10-Q 1 a13-8446_110q.htm 10-Q

Table of Contents

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 


 

FORM 10-Q

 


 

(Mark One)

 

x                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2013

 

OR

 

o                   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from           to           

 

Commission File Number: 001-32240

 

NEENAH PAPER, INC.

(Exact name of registrant as specified in its charter)

 

Delaware

 

20-1308307

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

3460 Preston Ridge Road
Alpharetta, Georgia

 

30005

(Address of principal executive offices)

 

(Zip Code)

 

(678) 566-6500

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

 

As of April 26, 2013, there were approximately 15,980,000 shares of the Company’s common stock outstanding.

 

 

 




Table of Contents

 

Part I—FINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

NEENAH PAPER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except share and per share data)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2013

 

2012

 

Net sales

 

$

213.2

 

$

198.2

 

Cost of products sold

 

169.7

 

156.3

 

Gross profit

 

43.5

 

41.9

 

Selling, general and administrative expenses

 

21.0

 

19.5

 

Acquisition integration costs (Note 3)

 

0.1

 

2.5

 

SERP settlement charge (Note 7)

 

 

3.5

 

Other expense - net

 

0.2

 

0.2

 

Operating income

 

22.2

 

16.2

 

Interest expense - net

 

2.6

 

3.6

 

Income from continuing operations before income taxes

 

19.6

 

12.6

 

Provision for income taxes

 

7.5

 

3.7

 

Income from continuing operations

 

12.1

 

8.9

 

Income from discontinued operations, net of income taxes (Note 12)

 

2.6

 

 

Net income

 

$

14.7

 

$

8.9

 

 

 

 

 

 

 

Earnings Per Common Share

 

 

 

 

 

Basic

 

 

 

 

 

Continuing operations

 

$

0.74

 

$

0.55

 

Discontinued operations

 

0.16

 

 

 

 

$

0.90

 

$

0.55

 

Diluted

 

 

 

 

 

Continuing operations

 

$

0.73

 

$

0.54

 

Discontinued operations

 

0.16

 

 

 

 

$

0.89

 

$

0.54

 

Weighted Average Common Shares Outstanding (in thousands)

 

 

 

 

 

 

 

 

 

 

 

Basic

 

15,944

 

15,483

 

Diluted

 

16,253

 

15,855

 

 

 

 

 

 

 

Cash Dividends Declared Per Share of Common Stock

 

$

0.15

 

$

0.12

 

 

See Notes to Condensed Consolidated Financial Statements

 

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Table of Contents

 

NEENAH PAPER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2013

 

2012

 

Net income

 

$

14.7

 

$

8.9

 

Unrealized foreign currency translation gain (loss)

 

(5.8

)

5.2

 

Net gain from adjustments to pension and other postretirement benefit liabilities

 

6.6

 

1.1

 

Reclassification of amortization of adjustments to pension and other postretirement benefit liabilities recognized in net periodic benefit cost (Note 7)

 

1.8

 

1.2

 

SERP settlement charge

 

 

3.5

 

Curtailment loss

 

 

0.3

 

Unrealized gain on “available-for-sale” securities

 

 

0.1

 

Income from other comprehensive income items

 

2.6

 

11.4

 

Provision for income taxes

 

3.2

 

2.4

 

Other comprehensive income (loss)

 

(0.6

)

9.0

 

Comprehensive income

 

$

14.1

 

$

17.9

 

 

See Notes to Condensed Consolidated Financial Statements

 

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Table of Contents

 

NEENAH PAPER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions)

(Unaudited)

 

 

 

March 31, 2013

 

December 31, 2012

 

ASSETS

 

 

 

 

 

Current Assets

 

 

 

 

 

Cash and cash equivalents

 

$

3.8

 

$

7.8

 

Accounts receivable (less allowances of $2.1 million and $1.9 million)

 

102.8

 

79.6

 

Inventories

 

103.2

 

102.9

 

Income taxes receivable

 

2.4

 

2.5

 

Deferred income taxes

 

26.8

 

27.2

 

Prepaid and other current assets

 

12.5

 

14.1

 

Total Current Assets

 

251.5

 

234.1

 

Property, Plant and Equipment, at cost

 

601.3

 

604.7

 

Less accumulated depreciation

 

353.9

 

349.9

 

Property, plant and equipment—net

 

247.4

 

254.8

 

Deferred Income Taxes

 

26.1

 

35.3

 

Goodwill

 

40.1

 

41.4

 

Intangible Assets—net

 

38.6

 

34.0

 

Other Assets

 

10.7

 

11.1

 

TOTAL ASSETS

 

$

614.4

 

$

610.7

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

 

 

Current Liabilities

 

 

 

 

 

Debt payable within one year

 

$

4.6

 

$

4.7

 

Accounts payable

 

37.3

 

35.1

 

Accrued expenses

 

43.3

 

47.6

 

Total Current Liabilities

 

85.2

 

87.4

 

Long-term Debt

 

181.9

 

177.6

 

Deferred Income Taxes

 

12.3

 

12.5

 

Noncurrent Employee Benefits

 

118.1

 

131.1

 

Other Noncurrent Obligations

 

4.9

 

4.3

 

TOTAL LIABILITIES

 

402.4

 

412.9

 

Contingencies and Legal Matters (Note 11)

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

TOTAL STOCKHOLDERS’ EQUITY

 

212.0

 

197.8

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

614.4

 

$

610.7

 

 

See Notes to Condensed Consolidated Financial Statements

 

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Table of Contents

 

NEENAH PAPER, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2013

 

2012

 

OPERATING ACTIVITIES

 

 

 

 

 

Net income

 

$

14.7

 

$

8.9

 

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

 

 

 

 

 

Depreciation and amortization

 

7.2

 

7.3

 

Stock-based compensation

 

1.7

 

1.6

 

Excess tax benefits from stock-based compensation (Note 8)

 

(0.3

)

(4.7

)

Deferred income tax provision

 

6.9

 

1.4

 

Inventory acquired in acquisitions (Note 3)

 

(1.8

)

(6.6

)

SERP payment, net of settlement charge (Note 7)

 

 

(3.4

)

Increase in working capital

 

(22.9

)

(17.3

)

Pension and other postretirement benefits

 

(3.1

)

(0.6

)

Other

 

 

(0.2

)

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

 

2.4

 

(13.6

)

INVESTING ACTIVITIES

 

 

 

 

 

Capital expenditures

 

(4.7

)

(3.5

)

Purchase of brands (Note 3)

 

(5.2

)

(14.1

)

Decrease in restricted cash

 

 

7.0

 

Purchase of marketable securities

 

 

(0.1

)

Other

 

0.1

 

 

NET CASH USED IN INVESTING ACTIVITIES

 

(9.8

)

(10.7

)

FINANCING ACTIVITIES

 

 

 

 

 

Proceeds from issuance of long-term debt

 

23.7

 

25.0

 

Repayments of long-term debt

 

(18.9

)

(2.5

)

Short-term borrowings

 

 

1.0

 

Repayments of short-term debt

 

 

(10.5

)

Shares purchased (Note 10)

 

 

(5.0

)

Proceeds from exercise of stock options

 

