ii. changes in energy-related costs and commodity raw materials with an energy component;

iii. variations in demand, including the impact of any unplanned market-related downtime, for, or the pricing of our products;

iv. our ability to develop new, high value-added Specialty Papers and Composite Fibers products;

v. our ability to renew our electricity sales agreement at acceptable margins in relation to our current coal supply contract;

vi. the impact of competition, changes in industry paper production capacity, including the construction of new mills, the closing of mills and incremental changes due to capital expenditures or productivity increases;

vii. the impairment of financial institutions as a result of the current credit market conditions and any resulting impact on us, our customers or our vendors;

viii. the gain or loss of significant customers and/or on-going viability of such customers;

ix. cost and other effects of environmental compliance, cleanup, damages, remediation or restoration, or personal injury or property damages related thereto, such as the costs of natural resource restoration or damages related to the presence of polychlorinated biphenyls ("PCBs") in the lower Fox River on which our former Neenah mill was located;

x. risks associated with our international operations, including local economic and political environments and fluctuations in currency exchange rates;

xi. geopolitical events, including war and terrorism;

xii. enactment of adverse state, federal or foreign tax or other legislation or changes in government policy or regulation;

xiii. adverse results in litigation; and

xiv. our ability to finance, consummate and integrate future acquisitions.

Introduction We manufacture, both domestically and internationally, a wide array of specialty papers and engineered products. Substantially all of our revenue is earned from the sale of our products to customers in numerous markets, including book publishing, envelope & converting, carbonless papers and forms, food & beverage filter papers, decorative laminates for furniture and flooring, metallized papers and other highly technical niche markets.
Overview Our results of operations for the first three months of 2009 when compared with the same period of 2008 reflect improved operating profits from our business units driven by productivity gains, cost control and higher average selling prices. Our overall results were adversely impacted by lower gains from sales of timberlands in the first quarter of 2009 compared with the same period of 2008. In addition, we realized a pre-tax $5.5 million adverse impact from recording pension expense in the first three months of 2009 compared with pension income in the year-earlier quarter.
Specialty Papers' operating income in the first quarter of 2009 increased approximately 60.5% compared to the same quarter of 2008 largely due to improved operational effectiveness and cost controls throughout the unit. Higher average selling prices offset

the impact of unfavorable product mix and the costs of market related downtime.
Our Composite Fibers business unit's first quarter 2009 operating profit declined slightly in the comparison primarily due to lower volumes in certain geographic and product markets that are more sensitive to the weak economic environment together with the related unplanned downtime. This unit's shipments of food & beverage products, a key growth market, increased 4.4% in the comparison. Average selling prices were partially offset by increased input costs.

RESULTS OF OPERATIONS
                    Three months ended March 31, 2009 versus
                     the Three months ended March 31, 2008
   The following table sets forth summarized results of operations:

                                                   Three months ended
                                                        March 31
              In thousands, except per share      2009            2008

              Net sales                        $ 291,552       $ 305,499
              Gross profit                        43,314          44,258
              Operating income                    19,500          34,641
              Net income                          11,538          19,675
              Earnings per share                    0.25            0.43

The consolidated results of operations for the three months ended March 31, 2009 and 2008, include the following significant items:

                                                After-tax      Diluted EPS
             In thousands, except per share    Gain (loss)

                          2009
             Gains on sale of timberlands       $     378      $     0.01

                          2008
             Gains on sale of timberlands       $   8,662      $     0.19
             Acquisition integration costs           (411 )         (0.01 )

The above items increased earnings by $0.4 million, or $0.1 per diluted share, and $8.3 million, or $0.18 per diluted share, in the first quarters of 2009 and 2008, respectively.

Business Units

Business Unit Performance                                                                    For the three months ended March 31
In thousands                            Specialty Papers                        Composite Fibers                     Other and Unallocated                           Total
                                    2009                2008                2009               2008                2009                2008                2009                2008

Net sales                        $ 199,607           $ 200,946           $ 91,945           $ 104,552           $       -           $       1           $ 291,552           $ 305,499
Energy sales, net                    1,931               1,984                  -                   -                   -                   -               1,931               1,984

Total revenue                      201,538             202,930             91,945             104,552                   -                   1             293,483             307,483
Cost of products sold              171,330             177,276             77,646              88,396               1,193              (2,447 )           250,169             263,225

