Good day, ladies and gentlemen, and welcome to the first quarter 2008 Neenah Paper Incorporated earnings conference call. My name is Shequana and I will be your coordinator for today. At this time, all participants are in the listen-only mode. We will facilitate a question-and-answer session towards the end of this conference. (Operator Instructions) I would like to remind everyone that the presentation today contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect management's beliefs and assumptions regarding future events based on the currently available information. Listeners are therefore cautioned not to put undue reliance on forward-looking statements, as they are not a guarantee of future performance and remain subject to a number of uncertainties and other facts that could cause actual results to differ materially from forecast. A more detailed description of these uncertainties and risk factors is provided in Neenah Paper's earnings release and filings with the Securities and Exchange Commission, which you are encouraged to review. Except to the extent required by applicable Securities laws, Neenah Paper undertakes no obligation to update or publicly revise any of the forward-looking statements that you may hear today. In addition, the Company may make certain statements during the course of this presentation that include references to non-GAAP financial measures as defined by SEC regulations. As required by those regulations, if that were to happen, a reconciliation of these measures to what management believes are the most directly comparable GAAP measures will be posted on the Company's website at www.neenah.com. I would now like to turn the presentation over to your host for today's call, Mr. Bill McCarthy, Vice President, Financial Analysis and Investor Relations. Please proceed, sir.

Thank you. Good morning and thank you for joining us on our 2008 first quarter earnings call. With me today are Sean Erwin, our Chief Executive Officer, and Bonnie Lind, our Chief Financial Officer and Treasurer. We released first quarter results yesterday afternoon and have also filed our 10-Q, so hopefully you've had a chance to review some of this information already. I will briefly summarize consolidated results and then turn things over to Sean and Bonnie to review financial performance in detail. First, I'd like to point out that, following communications earlier this year about our intent to sell our pulp operations, we're no longer reporting pulp as a separate segment. Instead, results for our Pictou pulp mill are now classified as discontinued operations and prior period results have been similarly restated. In the first quarter, net sales from continuing operations were $206 million, up 19% versus the prior year. The gain was principally due to additional Fine Paper volumes following the March 2007 acquisition of Fox River, but also reflected higher Technical Products net sales. Operating income of $18 declined from $19 million a year ago, primarily as a result of increased input prices for raw materials and energy of over $4 million that more than offset benefits from higher selling prices and operational efficiencies. Earnings per share from continuing operations were $0.57 versus $0.67 in 2007. The number of outstanding diluted shares averaged 14.9 million in the first quarter but was 14.7 million in April. The April amount is down almost 400,000 shares from year end as a result of share repurchases completed in March as part of our Reverse/Forward stock split. Losses from discontinued operations were $5.46 per share in 2008. However, all but $0.08 of this loss was due to a charge of $5.38 per share to write-down the Pictou pulp mill assets to fair value and record the estimated loss on the sale of the mill. Bonnie will discuss these charges in more detail later. The $0.08 per share loss compared to income of $0.31 per share from discontinued operations in 2007. I'll now turn things over to Sean.

Thank you, Bill. Bill just covered some pretty big numbers with you as it relates to the write-down of the pulp mill assets at Pictou to what we expect to be our net realizable value. We will describe those in some detail with you during this call, but you'll find a much more detailed description in our 10-Q which, as Bill mentioned, has already been filed. From an ongoing standpoint, our paper businesses continue to face a daunting double challenge in terms of rapid increases in the cost of raw materials and energy prices. At the same time, they are dealing with some weakening economic conditions here in the U.S. and the challenge in Europe of exporting certain products into a dollar-based global market. In spite of these challenges, our teams continue to execute on our strategic plan to transform Neenah Paper from a pulp and paper company into a leading fine paper and technical products company. As we highlighted in our recent annual report, which I hope you have had a chance to review, as it is a beautiful showcase for our fine papers, our teams are accustomed to the cost and competitive challenges that we face and are building on our strength as we address these challenges. It is important that we continue with this approach as focusing only on the short-term challenges is like being a tennis player who never gets a chance to serve. Our strategy for Neenah Paper is a winning one that will create value, and our job is to deal with these challenges while we execute for the longer term. I'll comment briefly on each of our businesses but first, let me give a brief update on safety, which remains a core value of the Company. Through the first quarter, we achieved a…