0.7

 

3.9

 

Excess tax benefits from stock-based compensation (Note 8)

 

0.3

 

4.7

 

Cash dividends paid

 

(2.4

)

(1.9

)

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

3.4

 

14.7

 

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

 

 

0.1

 

NET DECREASE IN CASH AND CASH EQUIVALENTS

 

(4.0

)

(9.5

)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

 

7.8

 

12.8

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

3.8

 

$

3.3

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

Cash paid during period for interest, net of interest expense capitalized

 

$

0.7

 

$

0.3

 

Cash paid during period for income taxes

 

$

2.4

 

$

0.9

 

Non-cash investing activities:

 

 

 

 

 

Liability for equipment acquired

 

$

1.1

 

$

1.2

 

Liability related to acquisition of brands

 

$

0.6

 

$

0.5

 

 

See Notes to Condensed Consolidated Financial Statements

 

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Table of Contents

 

NEENAH PAPER, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in millions, except as noted)

 

Note 1.  Background and Basis of Presentation

 

Background

 

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 international producer of transportation and other filter media and durable, saturated and coated substrates for industrial products backings and a variety of other end markets. The fine paper business is a supplier of premium writing, text and cover papers, bright papers and specialty papers primarily in North America. The Company’s premium writing, text, cover and specialty papers are used in commercial printing and imaging applications for corporate identity packages, invitations, personal stationery and high-end advertising, as well as premium labels and luxury packaging.

 

On January 31, 2013, the Company purchased certain premium business paper brands from the Southworth Company (“Southworth”) for a payment of $7.0 million. See Note 3, “Acquisitions.”

 

Basis of Consolidation and Presentation

 

These statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”) and, in accordance with those rules and regulations, do not include all information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  Management believes that the disclosures made are adequate for a fair presentation of the Company’s results of operations, financial position and cash flows. In the opinion of management, the condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the results of operations, financial position and cash flows for the interim periods presented herein.  The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make extensive use of estimates and assumptions that affect the reported amounts and disclosures.  Actual results may vary from these estimates.

 

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s most recent Annual Report on Form 10-K.  The results of operations for any interim period are not necessarily indicative of the results of operations to be expected for the full year.

 

The condensed consolidated financial statements of Neenah and its subsidiaries included herein are unaudited, except for the December 31, 2012 condensed consolidated balance sheet, which was derived from audited financial statements.  The condensed consolidated financial statements include the financial statements of the Company and its wholly owned and majority owned subsidiaries. All significant intercompany balances and transactions have been eliminated from the condensed consolidated financial statements.

 

Earnings per Share (“EPS”)

 

Diluted EPS was calculated to give effect to all potentially dilutive non-participating common share equivalents using the “Treasury Stock” method. Outstanding stock options, stock appreciation rights (“SARs”) and certain Restricted Stock Units (“RSUs”) with performance conditions represent the only potentially dilutive non-participating security effects on the Company’s weighted-average shares. For the three months ended March 31, 2013 and 2012 approximately 870,000 and 1,015,000 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.

 

The following table presents the computation of basic and diluted EPS (dollars in millions except per share amounts, shares in thousands):

 

Earnings Per Basic Common Share

 

 

 

Three Months Ended March 31,

 

 

 

2013

 

2012

 

Income from continuing operations

 

$

12.1

 

$

8.9

 

Distributed and undistributed amounts allocated to participating securities

 

(0.3

)

(0.4

)

Income from continuing operations available to common stockholders

 

11.8

 

8.5

 

Income from discontinued operations, net of income taxes

 

2.6

 

 

Net income available to common stockholders

 

$

14.4

 

$

8.5

 

 

 

 

 

 

 

Weighted-average basic shares outstanding

 

15,944

 

15,483

 

 

 

 

 

 

 

Basic

 

 

 

 

 

Continuing operations

 

$

0.74

 

$

0.55

 

Discontinued operations

 

0.16

 

 

 

 

$

0.90

 

$

0.55

 

 

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Table of Contents

 

Earnings Per Diluted Common Share

 

 

 

Three Months Ended March 31,

 

 

 

2013

 

2012

 

Income from continuing operations

 

$

12.1

 

$

8.9

 

Distributed and undistributed amounts allocated to participating securities

 

(0.2

)

(0.4

)

Income from continuing operations available to common stockholders

 

11.9

 

8.5

 

Income from discontinued operations, net of income taxes

 

2.6

 

 

Net income available to common stockholders

 

$

14.5

 

$

8.5

 

 

 

 

 

 

 

Weighted-average basic shares outstanding

 

15,944

 

15,483

 

Add: Assumed incremental shares under stock compensation plans

 

309

 

372

 

 

 

 

 

 

 

Weighted-average diluted shares

 

16,253

 

15,855

 

 

 

 

 

 

 

Diluted

 

 

 

 

 

Continuing operations

 

$

0.73

 

$

0.54

 

Discontinued operations

 

0.16

 

 

 

 

$

0.89

 

$

0.54

 

 

Fair Value of Financial Instruments

 

The Company’s investments in marketable securities are accounted for as “available-for-sale securities” in accordance with Accounting Standards Codification (“ASC”) Topic 320, Investments — Debt and Equity Securities (“ASC Topic 320”). Pursuant to ASC Topic 320, marketable securities are reported at fair value and unrealized holding gains and losses are reported in other comprehensive income until realized upon sale. As of March 31, 2013, the cost and fair value of the Company’s marketable securities was $2.5 million and $2.6 million, respectively. Fair value for the Company’s marketable securities was estimated from Level 1 measurements.  These marketable securities are classified as “Other Assets” on the condensed consolidated balance sheet and are restricted to the payment of benefits under the Company’s Supplemental Executive Retirement Plan (“SERP”).

 

Note 2.  Accounting Standard Changes

 

In February 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (“ASU No. 2013-02”) which amends ASC Topic 220, Other Comprehensive Income. ASU No. 2013-02 requires an entity to disaggregate the total change of each component of other comprehensive income (“OCI”) either on the face of the income statement or as a separate disclosure in the notes to the financial statements. ASU No. 2013-02 also requires companies to disclose the income statement line items impacted by any significant reclassifications, such as the amortization of pension and other post-employment benefits adjustments. The Company adopted ASU No. 2013-02 on January 1, 2013The adoption of ASU No. 2013-02 did not have an impact on the Company’s results of operations, financial position or cash flows. See Note 7, “Pension and Other Postretirement Benefits” for additional information.

 

In March 2013, the FASB issued ASU No. 2013-05 (“ASU No. 2013-05”) which amends ASC Topic 830, Foreign Currency Matters (“ASC Topic 830”).  ASU No. 2013-05 requires that when a reporting entity (parent) ceases to have a controlling financial interest in a subsidiary or a business within a foreign entity, the parent is required to apply the guidance in ASC Topic 830-30 to release any related cumulative translation adjustment into net income. Accordingly, the cumulative translation adjustment should be released into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. ASU No. 2013-05 is effective prospectively for fiscal years (and interim reporting periods within those years) beginning after December 15, 2013. The amendment will be applied prospectively to transactions occurring after the effective date. If the Company were to completely or substantially completely liquidate its foreign operations, the adoption of ASU No. 2013-05 could have a material effect on its results of operations.  The adoption of ASU No. 2013-05 will have no effect on the Company’s financial position or cash flows.

