UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): | February 7, 2012 |
P. H. Glatfelter Company
__________________________________________
(Exact name of registrant as specified in its charter)
Pennsylvania | 001-03560 | 23-0628360 |
_____________________ (State or other jurisdiction |
_____________ (Commission |
______________ (I.R.S. Employer |
of incorporation) | File Number) | Identification No.) |
96 S. George Street, Suite 500, York, Pennsylvania | 17401 | |
_________________________________ (Address of principal executive offices) |
___________ (Zip Code) |
Registrants telephone number, including area code: | 717 225 4711 |
Not Applicable
______________________________________________
Former name or former address, if changed since last report
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02 Results of Operations and Financial Condition.
On February 7, 2012, P. H. Glatfelter (the "Company") reported its results of operations for the three months and full year ended December 31, 2011. A copy of the press release issued by the Company is furnished herewith as Exhibit 99.1. The Company also held a teleconference call that same day, during which management discussed the Company's financial performance for fourth quarter of 2011 and other matters relating to its business. A copy of the teleconference transcript is furnished herewith as Exhibit 99.2.
Item 9.01 Financial Statements and Exhibits.
A copy of the press release dated February 7, 2012, to report results of operations for the three months and full year ended December 31, 2011, is furnished herewith as Exhibit 99.1.
A copy of the transcript from the Company's teleconference held on February 7, 2012, to discuss its fourth quarter 2011 results of operations is furnished herewith as Exhibit 99.2.
A copy of the press release and transcript are furnished as Exhibit 99.1 and 99.2 to this Current Report on Form 8-K. The information furnished in this Current Report on Form 8-K and Exhibits 99.1 and 99.2 attached hereto shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
P. H. Glatfelter Company | ||||
February 7, 2012 | By: |
David C. Elder
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Name: David C. Elder | ||||
Title: Vice President, Finance |
Exhibit Index
Exhibit No. | Description | |
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99.1
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A copy of the press release dated February 7, 2012 issued by the Company to report its results of operations for the three months and full year ended December 31, 2011. | |
99.2
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A copy of the transcript from the Company's teleconference held on February 7, 2012, to discuss its fourth quarter 2011 results of operations. |
Exhibit 99.1
For Immediate Release | Contacts:
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Investors:
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Media: | |||
John P. Jacunski
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William T. Yanavitch | |||
(717) 225-2794
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(717) 225-2747 |
GLATFELTER REPORTS RECORD SALES FOR FISCAL 2011
- Company achieves significant growth in single-serve coffee and feminine hygiene markets -
- Generates strong free cash flow of $76 million during 2011 -
YORK, Pennsylvania February 7, 2012 Glatfelter (NYSE: GLT) today reported strong financial results for the quarter and year ended December 31, 2011, including record full-year sales of $1.6 billion, an increase of 10 percent from a year ago, and adjusted earnings of $46 million for 2011, an increase of 12 percent.
For the fourth quarter of 2011, Glatfelter reported consolidated net sales of $391.9 million, a 4.2 percent increase from the fourth quarter of 2010. On a GAAP basis, the Company reported net income of $9.7 million, or $0.22 per diluted share. Adjusted earnings for the fourth quarter of 2011 were $14.2 million or $0.32 per diluted share, excluding costs for the early redemption of debt, work force efficiency initiatives and items related to timberland sales, compared with $14.6 million, or $0.31 per diluted share, in the same quarter a year ago. Fourth quarter 2010 adjusted earnings included tax benefits of $0.06 per share from tax law changes, reserve releases and other factors when compared to 2011. Adjusted earnings is a non-GAAP measure that excludes from the Companys GAAP-based results certain non-core business items as described in tables later in this release.
Our business units made good progress in 2011, said Dante C. Parrini, chairman and chief executive officer. For example, our Composite Fibers business continued to build on its leading market positions in single-serve coffee and tea products worldwide. Similarly, our Advanced Airlaid Materials business drove increased sales to the global feminine hygiene market, while our Specialty Papers business outperformed the broader uncoated free sheet market for the seventh year in a row. I am particularly pleased with the continued expansion of our operating margins in our growth businesses and the strength of our cash flow.
