Good morning. My name is Erica and I will be your conference operator today. At this time, I would like to welcome everyone to the Neenah Paper Second Quarter 2015 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 session. [Operator Instructions]. As a reminder, ladies and gentlemen, this conference is being recorded today, August 6, 2015. Thank you. I would now like to turn the conference over to Mr. Bill McCarthy, Vice President, Financial Analysis and Investor Relations. Please go ahead, Mr. McCarthy.

Okay, thank you and good morning, everyone. Our press release announcing second quarter earnings went out yesterday afternoon and in our call today, John O'Donnell, our Chief Executive Officer; and Bonnie Lind, our Chief Financial Officer will review activities and results for the quarter in detail and in addition, we will discuss our recent acquisition of FiberMark. As usual, following our prepared remarks we will open up the call for questions. I'll start with a few summary comments before turning things over to John and Bonnie. Neenah reported record bottom line results this quarter with earnings per share of $0.97, operating income of $28 million and free cash flow of $33 million. With benefits of lower input costs, we continue to offset negative impacts from currency translation on the bottom line although the weaker euro continues to impact our top line. Consequently, while reported sales for the quarter of $224 million were down 3% from a year ago, on a constant currency basis, they were actually up 4%, including a boost from our filtration acquisition last year. While there have been no adjusting items in 2015, at times, we will use adjusted figures to aid in comparability between periods. Last year, adjusted earnings excluded technical products related acquisition and restructuring costs of approximately $700,000 or $0.02 per share. These adjustments and non-GAAP measures are reconciled to corresponding GAAP figures in our press release. Finally, I'll remind everyone that our comments today may include forward-looking statements. Risks and uncertainties that could cause actual results to differ from these statements are outlined in our SEC filings and in the Safe Harbor disclaimer on our website. And with that, I will turn things over to John.

Thank you and good morning. As Bill mentioned, our team has delivered record results for second consecutive quarter. In addition to impressive top line growth in technical products, both businesses sold a more profitable mix and benefited from lower input costs and higher selling prices. This performance reflects the success of our strategies to grow in defensible, profitable niches and was even more impressive since it happened at the same time our teams were completing a thorough diligence and acquisition of FiberMark. I'll cover more about the acquisition later in the call. So let me start, as usual, with a review of some of our key strategies and initiatives. First, we'll continue to enhance our leading positions in high-value categories that are core to Neenah. These categories include premium fine papers and in technical products, filter media and performance backings. I'll start with fine paper and packaging. This is a business that continues to deliver steady results with sales of around $100 million a quarter and attractive financial returns. With our well-known brands, high-quality papers and marketing expertise, we are market leaders with an enviable record of outperforming the market. While second quarter sales fell off from last year's all-time high, our record bottom line was preserved. Commercial print brands sold through wholesale distribution remained healthy and retail sales, which represent about 20% of fine paper and packaging, are doing very well, up 8% this year. We sell our consumer brands through leading retailers like Wal-Mart, Office Depot, Staples and Amazon. A second core category is performance backings. These technical products include specialty tapes and abrasives, where we add value through our saturating and coating expertise to provide specialized features such as high temperature resistance, fine paint lines and UV protection. These markets grow in line with global GDP and…

Thanks, John. Our results were driven by terrific bottom line performance in each of our segments. I will begin with technical products. Sales of $119 million were up from $117 million last year despite a $15 million reduction due to currency translation. We were able to offset this with the addition of our specialty filtration business acquired in July 2014 and also an impressive 4% organic growth rate in constant currency. The increase in organic sales was led by volume-based increases in transportation, filtration and labels, as well as improved selling prices and a higher value mix, partly offset by weaker results in backings. Operating income was $15 million, up 12%, compared to adjusted income of $14 million last year. Negative currency impacts were more than offset by higher volumes, improved net selling prices and lower input costs. Turning to fine paper and packaging, sales in the quarter were $98 million, down 8% compared with a record $107 million last year, but more in line with our typical run rate. While retail and premium packaging continue to do well, commercial print sales were impacted by lower sales at a large consolidating customer and reductions in non-branded volume. As expected, non-branded volume has been more competitive this year with prices influenced by lower commodity pulp prices. Since this tends to be lower margin volume, the impact to the bottom line was minimal. Consequently, operating income of more than $17 million was equal to last year's near record level. The impact from lower volume was fully offset by a more profitable mix, higher net prices and lower input costs. Consolidated SG&A was $20.8 million, in line with $20.4 million last year and unallocated corporate costs of $4.8 million were also in line with last year. Net interest expense of $2.8 million decreased…