 

As of March 31, 2013, no other amendments to the ASC had been issued that will have or are reasonably likely to have a material effect on the Company’s financial position, results of operations or cash flows.

 

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Note 3.  Acquisitions

 

On January 31, 2013, the Company purchased certain premium paper brands and other assets from Southworth. The Company made a payment of $7.0 million for (i) certain premium fine paper brands including Southworth®, which is the leading writing, text and cover brand sold in the retail channel, (ii) approximately one month of finished goods inventory valued at $1.8 million and (iii) certain converting equipment used for retail grades.  In addition, the parties entered into a supply agreement under which Southworth will manufacture and supply certain products to the Company during a transition period. The acquisition was financed through the Company’s existing credit facility and cash on hand.  The results of the Southworth brands are reported in the Fine Paper segment from the date of acquisition.

 

The Company accounted for the acquisition of the Southworth brands as an asset purchase in accordance with ASC Topic 805 “Business Combinations.”  The acquisition price for the Southworth brands was allocated to the fair value of assets acquired as follows: (i) $5.0 million in non-amortizable intangible trade names and $0.6 million in amortizable customer based intangible assets, (ii) $1.8 million of finished goods inventory and (iii) $0.2 million of property, plant and equipment.  The Company also recognized a liability of $0.6 million as a reserve against the resolution of certain contingencies in the purchase agreement.  The Company expects to incur approximately $1.3 million in acquisition integration costs.  For the three months ended March 31, 2013, the Company incurred $0.1 million of such costs.

 

On January 31, 2012, the Company purchased certain premium paper brands and other assets from Wausau Paper Mills, LLC, a subsidiary of Wausau Paper Corp. (“Wausau”). The Company paid approximately $21 million for (i) the premium fine paper brands ASTROBRIGHTS®, ASTROPARCHE® and ROYAL, (ii) exclusive, royalty free and perpetual license rights for a portion of the EXACT® brand specialty business, including Index, Tag and Vellum Bristol, (iii) approximately one month of finished goods inventory and (iv) certain converting equipment used for retail grades. The results of the Index, Tag and Vellum Bristol brands are reported in the Other segment from the date of acquisition. The results of all other brands acquired from Wausau are reported in the Fine Paper segment from the date of acquisition. For the three months ended March 31, 2012, the Company incurred $2.5 million in acquisition integration costs.

 

Note 4.  Supplemental Balance Sheet Data

 

The following presents inventories by major class:

 

 

 

March 31, 2013

 

December 31, 2012

 

Raw materials

 

$

20.7

 

$

20.8

 

Work in progress

 

23.9

 

24.9

 

Finished goods

 

67.8

 

66.3

 

Supplies and other

 

3.8

 

3.7

 

 

 

116.2

 

115.7

 

Adjust FIFO inventories to LIFO cost

 

(13.0

)

(12.8

)

Total

 

$

103.2

 

$

102.9

 

 

The FIFO values of inventories valued on the LIFO method were $93.3 million and $91.8 million as of March 31, 2013 and December 31, 2012, respectively.

 

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Note 5.  Income Taxes

 

The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes. Income tax expense represented 38.3 percent and 29.4 percent of income from continuing operations before income taxes for the three months ended March 31, 2013 and 2012, respectively. The following table presents the principal reasons for the difference between the Company’s effective income tax rate and the U.S. federal statutory income tax rate:

 

 

 

Three Months Ended March 31,

 

 

 

2013

 

2013

 

2012

 

2012

 

U.S. federal statutory income tax rate

 

35.0

%

$

6.8

 

35.0

%

$

4.4

 

U.S. state income taxes, net of federal income tax effect

 

2.0

%

0.4

 

1.0

%

0.1

 

Foreign tax rate differences (a)

 

(2.6

)%

(0.5

)

(4.8

)%

(0.6

)

Foreign tax structure (b)

 

 

 

(4.8

)%

(0.6

)

Tax on foreign dividends

 

1.5

%

0.3

 

 

 

Other differences — net

 

2.4

%

0.5

 

3.0

%

0.4

 

Effective income tax rate

 

38.3

%

$

7.5

 

29.4

%

$

3.7

 

 


(a)         Represents the impact on the Company’s effective tax rate due to changes in the mix of earnings among taxing jurisdictions with differing statutory rates.

(b)         Represents the impact on the Company’s effective tax rate of tax law changes in Germany. See Note 11 “Contingencies and Legal Matters.”

 

The Company’s effective income tax rate 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 timing and amounts of dividends repatriated from foreign subsidiaries, 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.

 

Note 6.  Debt

 

Long-term debt consisted of the following:

 

 

 

March 31, 2013

 

December 31, 2012

 

Senior Notes (7.375% fixed rate) due November 2014

 

$

90.0

 

$

90.0

 

Revolving bank credit facility (variable rates) due November 2017

 

49.3

 

55.7

 

Term Loan (variable rates), due in quarterly installments through November 2017

 

29.3

 

30.0

 

Neenah Germany project financing (3.8% fixed rate) due in 16 equal semi-annual installments ending December 2016

 

6.4

 

6.6

 

Second German Loan Agreement (2.5% fixed rate) due in 32 equal quarterly installments ending September 2022

 

11.5

 

 

Total debt

 

186.5

 

182.3

 

Less: Debt payable within one year

 

4.6

 

4.7

 

Long-term debt

 

$

181.9

 

$

177.6

 

 

Unsecured Notes

 

On March 31, 2013, the Company had $90 million of ten-year 7.375% senior unsecured notes, originally issued on November 30, 2004 (the “Senior Notes”) outstanding.  The history of the Senior Notes is as follows:

 

·                  Original Issuance.  On November 30, 2004, the Company issued $225 million aggregate principal amount of 7.375% Senior Notes.

·                  First Open Market Purchases.  In 2010, the Company purchased $2 million aggregate principal amount of the Senior Notes for slightly less than par value.

 

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·                  First Early Redemption.  In 2011, the Company redeemed $65 million in aggregate principal amount of the Senior Notes.

·                  Second Early Redemption. In April 2012, the Company redeemed $10 million of Senior Notes at 101.229 percent of the principal amount plus accrued and unpaid interest (the “Second Early Redemption”).  The Second Early Redemption was financed with available Revolver borrowings. The Company recognized a pre-tax loss, including the write-off of related unamortized debt issuance costs, of $0.2 million in connection with the Second Early Redemption.

·                  Third Early Redemption. In November 2012, the Company redeemed $58 million of the Senior Notes at par value (the “Third Early Redemption”). The Third Early Redemption was financed by a combination of borrowings using the Company’s revolving credit facility and its $30 million term loan. The Company recognized a pre-tax loss, including the write-off of related unamortized debt issuance costs, of $0.4 million in connection with the Third Early Redemption.

·      Fourth Early Redemption.  On April 17, 2013, the Company gave irrevocable notice that it has elected to conduct an early redemption (the “Fourth Early Redemption”) of $20 million of its Senior Notes. The Senior Notes will be purchased at par value on May 17, 2013. The Fourth Early Redemption will be financed by borrowings using the Company’s revolving credit facility. As of March 31, 2013, there were $90 million of Senior Notes outstanding.