Gross profit (loss)                 30,208              25,654             14,299              16,156              (1,193 )             2,448              43,314              44,258
SG&A                                11,840              14,207              8,823              10,020               3,850                 (92 )            24,513              24,135
Gains on dispositions of
plant, equipment and
timberlands                              -                   -                  -                   -                (699 )           (14,518 )              (699 )           (14,518 )

Total operating income              18,368              11,447              5,476               6,136              (4,344 )            17,058              19,500              34,641
Nonoperating income
(expense)                                -                   -                  -                   -              (4,401 )            (4,473 )            (4,401 )            (4,473 )

Income (loss) before
income taxes                     $  18,368           $  11,447           $  5,476           $   6,136           $  (8,745 )         $  12,585           $  15,099           $  30,168


Supplementary Data
Net tons sold                      185,061             182,211             19,191              21,339                   -                   -             204,252             203,550
Depreciation, depletion
and amortization                 $   8,867           $   8,632           $  5,561           $   6,086           $       -           $       -           $  14,428           $  14,718
Capital expenditures                 3,582               2,695              1,652               6,562                   -                   -               5,234               9,257

Business Units Results of individual business units are presented based on our management accounting practices and management structure. There is no comprehensive, authoritative body of guidance for management accounting equivalent to accounting principles generally accepted in the United States of America; therefore, the financial results of individual business units are not necessarily comparable with similar information for any other company. The management accounting process uses assumptions and allocations to measure performance of the business units. Methodologies are refined from time to time as management accounting practices are enhanced and businesses change. The costs incurred by support areas not directly aligned with the business unit are allocated primarily based on an estimated utilization of support area services or are included in "Other and Unallocated" in the table above.
Management evaluates results of operations of the business units before non-cash net pension income or expense, charges related to the Fox River environmental reserves, restructuring related charges, unusual items, certain corporate level costs, and the effects of asset dispositions. Management believes that this is a more meaningful representation of the operating performance of its core papermaking businesses, the profitability of business units and the extent of cash flow generated from these core operations. Such amounts are presented under the caption "Other and Unallocated." This presentation is aligned with the management and operating structure of our company. It is also on this basis that the Company's performance is evaluated internally and by the Company's Board of Directors.

   Sales and Costs of Products Sold

                                                  Three months ended
                                                       March 31
     In thousands                                2009            2008         Change

     Net sales                                $ 291,552       $ 305,499     $ (13,947 )
     Energy sales - net                           1,931           1,984           (53 )

     Total revenues                             293,483         307,483       (14,000 )
     Costs of products sold                     250,169         263,225       (13,056 )

     Gross profit                             $  43,314       $  44,258     $    (944 )

     Gross profit as a percent of Net sales        14.9 %          14.5 %

The following table sets forth the contribution to consolidated net sales by each business unit:

                                            Three months ended
                                                 March 31
                      Percent of Total      2009           2008

                      Business Unit
                      Specialty Papers        68.5 %        65.8 %
                      Composite Fibers        31.5          34.2

                      Total                  100.0 %       100.0 %

Net sales totaled $291.6 million for the first three months of 2009, a decrease of $13.9 million, or 4.6%, compared to the same period a year ago.
In the Specialty Papers business unit, net sales for the first three months of 2009 decreased $1.3 million to $199.6 million. Operating income totaled $18.4 million, an increase of $6.9 million, or 60.5%, over the same quarter a year ago. The improved operating income is primarily due to increases in average selling prices outpacing increases in input costs and improved operating efficiencies at Chillicothe. Higher average selling prices contributed $7.5 million of the increase in operating profit and volumes shipped increased 1.6%. These price and volume increases were partially offset by expected mix changes between carbonless papers and uncoated papers. In addition, this business unit's results were adversely impacted by $3.3 million of higher input costs, largely driven by caustic soda and coal. Unplanned operating downtime at the Spring Grove and Chillicothe facilities further reduced operating results by approximately $1.6 million in the first quarter of 2009 compared to the first quarter of 2008.
In Composite Fibers, net sales were $91.9 million for the first quarter of 2009, a decline of $12.6 million from the year-earlier quarter. Operating income declined by $0.7 million in the comparison to $5.5 million. The translation of foreign currencies adversely impacted net sales by $14.3 million; however, higher average selling prices contributed $4.2 million. Total volumes shipped by this business unit declined 10.1% as lower shipments of composite laminates and metallized products, which declined 31.0% and 15.6%, respectively, more than offset a 4.4% increase in Food & Beverage paper product shipments.
Energy and raw material costs in the Composite Fibers business unit were $4.6 million higher than a year ago. Unplanned downtime, primarily in the Metallized market, adversely impacted operating results by $1.4 million in the first quarter of 2009 compared to the first quarter of 2008.