Thanks, Bonnie. A stronger U.S. dollar remains a factor for us and others. At around $1.10, the euro is roughly 20% below last year's rate of $1.37 and continues to significantly impact year-on-year sales comparisons. In the first half, currency translation reduced our top line 7%, or around $30 million. As we've said, every $0.10 change in the euro impacts our top line by $25 million a year. We're offsetting currency impacts on the bottom line helped by lower input costs since commodities like energy and pulp tend to move inversely with the U.S. dollar. Input costs are about $7 million lower year to date with half of this due to a spike in energy costs in the first quarter of 2014. Full-year costs are projected to be around $10 million below 2014, but input costs in the second half are expected to increase around $2 million versus the first half. From a top line perspective, technical product second half sales are historically 8% to 10% below the first half due to seasonality, exaggerated this year by currency. Bottom line impacts reflect these lower sales and reduced operating schedules, including annual maintenance downs in both businesses. Maintenance downs occur in the third quarter and represent an added cost of around $4 million. Since our German filtration outage occurred in the fourth quarter last year to accommodate a project to increase filtration capacity, the year-on-year difference in the third quarter will be around $1 million higher in 2015 due to timing. Effective August 1, we will include FiberMark in our results and I'm pleased now to share more about this acquisition with you. As I mentioned earlier, strategically, this is a great fit with Neenah. FiberMark is well regarded in the marketplace and known for their high-quality products and service. They…

We've owned FiberMark for three business days so far and are still completing purchase accounting and other activities, but I would like to share some historical numbers with you. Currently, FiberMark has EBITDA of around $18 million with $10 million of depreciation and amortization. This represents operating income of around $8 million, or about $0.25 per share of annual accretion. Like us, FiberMark has seasonality with second half sales 8% to 10% below the first half and they also schedule annual maintenance downs in the third quarter. So for the remainder of this year, incremental sales are expected to be in the range of $10 million to $15 million per month with lower than average margins due to seasonality and maintenance downs. We have communicated expected one-time costs of up to $5 million in 2015 for integrations and other costs related to the acquisition. So as normal with any acquisition, there will be a lot of moving parts in the next five months. As we move forward, we are targeting to reach $6 million of annual synergies by the end of year three. Any synergies this year are likely to be nominal, but would ramp up to $2 million to $3 million next year and the full amount in 2017. Synergies come from a number of areas, including internalizing product at both companies that currently outsource, purchasing scale benefits and efficiencies in areas such as manufacturing loadings and SG&A. In addition to the strong strategic fit and added capabilities for growth that John mentioned, the acquisition will provide important synergies and an attractive use of capital with a mid-teen rate of return and annual accretion of more than $0.40 per share. So John, I'll turn it back to you to wrap up.

Thanks, Bonnie. One characteristic of a strong organization is its ability to execute on multiple fronts. I think you've seen our teams do that, delivering record results at each of the past two quarters while moving forward with strategic priorities like our North American filtration expansion and the acquisition of FiberMark. While we know that an acquisition in the early stages can be distracting and result in uncertainty to employees and customers, we also know that it is during this integration effort where value is realized or lost. This is our fourth acquisition in the past four years and I'm confident with the team's integration planning and execution abilities. Most importantly, however, is for our employees who are not directly involved in the integration to continue to deliver on our track record of solid results in our existing businesses. It's an exciting time at Neenah as we build a leading global specialty materials company. We're in strong financial shape, well-positioned to act on opportunities that create value for our shareholders. Thank you for your interest in Neenah today and at this point, I'd like to open up the call to questions.

Most certainly. [Operator Instructions]. Okay and your first question comes from the line of Dan Jacome.

Hi, Dan.

Dan?

Some branded paper volume issues at a large customer, I'm assuming that’s Veritiv Unisource, is that correct?

Yes, that is correct.

Okay, is this a one-off or what are your comfort levels with this as we head into the back half?

Well, we've had a great relationship with Veritiv over the years. We continue to find opportunities to grow together. Any companies coming together are going to find integration opportunities and obviously, since our products are predominantly branded and have the inventory, there's going to be one-time impacts for them. I feel very, very comfortable both in our relationship, their position in the marketplace and the importance of our brands out there. So I can't necessarily say it's going to last another quarter or not, but my expectation is they're successfully working through their integration efforts and we should be doing very well. It's probably hard when the fact that we are comparing ourselves to a record 2014 with this [ph], but, yes.

Okay, good. Appreciate that. And then I guess turning to transportation papers, I noticed that Ford and the auto guys in July continue to impress, especially the F-series. I'm just wondering if you are seeing this in your business. And then with these spectacular numbers, do you still see a sustainable runway for the U.S. auto industry and how it relates to your business as we start thinking about the 2017 ramp in Appleton? Thanks.

Yes, absolutely. I think -- so you highlight the fact we do have the Cavalier [ph] and the F-150. And as we've said in the past, our business really isn't tied solely to new car sales. So it's both new cars and the aftermarket, as well, it’s really tied to miles from that standpoint. Love when the automotive industry picks up and driving that, but we've seen over the past 11 years I think we're at now a steady 8% growth and we know we've went through a variety of new car and aftermarket. So I feel very, very strong about our growth trend. I'm most encouraged by the 36% increase in the U.S. I think that's a great testimony and illustration of the reception that our new capacity addition is getting from the customers here in the United States and South America.