·                  Redemption Rights/Open Market Purchases.  After November 15, 2012, the Company has the right to refinance or redeem all or any portion of the Senior Notes at 100% of the principal amount plus accrued and unpaid interest.  From time-to-time, the Company may either redeem or repurchase its Senior Notes on the open market.

 

Amended and Restated Secured Revolving Credit Facility

 

Second Amended and Restated Credit Agreement.  On October 11, 2012, the Company amended and extended its credit facility by entering into a Second Amended and Restated Credit Agreement (the “Second Amended and Restated Credit Agreement”). The Second Amended and Restated Credit Agreement provides for, among other things; a secured revolving credit commitment of $105 million (the “Revolver”) and a secured $30 million term loan commitment (the “Term Loan”).

 

As of March 31, 2013 and December 31, 2012, the weighted-average interest rate on outstanding Revolver borrowings was 2.6 percent and 2.4 percent per annum, respectively. As of March 31, 2013, the Company had $55.0 million of available credit under the Revolver. As of March 31, 2013 and December 31, 2012, the weighted-average interest rate on outstanding Term Loan borrowings was 4.0 percent per annum.

 

Terms, Covenants and Events of Default. If the Company has outstanding borrowings under the Term Loan or if borrowing availability under the Revolver is less than $20 million, the Company is required to achieve a fixed charge coverage ratio (as defined in the Second Amended and Restated Credit Agreement) of not less than 1.1 to 1.0 for the preceding four-quarter period, tested as of the end of each quarter. As of March 31, 2013, the Company was in compliance with all terms of the Second Amended and Restated Credit Agreement.

 

Other Debt

 

German Project Financing

 

German Loan Agreement.  In December 2006, Neenah Germany entered into a 10-year agreement with HypoVereinsbank and IKB Deutsche Industriebank AG (“IKB”) to provide €10.0 million of project financing (the “German Loan Agreement”). As of March 31, 2013, €5.0 million ($6.4 million, based on exchange rates at March 31, 2013) was outstanding under the German Loan Agreement.

 

Second German Loan Agreement.  In January 2013, Neenah Germany entered into an agreement with IKB to provide project financing for the construction of a melt blown machine (the “Second German Loan Agreement”).  IKB agreed to provide €9 million of construction financing which is secured by the melt blown machine.  The loan matures in September 2022 and principal is repaid in equal quarterly installments beginning in December 2014.  The interest rate on amounts outstanding is 2.5% based on actual days elapsed in a 360-day year and is payable quarterly.  At March 31, 2013, €9.0 million ($11.5 million, based on exchange rates at March 31, 2013) was outstanding under the Second German Loan Agreement.

 

German Lines of Credit

 

HypoVereinsbank Line of Credit.  Neenah Germany has a revolving line of credit with HypoVereinsbank (the “HypoVereinsbank Line of Credit”) that provides for secured borrowings of up to €15 million for general corporate purposes. As of March 31, 2013, €15.0 million ($19.2 million, based on exchange rates at March 31, 2013) of credit was available under the HypoVereinsbank Line of Credit.

 

Commerzbank Line of Credit.  Neenah Germany has a revolving line of credit with Commerzbank AG (“Commerzbank”) that provides for borrowings of up to €5 million for general corporate purposes (the “Commerzbank Line of Credit. As of March 31, 2013, €5.0 million ($6.4 million, based on exchange rates at March 31, 2013) of credit was available under the Commerzbank Line of Credit.

 

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Restrictions under German Credit Facilities

 

The terms of the HypoVereinsbank and Commerzbank lines 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 HypoVereinsbank and Commerzbank lines of credit as of March 31, 2013.

 

Note 7.  Pension and Other Postretirement Benefits

 

Pension Plans

 

Substantially all active employees of the Company’s U.S. operations participate in defined benefit pension 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 SERP which is a non-qualified 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.

 

In February 2013, the Company reached agreement with the United Steelworkers Union (the “USW”) on new collective bargaining agreements for all of our U.S. paper mills. The new agreements resulted in a net reduction in the Company’s liability for post-retirement benefits.  In accordance with ASC Topic 715, Compensation — Retirement Benefits (“ASC Topic 715”), the Company measured the assets and liabilities of its U.S. post-retirement benefit plans as of February 28, 2013 and recorded a curtailment gain in OCI of $6.6 million less a provision for income taxes of $2.5 million.

 

For the three months ended March 31, 2012, benefit payments under the Company’s SERP exceeded the sum of expected service cost and interest costs for the plan for calendar 2012. In accordance with ASC Topic 715, the Company measured the liabilities of the SERP as of January 1, 2012 and recognized a settlement charge of $3.5 million.

 

The following table presents the components of net periodic benefit cost:

 

Components of Net Periodic Benefit Cost

 

 

 

Pension Benefits

 

Postretirement Benefits

 

 

 

Three Months Ended March 31,

 

 

 

2013

 

2012

 

2013

 

2012

 

Service cost

 

$

1.3

 

$

1.2

 

$

0.5

 

$

0.5

 

Interest cost

 

3.3

 

3.5

 

0.5

 

0.5

 

Expected return on plan assets (a)

 

(4.2

)

(3.8

)

 

 

Recognized net actuarial loss (b)

 

1.5

 

1.0

 

0.1

 

0.1

 

Amortization of prior service cost (b)

 

0.1

 

0.1

 

 

 

SERP settlement charge

 

 

3.5

 

 

 

Curtailment loss

 

 

 

 

0.3

 

Net periodic benefit cost

 

$

2.0

 

$

5.5

 

$

1.1

 

$

1.4

 

 


(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.

(b)         Represent amounts reclassified from OCI.  Substantially all of such amounts are classified as Cost of products sold on the Condensed Consolidated Statements of Operations.  The Company recognized a tax benefit of $0.6 million related to such reclassifications classified as Provision for income taxes on the Condensed Consolidated Statements of Operations.

 

The Company expects to make aggregate contributions to qualified defined benefit pension trusts and pay pension benefits for unfunded pension plans of approximately $16 million (based on exchange rates at March 31, 2013) in calendar 2013.  For the three months ended March 31, 2013, the Company made approximately $5.4 million of such payments.

 

Note 8.  Stock Compensation Plan

 

The Company reserved 3,500,000 shares of $0.01 par value common stock (“Common Stock”) for issuance under the 2004 Omnibus Stock and Incentive Plan (the “Omnibus Plan”).  As of March 31, 2013, approximately 385,000 shares of Common Stock were reserved for future issuance under the Omnibus Plan. The Compensation Committee has approved an amendment and restatement of the Omnibus Plan which would increase the amount of Common Stock reserved thereunder by 1,577,000 shares subject to shareholder approval at the 2013 annual meeting. The Company accounts for stock-based compensation pursuant to the fair value recognition provisions of ASC Topic 718, Compensation—Stock Compensation (“ASC Topic 718”).