Mr. Parrini noted that, during the year, the Company generated strong free cash flow of $76 million which allowed the Company to repurchase $50 million of common stock, complete a debt refinancing at favorable borrowing rates, and maintain a strong balance sheet to allow for further investments in growth initiatives.
The following table sets forth a reconciliation of net income on a GAAP basis to adjusted earnings:
For the three months ended December 31 | ||||||||||||||||
2011 | 2010 | |||||||||||||||
In thousands, except per share |
After tax income | Diluted EPS | After tax income | Diluted EPS | ||||||||||||
Net income |
$ | 9,741 | $ | 0.22 | $ | 15,268 | $ | 0.33 | ||||||||
Early redemption of $100 million 71/8% bonds(1) |
6,065 | 0.14 | | | ||||||||||||
Charge for workforce efficiencies(2) |
652 | 0.01 | | | ||||||||||||
Timberland sales and related transaction costs(3) |
(2,266 | ) | (0.05 | ) | (964 | ) | (0.02 | ) | ||||||||
Alternative fuel mixture credits |
| | (84 | ) | | |||||||||||
Acquisition and integration related costs |
| | 345 | 0.01 | ||||||||||||
Adjusted earnings |
$ | 14,192 | $ | 0.32 | $ | 14,565 | $ | 0.31 | ||||||||
The sum of individual per share amounts set forth above may not agree to adjusted earnings per share due to rounding.
1. | Represents the after-tax costs related to a debt refinancing including debt redemption premium and the write-off of unamortized original issue discount and deferred debt issue costs. |
2. | Represents severance costs for the elimination of 60 positions at the Chillicothe, OH facility. |
3. | Includes release of tax reserves on timberland sales, net of costs in 2011 to unwind a sale previously accounted for as an installment sale. |
During the fourth quarter, our Composite Fibers operating profits increased 13 percent, benefiting from an improved mix of products sold, primarily due to growth in single-serve coffee and tea products, as well as margin expansion from operating efficiencies related to ongoing continuous improvement initiatives, Mr. Parrini said. Advanced Airlaid Materials profits grew significantly as shipments increased 6 percent and we continued to realize meaningful benefits from profit improvement initiatives. Specialty Papers delivered a solid quarter with an 8 percent improvement in operating income and a 2 percent increase in net sales.
Fourth-Quarter Business Unit Results
Specialty Papers
Three months ended December 31 | ||||||||||||||||
Dollars in thousands | 2011 | 2010 | Change | |||||||||||||
Tons shipped
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189,544 | 188,321 | 1,223 | 0.6 | % | |||||||||||
Net sales
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$ | 212,506 | $ | 208,837 | $ | 3,669 | 1.8 | % | ||||||||
Energy and related sales, net
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1,457 | 1,819 | (362 | ) | (19.9 | )% | ||||||||||
Operating income
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18,228 | 16,826 | 1,402 | 8.3 | % | |||||||||||
Operating margin
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8.6 | % | 8.1 | % |
On a year-over-year basis, Specialty Papers net sales increased $3.7 million primarily due to a $4.8 million benefit from higher selling prices, partially offset by changes in product mix. Shipping volumes were slightly higher in the year-over-year comparison, and continued the seven-year track record of outperforming the broader uncoated free sheet market, which was down 3.4 percent.
Specialty Papers 2011 fourth-quarter operating income increased $1.4 million compared with the 2010 fourth quarter, as the benefits of higher selling prices, operating efficiencies and spending controls more than offset $6.4 million of higher raw material and energy costs.
Composite Fibers
Three months ended December 31 | ||||||||||||||||
Dollars in thousands | 2011 | 2010 | Change | |||||||||||||
Tons shipped
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23,363 | 23,254 | 109 | 0.5 | % | |||||||||||
Net sales
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$ | 119,571 | $ | 111,981 | $ | 7,590 | 6.8 | % | ||||||||
Operating income
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9,058 | 8,044 | 1,014 | 12.6 | % | |||||||||||
Operating margin
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7.6 | % | 7.2 | % |
Composite Fibers net sales increased $7.6 million, or 6.8 percent, primarily reflecting an improved mix of products shipped led by a 5 percent increase in shipments of single-serve coffee and tea products. In addition, higher average selling prices added $2.8 million and foreign currency translation adversely affected the comparison to the year-earlier quarter by $0.7 million.