Thank you, Sean. Good morning, everyone. Let's start with Fine Paper this morning. Net sales for the quarter were at $97 million versus $72 million last year. The increase was primarily due to added volumes from the Fox River acquisition. While year-on-year volume comparisons will be more meaningful starting next quarter, there will still be some distortions throughout the year due to our transition and consolidation of brands and sales in the month following the Fox acquisition. But on an apples-to-apples basis in the first quarter, volumes declined in the mid single digits for our higher-value categories, although this was partially offset by gains in other brands like ENVIRONMENT. Operating income of $10 million compared to $12 million in the first quarter of 2007. Included in current year results were restructuring costs of close to $1 million related to the final closure of Urbana and consolidation of distribution centers. There were limited restructuring costs in the first quarter of 2007, and we expect there to be minimal remaining costs in 2008. In addition, fiber, energy and distribution costs in the quarter increased almost $2.5 million versus the prior year. Hardwood pulp prices are now up over $100 per ton from last year and up $35 per ton from the fourth quarter. With Fox, we now consume about 150,000 tons of fiber annually in Fine Paper, so every $50 per metric ton price increase is worth about $6 million to $7 million per year. I would note that hardwood prices have risen by $200 per metric ton over the past two years, so the magnitude of the pulp price increase is enormous. As we have said previously, given the cyclicality of pulp prices and in contrast to commodity paper grades, we do not pass on the pulp impacts to our customers…

Thank you, Bonnie. Let me share a few final comments before we open up the call to questions. Looking at the remainder of the year, we expect additional increases in costs for energy and certain raw materials such as latex. Slower economic growth may also impact demand in some of our markets. While we can't escape these external conditions, our competitive position will remain strong and we will continue to execute plans that position us for long-term success while implementing the initiatives to reduce the impact this year. As a result of our plan to sell pulp and also due to changes in timing of other projects, planned capital spending this year is now $35 million versus the $45 million previously discussed. As I hope you can appreciate, there is limited information I can share with you on the status of our plans to sell the Pictou mill and Nova Scotia timberlands. Our focus is on maximizing the overall value from these sales for our shareholders. This is likely to result in two separate transactions. In this quarter, we wrote down book values on the pulp mill to reflect expected losses on the sale of the mill. Conversely, we would expect to record a significant gain on the timberlands sale when that occurs. We will share more as we make progress, and in the interim, we're careful managing our pulp costs. Pictou successfully completed its annual maintenance down this week and has resumed operations. Results were in line with plan and the 10-day down was slightly shorter than last year's. 2008 has started as a very challenging year across not only our industry but many other sectors as well. The stock markets have reflected these challenges. We do not believe our current price reflects the value of our business and what we will bring by executing on our plan. We remain very committed to enhancing shareholder value and appreciate those investors that share both our vision and continue to support us with their investments. Now, I'd be happy to open up the call to your questions. Thank you.

(Operator Instructions) Your first question comes from the line of Chip Dillon, Citi. Please proceed.

Morning, Chip.

Actually, it's James calling in for Chip.

Hi. Good morning.

Good morning. Just three quick questions. First, we are computing the tax rate and we're getting an operating tax rate of 27.4%. Is this a good number, and what's your expectations for the rest of the year?

Yes, I think that's a good number. And my expectation would be along those lines for the rest of the year.

Second, there's a $1 million integration cost. Would you consider that a one-time cost or will that be ongoing?

That's a one-time. That was really closing distribution centers and the Urbana mill. As I think Bonnie mentioned, we may have a little more in the second quarter, probably well under $1 million, probably half of that. And that should be the end if it.

So half of that in the second quarter. And third, we calculate the operating loss is about $1.8 million in the Pulp segment. Is this about right? If so, why? Is it energy costs? I mean, the Canadian dollar weakened or pretty much stayed flat during the quarter. What was different going from the fourth quarter to the first quarter?

In the first quarter, we are seeing an increase. The most significant is wood costs increases in Nova Scotia with the weaknesses in the lumber markets. Quite a few of the sawmills have curtailed operations in Nova Scotia, reducing the flow of residual chips, so we are flail-chipping in the bush more and more wood ourselves, which is at a higher cost and in some cases, working with the sawmills at prices to continue their operations to keep the flow of wood coming into the mill.

So it's mainly wood costs. Are you seeing the same increase in energy costs?

Not as much up there. They use a little bunker C oil when they're starting up the processes, but we have self-generation of most energy in the Pictou mill. We are seeing cost increases with some of the chemicals coming into the mill, such as caustic and others that are following the increases you're seeing across the industry in chemical prices.

