did you say that your volumes will be unchanged despite shipping the machine because you are gaining just efficiency on the remaining seven?

That's pretty incredible, isn't it? What I would say is that we have been, okay, so to believe that there's a light switch. In 2012 when we acquired the brands from Wausau, we filled up our asset base that provide us with a lot of efficient loadings and an experiential curve that enabled greater throughput. So we have been working our way. We were in the high 80s from an utilization at that point. We have been working our way downward in the mid to lower 80s from an utilization standpoint. So that almost 10% increase in productivity from back in 2011 to here as well as the capabilities, the nice part about fine papers the seven assets, we've got a lot of redundant capabilities. So it's got a lot of freedom to move things around. So our expectations in two years when we roll this out, we'll have moved everything off of the fine paper facilities. You'll see fine paper increasing in their utilization back up to the upper 80s again and then we'll have the availability of the incremental filtration capacity with the Appleton machine.

So to put it another way, you actually have excess capacity or the ability to satisfy incremental orders?

Yes, absolutely. And it didn't sneak up on us, by the way. What we communicated today has been a big part of our strategy for a number of years. Some people have heard me say, I don't want to build another paper machine and that's really because this has been a big part of our strategy which is ensuring that we have plenty of paper machines as we become more efficient with that, moving them around our system both locally and globally gives us a – we think a real advantage.

Yes. New paper machine is definitely a four-letter word.

[Hey man] [ph], it's a four-letter word too.

When that machine in Wisconsin is not making base stock, can it too make fine paper?

Once we convert to a purpose-built filtration machine, it's like have a sewing machine, but it wouldn't have the capabilities or the cost position that we really need to have to compete in a global filtration business from that standpoint. So it won't be able to swing back, but as I said, I have seven machines that can and so as we talked in the earlier question, we have movements, a majority of fine paper is sold through inventory which is wonderful. That gives us the opportunity to run the assets in a smooth way and rise or fall from an inventory standpoint. So we'll have a lot of flexibility in fine paper still.

Great. I hope I'm not taking too much time. I've got two more quick questions. First of all on taxes when will you know if those R&D tax credits are renewed and how many years in succession has this happened?

So the R&D, you mean that we have the law where we can get R&D credit?

Well, I mean clearly this is something that happens every year.

Right.

Right. So well, since 1988, the Congress has passed a law and the President has signed it. I mean in one time that I know off, they didn't sign the law in the current year. I think that was 2012. So we have an expectation that the law would be renewed, but there's no guarantee. And then we only reflect the tax credits in our effective tax rate once the law has been renewed, and it almost always when it does got renewed is in December.

Okay. So we should model 37% with the expectation that it will ultimately come down by 200 basis points?

That is what we would expect.

Okay. And final question, it looks like you bought $4 million worth of stock in the fourth quarter. Can you either tell us how many shares were repurchased because it looks like you issued some or what was the average price?

Yes. So one million of those shares that you're seeing in our cash flow were repurchased through our buy-back program and the rest of them were repurchased at the very end of the year to satisfy employee taxes. So most of it again is from purchases for the taxes.

And the average price would be in the low 50s, 55s, somewhere around there. I don't have it in front of me.

I have it in front of me and can't find it.

Okay.

Well, I think that's close enough. Thank you very much.

Thanks Steve. Thanks. Good talking to you.

Now back to you, Mr. McCarthy for any closing remarks.

Okay. Well, thank you. On behalf of the whole team here in Neenah, I would like to thank everyone for your time and interest and I hope you gathered that we're excited about all that's going on here as 2015 gets underway. We'll look forward to updating you on our progress on our next call in May. Thank you.