Fourth quarter 2011 operating income increased $1.0 million, or 12.6 percent, primarily due to an improved mix of products sold. The benefit from higher selling prices was essentially offset by $2.7 million of higher raw material and energy costs, primarily related to abaca and synthetic fiber prices and natural gas prices in Europe.
Advanced Airlaid Materials
Three months ended Dec 31 | ||||||||||||||||
Dollars in thousands | 2011 | 2010 | Change | |||||||||||||
Tons shipped
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21,075 | 19,827 | 1,248 | 6.3 | % | |||||||||||
Net sales
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$ | 59,828 | $ | 55,360 | $ | 4,468 | 8.1 | % | ||||||||
Operating income
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3,812 | 1,081 | 2,731 | 252.6 | % | |||||||||||
Operating margin
|
6.4 | % | 2.0 | % |
Advanced Airlaid Materials net sales increased to $59.8 million, or 8.1 percent, primarily reflecting a 6.3 percent increase in shipping volume and a $0.9 million benefit from higher selling prices.
Operating income was $3.8 million in the fourth quarter of 2011, significantly higher than the fourth quarter of 2010. During the fourth quarter, selling price increases offset higher input costs of $0.9 million. In addition, this businesss overall performance continues to benefit from previously outlined improvement initiatives including supply chain synergies, waste reduction and higher capacity utilization.
Other Financial Information
In November 2011, the Company completed an amendment to its revolving credit facility increasing the capacity from $225 million to $350 million, extending the term through November 2016, and providing a more favorable pricing grid. In December 2011, the credit facility and cash on hand was used to redeem its $100 million 7?% Notes due May 2016 resulting in an after-tax charge totaling $6.1 million.
In December 2011, the Company completed a series of transactions to unwind a 2007 timberland installment sales transaction and the related monetization, resulting in the collection of a $43.2 million note owed to the Company and the payoff by the Company of $36.7 million of indebtedness it owed to a financial institution. As a result, the Company received net proceeds of approximately $6.3 million, after transaction costs. Interest expense includes a $0.3 million write-off of unamortized deferred financing costs in connection with the unwinding of the timberland installment sale transaction.
As a result of changes in tax estimates and the expiration of statutes of limitation related to gains on sales of timberlands, the Company released tax reserves totaling $2.5 million in the fourth quarter of 2011. The Company eliminates all gains and losses from timberland sales to determine adjusted earnings.
For the fourth quarter of 2011, the Companys effective tax rate on adjusted earnings was 25.8 percent compared with a benefit of 2.5 percent in the same quarter of 2010. Income taxes on adjusted earnings for the 2011 fourth quarter totaled $5.0 million. For the fourth quarter of 2010, the Company recorded an income tax benefit primarily due to the year-end enactment of the research and development tax credit, the reversal of a tax reserve for items related to the Concert acquisition and the expiration of statutes of limitation on certain tax matters.
2011 Full-Year Results
Highlights:
| 15 percent increase in adjusted earnings per share compared with 2010; |
| 10 percent increase in net sales, which totaled a record $1.6 billion in 2011; |
| 24 percent increase in Composite Fibers operating income compared with 2010; |
| 205 percent increase in Advanced Airlaid Materials operating income compared with 2010; |
| Specialty Papers shipments outperformed the broader uncoated free sheet market for the seventh consecutive year and generated substantial free cash flow; |
| 54 percent of net sales generated from new products, the eighth consecutive year exceeding goal of 50 percent; |
| $76 million of free cash flow and $38 million of cash on hand at December 31, 2011; and |
| Substantially completed the $50 million share repurchase program. |
For the year ended December 31, 2011, the Company reported net income of $42.7 million, or $0.93 per diluted share, compared with net income of $54.4 million, or $1.17 per diluted share, in 2010. The results of operations for both years include the impact of significant unusual items. The following table provides a reconciliation of net income on a GAAP basis to adjusted earnings:
2011 | 2010 | |||||||||||||||
In thousands, except per share |
After tax income | Diluted EPS | After tax income | Diluted EPS | ||||||||||||
Net income |
$ | 42,694 | $ | 0.93 | $ | 54,434 | $ | 1.17 | ||||||||
Early redemption of $100 million 71/8% bonds(1) |
6,065 | 0.13 | | | ||||||||||||
Charge for workforce efficiencies(2) |
652 | 0.01 | | | ||||||||||||
Acquisition and integration related costs(3) |
792 | 0.02 | 9,073 | 0.20 | ||||||||||||
Timberland sales and related transaction costs(4 ) |
(4,160 | ) | (0.09 | ) | (1,063 | ) | (0.02 | ) | ||||||||
Cellulosic biofuel and alternative fuel mixture credits |
| | (23,184 | ) | (0.50 | ) | ||||||||||
Foreign currency hedge on acquisition price |
| | 1,673 | 0.04 | ||||||||||||
Adjusted earnings |
$ | 46,043 | $ | 1.01 | $ | 40,933 | $ | 0.88 | ||||||||
The sum of individual per share amounts set forth above may not agree to adjusted earnings per share due to rounding.