 

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Valuation and Expense Information

 

Substantially all stock-based compensation expense is recorded in selling, general and administrative expenses on the condensed consolidated statements of operations.  The following table summarizes stock-based compensation expense and related income tax benefits.

 

 

 

Three Months Ended March 31,

 

 

 

2013

 

2012

 

Stock-based compensation expense

 

$

1.7

 

$

1.6

 

Income tax benefit

 

(0.6

)

(0.6

)

Stock-based compensation, net of Income tax benefit

 

$

1.1

 

$

1.0

 

 

The following table summarizes total compensation costs related to the Company’s equity awards and amounts recognized in the three months ended March 31, 2013.

 

 

 

Stock Options and SARs

 

Performance Shares
and RSUs

 

Unrecognized compensation cost — December 31, 2012

 

$

1.6

 

$

2.5

 

Grant date fair value of current year grants

 

1.1

 

3.9

 

Compensation expense recognized

 

(0.6

)

(1.1

)

Unrecognized compensation cost — March 31, 2013

 

$

2.1

 

$

5.3

 

 

 

 

 

 

 

Expected amortization period (in years)

 

2.9

 

2.2

 

 

Stock Options and SARs

 

For the three months ended March 31, 2013, the Company awarded nonqualified stock options to purchase approximately 111,000 shares of Common Stock (subject to forfeiture due to termination of employment and other conditions). For the three months ended March 31, 2013, the weighted-average exercise price of such nonqualified stock option awards was $31.23 per share. The weighted-average grant date fair value for stock options granted during the three months ended March 31, 2013 was $9.61 per share and was estimated using the Black-Scholes option valuation model with the following assumptions:

 

 

 

Three Months Ended
March 31, 2013

 

Expected term in years

 

5.3

 

Risk free interest rate

 

0.9

%

Volatility

 

40.4

%

Dividend yield

 

1.9

%

 

Volatility and the expected term were estimated by reference to the historical stock price performance of the Company and historical data for the Company’s stock option awards, respectively. 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 awards. Forfeitures were estimated at the date of grant.

 

For the three months ended March 31, 2013 and 2012, the aggregate pre-tax intrinsic value of stock options and SARs exercised was approximately $1.9 million and $3.3 million, respectively. The aggregate intrinsic value of approximately 1,415,000 stock options and SARs that were exercisable at March 31, 2013 was $9.7 million. The aggregate intrinsic value of approximately 1,660,000 stock options and SARs that were exercisable at December 31, 2012 was $4.7 million.

 

The aggregate grant date fair value of approximately 116,000 stock options and SARs that vested during the three months ended March 31, 2013, was $0.8 million. As of March 31, 2013, certain participants met age and service requirements that allowed their stock options and SARs to qualify for accelerated vesting upon retirement. As of March 31, 2013, such participants held options to purchase approximately 42,000 shares of common stock that would have been exercisable if they had retired as of such date. The aggregate grant date fair value of options subject to accelerated vesting was $0.4 million. Stock options subject to accelerated vesting for expense recognition become exercisable according to the contract terms of the stock-based awards.

 

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As of March 31, 2013, the aggregate intrinsic value of 1,748,000 stock options and SARs that were vested or expected to vest was $11.4 million.  The weighted-average grant date fair value of such stock options and SARs was $9.44 per share. As of December 31, 2012, the weighted-average grant date fair value and aggregate intrinsic value of 2,035,000 stock options and SARs that were vested or expected to vest was $9.03 per share and $8.1 million, respectively.

 

As of March 31, 2013, the Company had approximately 340,000 unvested stock options with a weighted-average grant date fair value of $9.10 per share. As of December 31, 2012, approximately 395,000 unvested stock options were outstanding with a weighted-average grant date fair value of $5.25 per share.

 

Performance Units

 

For the three months ended March 31, 2013, the Company granted target awards of 78,900 Performance Units. The measurement period for the Performance Units is January 1, 2013 through December 31, 2013. The Performance Units vest on December 31, 2015. Common Stock equal to not less than 40 percent and not more 200 percent of the Performance Unit target will be awarded based on the Company’s return on invested capital, consolidated revenue growth, the percentage of consolidated free cash flow to revenue and total return to shareholders relative to the companies in the Russell 2000® Value small cap index. As of March 31, 2013, the Company expects that Common Stock equal to approximately 160 percent of the Performance Unit targets will be earned. The market price on the date of grant for the Performance Units was $31.23 per share. Based on the expected achievement of performance targets, the Company is recognizing stock-based compensation expense pro-rata over the vesting term of the Performance Units.

 

Excess Tax Benefits

 

ASC Topic 718 requires the reporting of excess tax benefits related to the exercise or vesting of stock-based awards as cash provided by financing activities within the statement of cash flows. Excess tax benefits represent the difference between the tax deduction the Company will receive on its tax return for compensation recognized by employees upon the vesting or exercise of stock-based awards and the tax benefit recognized for the grant date fair value of such awards. Excess tax benefits are a non-cash item and therefore a reduction in cash flow from operations is recorded to offset the amount of excess tax benefits reported in cash flows from financing activities. For the three months ended March 31, 2013 and 2012, the Company recognized excess tax benefits related to the exercise or vesting of stock-based awards of $0.3 million and $4.7 million, respectively.

 

Note 9.  Goodwill and Other Intangible Assets

 

The following table presents changes in the carrying amount of goodwill for the three months ended March 31, 2013.  All such goodwill is reported in the Technical Products segment.

 

 

 

Gross
Amount

 

Cumulative
Impairment Losses

 

Net

 

Balance at December 31, 2012

 

$

96.1

 

$

(54.7

)

$

41.4

 

Foreign currency translation

 

(3.0

)

1.7

 

(1.3

)

 

 

 

 

 

 

 

 

Balance at March 31, 2013

 

$

93.1

 

$

(53.0

)

$

40.1

 

 

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Table of Contents

 

The following table presents the gross carrying amount of intangible assets and the related accumulated amortization for intangible assets subject to amortization.

 

 

 

March 31, 2013

 

December 31, 2012

 

 

 

Gross
Amount

 

Accumulated
Amortization

 

Gross
Amount

 

Accumulated
Amortization

 

Amortizable intangible assets

 

 

 

 

 

 

 

 

 

Customer based intangibles

 

$

16.4

 

$

(6.3

)

$

16.3

 

$

(6.2

)

Trade names and trademarks

 

5.4

 

(3.5

)

5.5

 

(3.4

)

Acquired technology

 

1.0

 

(0.6

)

1.1

 

(0.7

)

Total amortizable intangible assets

 

22.8

 

(10.4

)

22.9

 

(10.3

)

Non-amortizable trade names

 

26.2

 

 

21.4

 

 

Total

 

$

49.0

 

$

(10.4

)

$

44.3

 

$

(10.3

)

 

In conjunction with the acquisition of the Southworth brands, the Company recorded $5.0 million in non-amortizable intangible trade names and $0.6 million in amortizable customer based intangible assets.  All other changes in the carrying value of the Company’s intangible assets not specifically identified are due to foreign currency translation effects.  The weighted average useful lives assigned to amortizable intangible trade names and trademarks and customer based intangible assets was 8 years and 15 years, respectively.