Pension Expense/Income Pension expense or income results from the over-funded status of our pension plans. The following summarizes the amounts of pension expense or income recognized for the first three months of 2009 compared to the same period of 2008:

                                           Three months ended
                                                March 31
               In thousands                2009           2008        Change

               Recorded as:
               Costs of products sold    $ (1,188 )     $ 2,582     $ (3,770 )
               SG&A expense                  (494 )       1,187       (1,681 )

               Total                     $ (1,682 )     $ 3,769     $ (5,451 )

The amount of pension expense or income recognized each year is determined using various actuarial assumptions and certain other factors, including the fair value of our pension assets as of the beginning of the year. As discussed in Item 1 - Financial Statements - Note 7, the fair value of the plans' assets declined approximately 29% during 2008. As a result, during 2009 we expect to recognize net pension expense totaling approximately $6.7 million, on a pre-tax basis. However, we do not expect to be required to make cash contributions to our qualified defined benefit pension plans in 2009.
Selling, general and administrative ("SG&A") expenses increased $0.4 million in the quarter-to-quarter comparison and totaled $24.5 million for the first three months of 2009. Benefits from our cost control initiatives were offset by $0.5 million of pension expense recorded in the first quarter of 2009 compared with $1.2 million of pension income in the same quarter of 2008. In addition, SG&A expenses for the first quarter of 2008 included a $1.5 million non-recurring benefit from a recovery in a litigation matter, net of legal fees.
Gain on Sales of Plant, Equipment and Timberlands During the first three months of 2009 and 2008, we completed sales of timberlands as summarized by the following table:

                 Dollars in thousands     Acres      Proceeds       Gain

                 2009
                 Timberlands                189     $    728     $    699

                                            189     $    728     $    699


                 2008
                 Timberlands              3,595     $ 15,035     $ 14,641
                 Other                        -            -         (123 )

                                          3,595     $ 15,035     $ 14,518

Income taxes For the first three months of 2009 we recorded a provision for income taxes totaling $3.6 million resulting in an effective tax rate of 23.6%. The comparable amounts in the first quarter of 2008 were $10.5 million and 34.8%, respectively. The decline in the effective tax rate was primarily due to significantly lower timberland sales in the first quarter of 2009 compared with the first quarter of 2008.
Foreign Currency We own and operate paper and pulp mills in Germany, France, the United Kingdom and the Philippines. The local currency in Germany and France is the Euro, in the UK it is the British Pound Sterling, and in the Philippines the currency is the Peso. During the first three months of 2009, Euro functional currency operations generated approximately 19.6% of our sales and 19.3% of operating expenses and British Pound Sterling operations represented 9.1% of net sales and 9.5% of operating expenses. The translation of the results from these international operations into U.S. dollars is subject to changes in foreign currency exchange rates.
The table below summarizes the effect from foreign currency translation on the first three months of 2009 reported results compared to the first three months 2008:

                                                Three months
                     In thousands              ended March 31
                                                 Favorable
                                               (unfavorable)
                     Net sales                $      (14,277 )
                     Costs of products sold           13,633
                     SG&A expenses                     1,853
                     Income taxes and other             (123 )

                     Net income               $        1,086

The above table only presents the financial reporting impact of foreign currency translations. It does not present the impact of certain competitive advantages or disadvantages of operating or competing in multi-currency markets.

                        LIQUIDITY AND CAPITAL RESOURCES
   Our business is capital intensive and requires significant expenditures for
new or enhanced equipment, for environmental compliance matters, to support our
research and development efforts and for our business strategy. In addition we
have mandatory debt service requirements of both principal and interest. The
following table summarizes cash flow information for each of the years
presented:

                                                             Three months ended
                                                                  March 31
      In thousands                                          2009           2008

      Cash and cash equivalents at beginning of period   $ 32,234       $  29,833
      Cash provided by (used for)
      Operating activities                                 (1,185 )       (12,631 )
      Investing activities                                 (4,506 )         5,778
      Financing activities                                 (1,893 )        13,767
      Effect of exchange rate changes on cash                (978 )           891