1. | Represents the after-tax amounts of a debt redemption premium and the write-off of unamortized original issue discount and deferred debt issue costs. |
2. | Represents severance costs for the elimination of 60 positions at the Chillicothe, OH facility. |
3. | Represents costs incurred to integrate Concert Industries, acquired in February 2010. |
4. | Represents after-tax gains on timberland sales, and the release of tax reserves on timberland sales, net of costs in 2011 to unwind a sale previously accounted for as an installment sale. |
Balance Sheet and Other Information
Capital expenditures totaled $64.5 million in 2011, compared with $36.5 million in 2010. For 2012, capital expenditures are estimated to be $95 million to $105 million. This includes $30 million to $35 million of the anticipated $50 million investment to expand capacity to serve Composite Fibers growth markets.
Cash and cash equivalents totaled $38.3 million as of December 31, 2011, and net debt was $188.7 million, a decrease of $11.8 million compared with December 31, 2010, excluding collateralized debt.
Free cash flow (cash provided by operations less capital expenditures) was $75.8 million for 2011 and $131.5 million for 2010. Free cash flow in 2011 and 2010 included $17.8 million and $54.9 million, respectively, of cash tax benefits related to cellulosic biofuel and alternative fuel mixture credits. (Refer to the calculation of these measures provided in this release.)
In April 2011, the Company announced a $50 million share buyback program authorized by its Board of Directors. Through December 31, 2011, the Company repurchased 3.5 million shares of common stock for $48.8 million, excluding commissions, reducing average diluted shares outstanding by 2.8 million for the fourth quarter of 2011 and 0.9 million for the full year. The Company completed the share repurchase program in January 2012.
Outlook
I believe we are creating sustainable long-term momentum for the Company through our leading global market positions, product innovations and culture of continuous improvement and that we are well positioned to further enhance our competitive advantage in 2012. As we entered 2012 we continued to face volatility primarily from sovereign debt issues in Europe. As a result, we expect sluggish demand in Europe early this year for some of our consumer-driven product lines like feminine hygiene and composite laminates, Mr. Parrini said.
For Specialty Papers, the Company expects slightly higher shipping volumes in the first quarter of 2012 compared with the fourth quarter of 2011, reflecting normal seasonal patterns. Selling prices and overall input costs are expected to remain substantially unchanged.
The Company anticipates Composite Fibers shipping volumes will be slightly higher in the first quarter and that selling prices will generally be in line with the fourth quarter of 2011. Input costs are expected to decline modestly. In addition, the elimination of seasonal downtime in the metalized business will be offset by downtime in two of its facilities to complete machine upgrades. The Company expects its results to improve from ongoing benefits associated with its capacity utilization and continuous improvement initiatives.
Global shipping volumes for the Advanced Airlaid Materials business unit in the first quarter of 2012 are expected to be slightly higher than the fourth quarter of 2011. However, due to weakness in the European markets for its feminine hygiene products the Company expects to take approximately one week of downtime at its facility in Germany. Compared with fourth quarter 2011 levels, selling prices are expected to decline slightly faster than input costs due to contractual provisions with certain customers.