 

Note 10.  Stockholders’ Equity

 

Common Stock

 

The Company has authorized 100 million shares of Common Stock. Holders of the Company’s Common Stock are entitled to one vote per share. As of March 31, 2013 and December 31, 2012, the Company had approximately 15,970,000 shares and 15,915,000 shares outstanding, respectively.

 

On May 17, 2012, the Company announced that its Board of Directors authorized a program that would allow the Company to repurchase up to $10 million of its outstanding Common Stock through May 16, 2013 (the “Stock Purchase Plan”). Purchases by the Company under the Stock Purchase Plan will be made from time to time in the open market or in privately negotiated transactions in accordance with the requirements of applicable law. The timing and amount of any purchases will depend on share price, market conditions and other factors. The Stock Purchase Plan does not require the Company to purchase any specific number of shares and may be suspended or discontinued at any time.

 

The Company expects to fund the Stock Purchase Plan using cash on hand or Revolver borrowings. For the three months ended March 31, 2013, there were no purchases under the Stock Purchase Plan.

 

For the three months ended March 31, 2013 and 2012, the Company acquired 616 shares and 211,864 shares, respectively, at a cost of less than $0.1 million and $5.0 million, respectively, for shares surrendered by employees to pay taxes due on vested restricted stock awards.

 

Note 11.  Contingencies and Legal Matters

 

Litigation

 

The Company is involved in certain legal actions and claims arising in the ordinary course of business. While the outcome 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 effect on the consolidated financial condition, results of operations or cash flows of the Company.

 

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Table of Contents

 

Income Taxes

 

The Company is continuously undergoing examination by the Internal Revenue Service (the “IRS”) as well as various state and foreign jurisdictions. These tax authorities routinely challenge certain deductions and credits reported by the Company on its income tax returns.  No significant tax audit findings are being contested at this time with either the IRS or any state tax authority.

 

German Tax Audit — Tax Years 2006 to 2007

 

In November 2010, the Company received a tax examination report from the German tax authorities challenging the validity of certain interest expense deductions claimed on the Company’s tax returns for the years 2006 and 2007. The Company is indemnified by FiberMark, Inc. for any tax liabilities arising from the operations of Neenah Germany prior to October 2006. In August 2011, the Company received tax assessments totaling €3.7 million from the German tax authorities and submitted an appeal challenging these assessments. The Company believed that the finding which invalidated the deductibility of certain interest expense deductions was improper and vigorously contested the finding. The Company paid a total of €1.9 million against the August 2011 tax assessments and reflected these payments as assets (in “Income taxes receivable”) in recognition that such amounts would be treated as prepayments against any assessments ultimately owed. During 2012, the Company submitted additional information to the German tax authorities to support the validity of its interest expense deductions; however, as of December 31, 2012, they had not rendered a decision on the Company’s appeal. During the first quarter of 2013, the Company and the German tax authorities reached a settlement of all issues related to the tax examination for the years 2006 and 2007.  The settlement resulted in a revised tax assessment of €0.5 million,which was approximately equal to the Company’s liability for uncertain tax positions related to this issue at December 31, 2012.  The previously recorded liability for unrecognized tax benefits for this period was reversed, with an offsetting reduction of Income taxes receivable.  As of March 31, 2013, the resulting Income taxes receivable was €1.4 million ($1.8 million based on exchange rates at March 31, 2013).  The Company expects to receive a refund of such amount during the second quarter of 2013.

 

In the first quarter of 2013, the German legislature enacted tax legislation that included provisions which disallow certain interest expense deductions on a prospective and retroactive basis. Management believes the retroactive application of the legislation is unconstitutional and the likelihood of it being sustained is remote. As of March 31, 2013, the Company reflected a liability for unrecognized tax benefits based on an assessment of the likelihood of alternative outcomes related to this issue for the Company’s open tax years 2008 through 2012. Management believes it is remote that the Company’s liability for unrecognized tax benefits related to these matters will significantly increase within the next 12 months. While management believes that retroactive application of this legislation is remote, should retroactive application of the legislation be sustained, the outcome could have a material effect on the Company’s results of operations, cash flows and financial position.

 

Employees and Labor Relations

 

In February 2013, the Company reached agreement with the USW on new collective bargaining agreements for all of our U.S. paper mills. The new agreements between the Whiting, Neenah, Munising and Appleton paper mills and the USW expire on January 31, 2018, June 30, 2018, July 14, 2018 and May 31, 2019, respectively.

 

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 2011, the IG BCE and a national trade association representing all employers in the industry signed a new collective bargaining agreement covering union employees of Neenah Germany that expires in May 2013.  The Company believes it has satisfactory relations with its German employees covered by such collective bargaining agreements and does not expect the negotiation of a new collective bargaining agreements to have a material effect on its results of operations or cash flows.

 

Note 12.  Discontinued Operations

 

Sale of the Pictou Mill and the Woodlands

 

In March 2010, the Company concluded its operating activities in Canada; however, the Company has certain continuing post-employment benefit obligations related to its former Canadian operations.  In January 2013, the Company received approval for the refund of $4.2 million in excess pension contributions from the terminated Terrace Bay pension plan.  Such amount was recorded as income from discontinued operations, net of income taxes of $1.6 million, on the Condensed Consolidated Statement of Operations.

 

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Table of Contents

 

Note 13.  Business Segment Information

 

The Company reports its operations in two primary segments: Technical Products and Fine Paper. The technical products business is an international producer of transportation and other filter media and durable, saturated and coated substrates for industrial products backings and a variety of other end markets. The fine paper business is a supplier of premium writing, text and cover papers, bright papers and specialty papers in North America. Each segment employs different technologies and marketing strategies. The Other segment includes the Index, Tag and Vellum Bristol brands. Disclosure of segment information is on the same basis that management uses internally for evaluating segment performance and allocating resources. Transactions between segments are 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 operations of the business segments are shown as Unallocated corporate costs.

 

The following table summarizes the net sales, operating income and total assets for each of the Company’s business segments.

 

 

 

Three Months Ended March 31,

 

 

 

2013

 

2012

 

Net sales

 

 

 

 

 

Technical Products

 

$

107.0

 

$

106.0

 

Fine Paper

 

99.4

 

86.4

 

Other

 

6.8

 

5.8

 

Consolidated

 

$

213.2

 

$

198.2

 

 

 

 

Three Months Ended March 31,

 

 

 

2013

 

2012

 

Operating income (loss)

 

 

 

 

 

Technical Products

 

$

9.7

 

$

12.5

 

Fine Paper

 

16.3

 

10.8

 

Other

 

0.3

 

0.7

 

Unallocated corporate costs

 

(4.1

)

(7.8

)

Consolidated

 

$

22.2

 

$

16.2

 

 

 

 

March 31, 2013

 

December 31, 2012

 

Total Assets

 

 

 

 

 

Technical Products

 

$

345.6

 

$

348.5

 

Fine Paper

 

225.3

 

214.0

 

Corporate and Other

 

43.5

 

48.2

 

Total

 

$

614.4

 

$

610.7

 

 

Note 14.  Condensed Consolidating Financial Information

 

Neenah Canada 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 guarantees are full and unconditional.  The following condensed consolidating financial information is presented in lieu of consolidated financial statements for the Guarantor Subsidiaries as of March 31, 2013 and December 31, 2012 and for the three months ended March 31, 2013 and 2012.