      Net cash (used) provided                             (8,562 )         7,805

      Cash and cash equivalents at end of period         $ 23,672       $  37,638

Operating cash flow improved by $11.4 million primarily due to improved earnings of our core papermaking operations. In addition, cash paid for income taxes declined by $5.1 million and we used $2.3 million less to fund obligations related to environmental matters.
Net cash used for investing activities increased in the comparison primarily due to $14.3 million less cash received from timberland sales partially mitigated by a $4.0 million reduction in capital expenditures. In 2009, capital expenditures are expected to be reduced to approximately $35 million reflecting our decision, in light of current economic conditions, to delay most discretionary spending.
During each the first quarters of 2009 and 2008, cash dividends paid on common stock totaled approximately $4.1 million. Our Board of Directors determines what, if any, dividends will be paid to our shareholders. Dividend payment decisions are based upon then-existing factors and conditions and, therefore, historical trends of dividend payments are not necessarily indicative of future payments.
During the first three months of 2009, net debt, defined as total debt less cash balances and term notes secured by letters of credit increased by $10.8 million to $221.2 million. Our Term loan, due in April 2011 has mandatory quarterly repayment requirements approximating $3.4 million per quarter in 2009.
The following table sets forth our outstanding long-term indebtedness:

                                                      March 31,       Dec. 31,
         In thousands                                   2009            2008

         Revolving credit facility, due April 2011   $  12,347       $   6,724
         Term Loan, due April 2011                      26,000          30,000
         Term Loan, due January 2013                    36,695          36,695
         Note payable, due March 2013                   34,000          34,000
         7?% Notes, due May 2016                       200,000         200,000

         Total long-term debt                          309,042         307,419
         Less current portion                          (13,759 )       (13,759 )

         Long-term debt, net of current portion      $ 295,283       $ 293,660

The significant terms of the debt obligations are set forth in Item 1 - Financial Statements - Note 10. As of March 31, 2009, we had $182 million of borrowing capacity available under our revolving credit agreement. Although we do not have immediate intentions to make additional use of the facility, we believe this agreement, and the banks that are party to it, provides us with ready access to liquidity should we need it.
We are subject to loss contingencies resulting from regulation by various federal, state, local and foreign governmental authorities with respect to the environmental impact of mills we operate, or have operated. To comply with environmental laws and regulations, we have incurred substantial capital and operating expenditures in past years. We anticipate that environmental regulation of our operations will continue to become more burdensome and that capital and operating expenditures necessary to comply with environmental regulations will continue, and perhaps increase, in the future. In addition, we may incur obligations to remove or mitigate any adverse effects on the environment resulting from our operations, including the restoration of natural resources and liability for personal injury and for damages to property and natural resources. See Item 1 - Financial Statements - Note 12 for a summary of significant environmental matters.
We expect to meet all of our near- and longer-term cash needs from a combination of operating cash flow, cash and cash equivalents, sales of timberland, our existing credit facility or other bank lines of credit and other long-term debt. However, as discussed in Item 1 - Financial Statements - Note 12, an unfavorable outcome of various environmental matters could have a material adverse impact on our consolidated financial position, liquidity and/or results of operations.

Our credit agreement, as amended, contains a number of customary compliance covenants. A breach of these requirements, of which we were not aware of any at March 31, 2009, would give rise to certain remedies under the credit agreement as amended, among which are the termination of the agreement and accelerated repayment of the outstanding borrowings plus accrued and unpaid interest under the credit facility. In addition, the 7?% Notes contain a cross default provision that in the event of a default under the credit agreement, the 7?% Notes would become payable immediately.
Off-Balance-Sheet Arrangements As of March 31, 2009 and December 31, 2008, we had not entered into any off-balance-sheet arrangements. Financial derivative instruments, to which we are a party, and guarantees of indebtedness, which solely consist of obligations of subsidiaries and a partnership, are reflected in the condensed consolidated balance sheets included herein in Item 1 - Financial Statements.
Alternative Fuel Credits We believe we are eligible for an excise tax refund under the Internal Revenue Code for alternative fuel mixtures used as a fuel in our business. The credit is equal to $0.50 per gallon of alternative fuel contained in the mixture and is refundable in cash. We began mixing black liquor and diesel fuel in late February 2009 and we filed an application with the Internal Revenue Service to be registered as an alternative fuel mixer. We are accumulating the necessary information to file for refunds; however, before any cash is received, the registration application requires approval by the Internal Revenue Service. There can be no assurances that our application will be approved, that the regulations that allow the credit will remain unchanged, or that we will be successful in receiving any payments under the program.
Outlook For Specialty Papers, we expect shipments in the second quarter to be . . .