Okay. Thank you. That's it for me.

Okay.

Your next question comes from the line of Joe Stivaletti with Goldman Sachs. Please proceed.

Hi, Joe.

Hi, Joe.

Good morning. Just a couple of things. One is I was wondering if you -- I know you don't have a lot of detail to give us on the asset sales. But I just was wondering if you could share with us your thinking on how you plan to apply those proceeds, if you are seeing much in the way of opportunities out there or how you are thinking about the proceeds of lands.

Yes, there's really two phases of it. And I would assume you're talking about the timberlands for the most part. The sales of the Fox River assets are not merely in the magnitude. Those we will just do in the orderly course. In terms of timberland, the first thing we do, Joe, is pay down debt. We obviously look at alternatives going forward that fit our strategic plan, but the first thing we would do is use the cash to pay down debt.

Okay. And I mean would you consider doing anything with the bonds or you are more talking about some of your other outstanding debt?

Yeah. Joe, we would not consider doing anything with bonds. We would pay down our [ATL].

Right.

And we have a term loan as well.

Right. Okay. And then, I just wondered if you could help us out by talking a little bit more about some of the dynamics in your both the Fine Paper and Technical Papers markets, in terms of price increases. I mean there are obviously somewhat niche markets that you can't follow quite as easily on an independent basis, but obviously the costs increases we all know have been significant. You're talking about price increases. I mean what do you see is the ability, during the year, to get pricing up enough to offset all of this cost inflation you're seeing, or is there just not the ability to do that?

I think you are spot-on that we don't move as frequently and as dramatically as some of the more commodity-oriented products is what you're seeing there. We have announced increases in both Fine Paper and Technical Products. Most recent, we have one, as Bonnie highlighted, kicking in next week in Fine Paper, which is on top of an increase that was taken last October. We are not going up at the same percentage as some of the commodity producers, so we may not cover the full amount of the input cost increases because we're managing the price gap, the selling price gap between some of the lower value products out in the marketplace. And since these are branded products, it's something we want to watch very carefully. Conversely, when pulp prices do decline, we tend to hold the line on prices. That's where we typically see a margin expansion, whereas some of the more commodity-oriented products tend to follow pulp prices down. And so, we do see a little compression now. We would expect that to increase in the future. In Technical Products, it really depends on the markets that they are competing in. Since it's more of a customer-specific business, we are implementing price increases where we can. The one area, Joe, where that's been pretty difficult lately is on the exports out of Germany. And the vast majority -- about two-thirds of the German business, 60%, stays in Europe in the euro zone. A lot of the wallcovering and the transportation/filtration tape -- quite a bit of the tape is exported, and especially into Asian and some Latin American markets. That's where they are finding the euro pricing to be pretty rocky right now. And so they are under some price pressure to compete in those markets.

Okay. That's very helpful. Thanks a lot.

Okay.

Your next question comes from the line of Mark Weintraub with Buckingham Research. Please proceed.

Thank you. Good morning. So if I'm reading this right, on what you've announced on the Pictou is that as well as the write-down long with assets, is the $39.5 million pretax charge on the disposal, so let's say after tax $25 million. And I think you said there is a $22 million cash liability on the pension, so that would be, in order of magnitude, $50 million cash out-of-pocket. Again, there may be a lot of other factors which you can help me out with. But the other is that I remember with Terrace Bay you had a fair bit of working capital that you were able to use to offset those types of outlays. Would that also be the case at Pictou or not necessarily? And then separately, of course, there's the timberlands, but we treat that separately.

Yeah. Mark, as soon as we have something that we're in a position to review with in detail, we will. Pictou is a going concern and whereas Terrace Bay was shutdown at the time it was sold to Buchanan, so the way you handle the transaction is going to be a little bit different. And I'm not going to speculate on any cash payments, but I will say you were using some pretty big numbers. So we'll review with you as soon as we can.

I appreciate that. Is there any magnitude or sense -- I think that people are probably a little bit or certainly I'm struggling to understand what on the cash side is the potential, the way this plays out. And secondly, you had also talked about use of proceeds to pay down debt. You'd also made, in your opening comments, how you felt that the stock was not reflecting the value of the Company. My guess is you prepared those markets before the stock traded down another 13%, which it has done so far this morning. Would you also contemplate buying back stock with some of the proceeds if the stock were to be at levels where it is today?