 

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Table of Contents

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Three Months Ended March 31, 2013

 

 

 

Neenah
Paper, Inc.

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Consolidating
Adjustments

 

Consolidated
Amounts

 

Net sales

 

$

106.3

 

$

34.0

 

$

72.9

 

$

 

$

213.2

 

Cost of products sold

 

80.8

 

27.9

 

61.0

 

 

169.7

 

Gross profit

 

25.5

 

6.1

 

11.9

 

 

43.5

 

Selling, general and administrative expenses

 

13.6

 

3.2

 

4.2

 

 

21.0

 

Acquisition integration costs

 

0.1

 

 

 

 

0.1

 

Other (income) expense - net

 

0.1

 

0.2

 

(0.1

)

 

0.2

 

Operating income

 

11.7

 

2.7

 

7.8

 

 

22.2

 

Equity in earnings of subsidiaries

 

(9.9

)

 

 

9.9

 

 

Interest expense-net

 

2.5

 

 

0.1

 

 

2.6

 

Income from continuing operations before income taxes

 

19.1

 

2.7

 

7.7

 

(9.9

)

19.6

 

Provision for income taxes

 

4.4

 

0.8

 

2.3

 

 

7.5

 

Income from continuing operations

 

14.7

 

1.9

 

5.4

 

(9.9

)

12.1

 

Income from discontinued operations, net of income taxes

 

 

2.6

 

 

 

2.6

 

Net income

 

$

14.7

 

$

4.5

 

$

5.4

 

$

(9.9

)

$

14.7

 

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

For the Three Months Ended March 31, 2012

 

 

 

Neenah
Paper, Inc.

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Consolidating
Adjustments

 

Consolidated
Amounts

 

Net sales

 

$

92.2

 

$

35.2

 

$

70.8

 

$

 

$

198.2

 

Cost of products sold

 

70.6

 

28.2

 

57.5

 

 

156.3

 

Gross profit

 

21.6

 

7.0

 

13.3

 

 

41.9

 

Selling, general and administrative expenses

 

11.8

 

2.9

 

4.8

 

 

19.5

 

SERP settlement charge

 

3.5

 

 

 

 

3.5

 

Acquisition integration costs

 

2.5

 

 

 

 

2.5

 

Other (income) expense - net

 

 

0.3

 

(0.1

)

 

0.2

 

Operating income

 

3.8

 

3.8

 

8.6

 

 

16.2

 

Equity in earnings of subsidiaries

 

(9.3

)

 

 

9.3

 

 

Interest expense-net

 

3.3

 

 

0.3

 

 

3.6

 

Income from continuing operations before income taxes

 

9.8

 

3.8

 

8.3

 

(9.3

)

12.6

 

Provision for income taxes

 

0.9

 

1.3

 

1.5

 

 

3.7

 

Net income

 

$

8.9

 

$

2.5

 

$

6.8

 

$

(9.3

)

$

8.9

 

 

F-16



Table of Contents

 

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

For the Three Months Ended March 31, 2013

 

 

 

Neenah
Paper, Inc.

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Consolidating
Adjustments

 

Consolidated
Amounts

 

Net income

 

$

14.7

 

$

4.5

 

$

5.4

 

$

(9.9

)

$

14.7

 

Unrealized foreign currency translation losses

 

 

(0.1

)

(5.7

)

 

(5.8

)

Net gain from adjustments to pension and other postretirement benefit liabilities

 

2.9

 

3.7

 

 

 

6.6

 

Reclassification of amortization of adjustments to pension and other postretirement benefit liabilities recognized in net periodic benefit cost

 

0.1

 

1.7

 

 

 

1.8

 

Income (loss) from other comprehensive income items

 

3.0

 

5.3

 

(5.7

)

 

2.6

 

Provision for income taxes

 

1.2

 

2.0

 

 

 

3.2

 

Other comprehensive income (loss)

 

1.8

 

3.3

 

(5.7

)

 

(0.6

)

Comprehensive income (loss)

 

$

16.5

 

$

7.8

 

$

(0.3

)

$

(9.9

)

$

14.1

 

 

CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME

For the Three Months Ended March 31, 2012

 

 

 

Neenah
Paper, Inc.

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Consolidating
Adjustments

 

Consolidated
Amounts

 

Net income

 

$

8.9

 

$

2.5

 

$

6.8

 

$

(9.3

)

$

8.9

 

Unrealized foreign currency translation gains (losses)

 

 

(0.1

)

5.3

 

 

5.2

 

Net gain (loss) from adjustments to pension and other postretirement benefit liabilities

 

5.3

 

(4.2

)

 

 

1.1

 

Reclassification of amortization of adjustments to pension and other postretirement benefit liabilities recognized in net periodic benefit cost

 

0.5

 

0.7

 

 

 

1.2

 

SERP settlement charge

 

3.5

 

 

 

 

3.5

 

Curtailment loss

 

0.2

 

0.1

 

 

 

0.3

 

Unrealized gain on “available-for-sale” securities

 

0.1

 

 

 

 

0.1

 

Income (loss) from other comprehensive income items

 

9.6

 

(3.5

)

5.3

 

 

11.4

 

Provision (benefit) for income taxes

 

3.7

 

(1.3

)

 

 

2.4

 

Other comprehensive income (loss)

 

5.9

 

(2.2

)

5.3

 

 

9.0

 

Comprehensive income

 

$

14.8

 

$

0.3

 

$

12.1

 

$

(9.3

)

$

17.9

 

 

F-17



Table of Contents

 

CONDENSED CONSOLIDATING BALANCE SHEET

As of March 31, 2013

 

 

 

Neenah
Paper, Inc.

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Consolidating
Adjustments

 

Consolidated
Amounts

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

(0.6

)

$

1.5

 

$

2.9

 

$

 

$

3.8

 

Accounts receivable, net

 

45.7

 

17.5

 

39.6

 

 

102.8

 

Inventories

 

62.4

 

11.9

 

28.9

 

 

103.2

 

Income taxes receivable

 

 

0.6

 

1.8

 

 

2.4

 

Deferred income taxes

 

24.0

 

2.8

 

 

 

26.8

 

Intercompany amounts receivable

 

17.7

 

47.9

 

0.1

 

(65.7

)

 

Prepaid and other current assets

 

5.2

 

1.9

 

5.4

 

 

12.5

 

Total Current Assets

 

154.4

 

84.1

 

78.7

 

(65.7

)

251.5

 

Property, plant and equipment, at cost

 

276.8

 

105.2

 

219.3

 

 

601.3

 

Less accumulated depreciation

 

208.1

 

71.0

 

74.8

 

 

353.9

 

Property, plant and equipment — net

 

68.7

 

34.2

 

144.5

 

 

247.4

 

Investments In Subsidiaries

 

234.8

 

 

 

(234.8

)

 

Deferred Income Taxes

 

21.0

 

5.1

 

 

 

26.1

 

Goodwill

 

 

 

40.1

 

 

40.1

 

Intangible Assets—net

 

21.6

 