Got you. Okay, appreciate it. Thanks a lot.

Our next question comes from the line of Steve Chercover from DA Davidson.

Hi, Steve.

Good morning, everyone. I apologize. I got on a little bit late. But I just wanted to ask about FiberMark. You said $0.40 run rate of accretion. Is that something that we can expect in 2016, or do we have to wait till the full $6 million in synergies are attained?

That's the full $6 million of synergies, so that more ties out to the $24 million of EBITDA.

So it's a '17 expectation, 2017 expectation.

Right. So the $2 million to $3 million, Steve, is what we would expect in 2016 of synergies.

$2 million to $3 million synergies in 2016. Got it. And will you call out the $5 million that you spend in 2015 to integrate as extraordinary items?

Yes, we will.

Okay, so that will be stripped out of operating numbers. Okay. And then so we understand where the pressure on the paper side came from, from a volume standpoint. Once that's done, do you think their run rate will be equivalent just with a different footprint?

Yes, on the paper side, I really would say that's a tale of two cities. So we talked about the consolidating customer and I do believe that has a time limit and getting back to their run rate. The other is that, as input costs decline, lower value or lower margin items are -- that volume is at risk as people kind of snag the low ends of making items. So I think that's best evident when you look at an 8% reduction on a top line, but we retain the bottom line. So those are more base load, help fill our assets. So we manage our costs a little differently during times of lower input costs, but those are the two I think. They probably -- I'd say half-and-half has been the cause for the decline.

Got it. And sorry going back to FiberMark, and I'll turn it over, you said it complements your investments both in your specialty packaging and filtration. For modeling purposes, should we be putting this in the fine papers business? That's how I…

Steve, if I said anything about filtration, I misspoke in there. It really would be specialty packaging and wide format and that will be in the fine paper side, about half of the volume overall. And as a reminder, they picked up two growth categories -- again, luxury packaging, wide format -- and they also picked up a mature filing business. So in our fine paper side of the business, I would say they've always had an expectation or aspiration to mitigate any of the overall declines. That really doesn't change there. It provides them with lots of capability for future growth in driving and getting a greater share in that $450 million luxury packaging. On the technical side, the other half, which is going to be on the technical products side, more in our performance-oriented products, those are going to grow about global GDP. So it will mirror what I think we've demonstrated historically in that side of the business.

All right, so actually for modeling, we should sprinkle it kind of 50-50 into your two current segments?

Yes, sir.

Got it. Okay, thank you.

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

Good morning, guys and congrats on the quarter and closing the acquisition. Can you just clarify the accretion that you talked about? In the press release, when you announced the FiberMark acquisition, you said $0.40 a share. Is that including the synergies and is that on a 2017 basis, or do you expect that just next year?

Yes, that's a 2017 number with the synergies.

Okay.

And it’s net of the interest, but with the synergies.

Okay. What's the 2015 or ‘16 number, if you could provide that?

Yeah, ‘16 will have about $2 million to $3 million from the overall synergies. I think 2015 is nominal.

Okay. And that's all the accretion, right?

Yes, I think we said $0.25 would be the accretion that you get from acquiring the base business, $8 million of EBITDA on an annual basis and then we would expect that the back half, the revenues 8% to 10% lower, like ours and the margins are likely to be 200 basis points lower in the back half than the front half, also like us, due to the timing of the maintenance downs and the other seasonal downtime.

Great. That's helpful. And then could you just update us on the return of value to shareholders, from a dividend or share buyback standpoint, or further M&A just given that you did just complete an acquisition, but you still have pretty good cash on the balance sheet?

From an M&A standpoint, let’s catch our breath. But I think as you see from our balance sheet [Technical Difficulty] that’s still resident out there. We [Technical Difficulty] is that helpful?

John, I think you had -- I don't know if it was my phone or yours, but I actually lost the entire response. We can follow that up offline.

Okay, well, I'll give you the quick summary and it really is our priorities for uses of cash have not changed dramatically. We are still in the position where if an opportunity for M&A comes up, we can act upon it, if we need to. And from our standpoint, any debt that we have taken on has been pre-payable. So opportunity to continue to reduce that. We are still committed as a company to a meaningful dividend as we've demonstrated this year with our dividend increase. And then we do have a share repurchase authorization of $25 million, which we've used minimally so far, but still an option.

Okay, great. Thank you very much.

There are no further questions at this time. I would now like to turn the floor back to Mr. McCarthy for closing remarks.

Great. Well, on behalf of John, Bonnie and the entire Neenah team, I'd like to thank you all for your interest today and we'll look forward to updating you on our progress on our next call in November.

Ladies and gentlemen, that does conclude today's conference call. You may now disconnect.