We would obviously, at those levels, evaluate it. We have some limits within our debt covenants as to the extent we can do a buyback. So we would stay within those, but then obviously look at it. In terms of the Pictou transaction, I think, as Bonnie highlighted, we have $22 million of underfunding in pension and OPEBs. And as you've seen in past activities, quite often there's adjustments done for that. But other than that, there isn't -- well, I don't want to talk about a transaction because we don't have one to talk about. But trust just as we did with Terrace Bay when you evaluated that in detail, I think we were pretty prudent in the use of cash in that transaction and we would expect to be equally prudent this time.

Yeah. The only thing I could add to that is the $40 million that you referenced before…

Yeah.

…that already represents the write-off of all remaining assets and liabilities, which would include these cash costs for pensions that you were talking about, Mark.

Okay.

As well as any cash payment if we expected to make one.

I see, okay. And just to -- on Terrace Bay, if I remember rightly, at the end of the day, your cash outlay was pretty minimal. Is that fair? Because you were able to use, again, working capital and things like that.

Yes.

But we did have some ongoing liabilities, whereas we would expect this to be more of a typical transaction where we end up with few remaining liabilities.

Okay.

And Mark, we'll review it with you in detail as soon as we have something to review.

Perfect. And then just lastly, on the timberlands, just to make sure -- I understand you've got about 500,000 acres owned and then I believe that there's also 200,000 that you have licensed. Does that have any separate value or is it really just the 500,000 acres owned that we should be thinking about?

Just the 500,000. The 200,000 is a Crown license from the province that typically is assigned -- it goes with the mill, so that would be assigned by the province to the new mill owner.

Okay. Thank you very much.

You're welcome.

(Operator Instructions) And you're next question comes from the line of Eric Seeve with GoldenTree. Please proceed.

Good morning.

Good morning. I have three questions. The first is you mentioned some proceeds from selling some Fox River assets that you are no longer utilizing. Can you give us just a ballpark sense of how much we should expect there?

Yeah, not dramatic. I think, in the course of this year, we would expect to receive about $10 million in the course of the year. We're selling two mills upfront, and that probably won't even be half of that. And one of the things -- keep in mind we're not selling these as going-concern operations. We do not want to turn around and compete with these as fine paper mills with low overhead because they have very little invested in them. So, these are assets that will be sold for alternative uses, and we view it as a way to cover our integration costs which we expect it will for the most part.

Great. Thank you. The next question is on CapEx. You mentioned that CapEx this year is going to be $35 million. Does that assume -- what is that implicitly assuming about the Pictou mill? Does that assume that you could own the pulp mill for the entire year? Is it $35 million including whatever you're going to spend on the pulp mill this year? Does it assume it's divested at a certain point?

Yeah. There is very little reflected for the pulp mill in that any capital spending that would take place at the pulp mill this year we would expect would be part of any future transaction. So, assume that that's paper spending.

Okay. So you're spending $35 million on paper assets. Going forward, I think you say this in the past. Can you remind me of what a good number for us to assume spending on the paper assets are?

Yeah. Normal paper spending, on a replacement standpoint, I would expect to be no more than $20 million, $25 million a year. And that would be spread across the three mills in Germany and the five mills in the U.S. And then there will be situations where there's some strategic projects, either for product or process capabilities or capacity where the number would be above those. The core spending assume at the $20 million, $25 million range.

Okay. And the discretionary projects you're talking about, obviously that will depend on the opportunities that you face but just so I can get some ballpark sense what you're thinking, is that $5 million to $10 million a year? Or just --?

I'd hate to predict. I mean, we just spent, after the acquisition of Neenah Germany, we invested over $20 million in the expansion of their filtration business. So, there are going to be cases where it is a larger amount. But in any of those projects, trust that we will be reviewing those and talking about those publicly.

Thank you. The last question. Ignoring potential future stock buybacks, is the previously announced stock buyback plan -- has that been completed or is there more to go there? And if so, how much?

That was really a one-off. We did the Reverse/Forward slip split where we cashed out in effect any shareholder that had less than 50 shares of stock and the buyback represented those shares.

Has that been completed?

Yes. Yes, that was done over the course of just a few days.

Thank you for your time.

Thank you.

At this time, there are no further questions. I would now like to turn the call over to Mr. Sean Erwin for closing remarks.

Well, thank you for joining us today for our call. We look forward to updating you on our progress throughout the balance of the year. Have a good day.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a good day.