 

17.0

 

 

38.6

 

Other Assets

 

5.2

 

 

5.5

 

 

10.7

 

TOTAL ASSETS

 

$

505.7

 

$

123.4

 

$

285.8

 

$

(300.5

)

$

614.4

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

Debt payable within one year

 

$

3.0

 

$

 

$

1.6

 

$

 

$

4.6

 

Accounts payable

 

20.7

 

4.4

 

12.2

 

 

37.3

 

Intercompany amounts payable

 

47.9

 

17.7

 

0.1

 

(65.7

)

 

Accrued expenses

 

21.2

 

9.1

 

13.0

 

 

43.3

 

Total Current Liabilities

 

92.8

 

31.2

 

26.9

 

(65.7

)

85.2

 

Long-term Debt

 

165.6

 

 

16.3

 

 

181.9

 

Deferred Income Taxes

 

 

 

12.3

 

 

12.3

 

Noncurrent Employee Benefits and Other Obligations

 

35.3

 

40.4

 

47.3

 

 

123.0

 

TOTAL LIABILITIES

 

293.7

 

71.6

 

102.8

 

(65.7

)

402.4

 

STOCKHOLDERS’ EQUITY

 

212.0

 

51.8

 

183.0

 

(234.8

)

212.0

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

505.7

 

$

123.4

 

$

285.8

 

$

(300.5

)

$

614.4

 

 

F-18



Table of Contents

 

CONDENSED CONSOLIDATING BALANCE SHEET

As of December 31, 2012

 

 

 

Neenah
Paper, Inc.

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Consolidating
Adjustments

 

Consolidated
Amounts

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

(0.7

)

$

1.9

 

$

6.6

 

$

 

$

7.8

 

Accounts receivable, net

 

34.2

 

16.8

 

28.6

 

 

79.6

 

Inventories

 

62.3

 

10.9

 

29.7

 

 

102.9

 

Income taxes receivable

 

 

 

2.5

 

 

2.5

 

Deferred income taxes

 

24.4

 

2.8

 

 

 

27.2

 

Intercompany amounts receivable

 

19.4

 

49.4

 

0.3

 

(69.1

)

 

Prepaids and othe current assets

 

5.8

 

2.0

 

6.3

 

 

14.1

 

Total Current Assets

 

145.4

 

83.8

 

74.0

 

(69.1

)

234.1

 

Property, plant and equipment at cost

 

275.4

 

105.1

 

224.2

 

 

604.7

 

Less accumulated depreciation

 

205.4

 

70.1

 

74.4

 

 

349.9

 

Property, plant and equipment — net

 

70.0

 

35.0

 

149.8

 

 

254.8

 

Investments In Subsidiaries

 

241.2

 

 

 

(241.2

)

 

Deferred Income Taxes

 

28.8

 

6.5

 

 

 

35.3

 

Goodwill

 

 

 

41.4

 

 

41.4

 

Intangible Assets— net

 

16.1

 

 

17.9

 

 

34.0

 

Other Assets

 

5.5

 

 

5.6

 

 

11.1

 

TOTAL ASSETS

 

$

507.0

 

$

125.3

 

$

288.7

 

$

(310.3

)

$

610.7

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

 

 

Debt payable within one year

 

$

3.0

 

$

 

$

1.7

 

$

 

$

4.7

 

Accounts payable

 

20.7

 

4.8

 

9.6

 

 

35.1

 

Intercompany amounts payable

 

49.7

 

19.4

 

 

(69.1

)

 

Accrued expenses

 

23.9

 

9.2

 

14.5

 

 

47.6

 

Total Current Liabilities

 

97.3

 

33.4

 

25.8

 

(69.1

)

87.4

 

Long-term Debt

 

172.7

 

 

4.9

 

 

177.6

 

Deferred Income Taxes

 

 

 

12.5

 

 

12.5

 

Noncurrent Employee Benefits and Other Obligations

 

39.2

 

47.5

 

48.7

 

 

135.4

 

TOTAL LIABILITIES

 

309.2

 

80.9

 

91.9

 

(69.1

)

412.9

 

STOCKHOLDERS’ EQUITY

 

197.8

 

44.4

 

196.8

 

(241.2

)

197.8

 

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

 

$

507.0

 

$

125.3

 

$

288.7

 

$

(310.3

)

$

610.7

 

 

F-19



Table of Contents

 

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Three Months Ended March 31, 2013

 

 

 

Neenah
Paper, Inc.

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Consolidating
Adjustments

 

Consolidated
Amounts

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

14.7

 

$

4.5

 

$

5.4

 

$

(9.9

)

$

14.7

 

Adjustments to reconcile net income to net cash provided by operating activities

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

2.9

 

1.1

 

3.2

 

 

7.2

 

Stock-based compensation

 

1.5

 

 

0.2

 

 

1.7

 

Excess tax benefits from stock-based compensation

 

(0.3

)

 

 

 

(0.3

)

Deferred income tax provision

 

4.2

 

2.4

 

0.3

 

 

6.9

 

Inventory acquired in acquisitions

 

(1.8

)

 

 

 

(1.8

)

Increase in working capital

 

(11.3

)

(2.3

)

(9.3

)

 

(22.9

)

Equity in earnings of subsidiaries

 

(9.9

)

 

 

9.9

 

 

Pension and other postretirement benefits

 

(0.3

)

(2.7

)

(0.1

)

 

(3.1

)

Other

 

 

(0.3

)

0.3

 

 

 

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES

 

(0.3

)

2.7

 

 

 

2.4

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

(1.7

)

(0.7

)

(2.3

)

 

(4.7

)

Purchase of brands

 

(5.2

)

 

 

 

(5.2

)

Other

 

 

 

0.1

 

 

0.1

 

NET CASH USED IN INVESTING ACTIVITIES

 

(6.9

)

(0.7

)

(2.2

)

 

(9.8

)

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

Proceeds from issuance of long-term debt

 

11.8

 

 

11.9

 

 

23.7

 

Repayments of long-term debt

 

(18.9

)

 

 

 

(18.9

)

Proceeds from exercise of stock options

 

0.7

 

 

 

 

0.7

 

Excess tax benefits from stock-based compensation

 

0.3

 

 

 

 

0.3

 

Intercompany transfers - net

 

15.8

 

(2.4

)

(13.4

)

 

 

Cash dividends paid

 

(2.4

)

 

 

 

(2.4

)

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

 

7.3

 

(2.4

)

(1.5

)

 

3.4

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

0.1

 

(0.4

)

(3.7

)

 

(4.0

)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

 

(0.7

)

1.9

 

6.6

 

 

7.8

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

(0.6

)

$

1.5

 

$

2.9

 

$

 

$

3.8

 

 

F-20



Table of Contents

 

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

For the Three Months Ended March 31, 2012

 

 

 

Neenah
Paper, Inc.

 

Guarantor
Subsidiaries

 

Non-
Guarantor
Subsidiaries

 

Consolidating
Adjustments

 

Consolidated
Amounts

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

8.9

 

$

2.5

 

$

6.8

 

$

(9.3

)

$

8.9

 

Adjustments to reconcile net income to net cash provided by operating activities

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

3.0