The Company expects pension expense in 2012 to increase to approximately $12.4 million compared with $10.4 million in 2011 primarily due to the impact of lower discount rates and the return on investments in 2011.
As a result of the redemption of $100 million of bonds in December 2011, the Company expects interest expense to be approximately $4.3 million in the first quarter of 2012.
For the first quarter of 2012, the Company expects its effective tax rate will approximate 34 percent reflecting the expiration of the research and development tax credits at the end of 2011.
Conference Call
As previously announced, the Company will hold a conference call at 11:00 a.m. (Eastern) today to discuss its fourth-quarter results. The Companys earnings release and an accompanying financial supplement, which includes significant financial information to be discussed on the conference call, will be available on Glatfelters Investor Relations website at the address indicated below. Information related to the conference call is as follows:
What: |
Glatfelters 4th Quarter 2011 Earnings Release Conference Call | |||
When: |
Tuesday, February 7, 2012, 11:00 a.m. Eastern Time | |||
Number: |
US dial 888.335.5539 | |||
International dial 973.582.2857 | ||||
Conference ID: |
40878449 | |||
Webcast: |
http://www.glatfelter.com/about_us/investor_relations/default.aspx | |||
Rebroadcast Dates: |
February 7, 2012 12:00 through February 21, 2012 11:59 p.m. | |||
Rebroadcast Number: |
Within US dial 855.859.2056 | |||
International dial 404.537.3406 | ||||
Conference ID: |
40878449 |
Interested persons who wish to hear the live webcast should go to the website prior to the starting time to register, download and install any necessary audio software.
Caution Concerning Forward-Looking Statements
Any statements included in this press release which pertain to future financial and business matters are forward-looking statements within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. These statements are based on managements current expectations and are subject to numerous risks, uncertainties and other unpredictable or uncontrollable factors which may cause actual results or performance to differ materially from the Companys expectations. Various risks and factors that could cause future results to differ materially from those expressed in forward-looking statements include, but are not limited to: changes in industry, business, market, political and economic conditions in the U.S. and other countries in which Glatfelter does business, demand for or pricing of its products, changes in tax legislation, governmental laws, regulations and policies, initiatives of regulatory authorities, acquisition integration risks, technological changes and innovations, market growth rates, cost reduction initiatives, the cost, and successful design and construction, of the Composite Fibers capacity expansion project and other factors. In light of these risks, uncertainties and other factors, the forward-looking matters discussed in this press release may not occur and readers are cautioned not to place undue reliance on these forward-looking statements. The forward-looking statements speak only as of the date of this press release and Glatfelter undertakes no obligation, and does not intend, to update these forward-looking statements to reflect events or circumstances occurring after the date of this press release. More information about these factors is contained in Glatfelters filings with the U.S. Securities and Exchange Commission, which are available at www.glatfelter.com.
About Glatfelter
Headquartered in York, PA, Glatfelter is a global manufacturer of specialty papers and fiber-based engineered materials, offering over a century of experience, technical expertise and world-class service. U.S. operations include facilities in Spring Grove, PA and Chillicothe and Fremont, OH. International operations include facilities in Canada, Germany, France, the United Kingdom and the Philippines, a representative office in China and a sales and distribution office in Russia. Glatfelters sales approximate $1.6 billion annually and its common stock is traded on the New York Stock Exchange under the ticker symbol GLT. Additional information may be found at www.glatfelter.com.
P. H. Glatfelter Company and subsidiaries
Consolidated Statements of Income
(unaudited)
Three Months Ended December 31 | Year Ended December 31 | |||||||||||||||
In thousands, except per share | 2011 | 2010 | 2011 | 2010 | ||||||||||||
Net sales |
$ | 391,905 | $ | 376,178 | $ | 1,603,154 | $ | 1,455,331 | ||||||||
Energy and related sales net |
1,457 | 1,819 | 9,344 | 10,653 | ||||||||||||
Total revenues |
393,362 | 377,997 | 1,612,498 | 1,465,984 | ||||||||||||
Costs of products sold |
339,752 | 327,166 | 1,406,305 | 1,279,737 | ||||||||||||
Gross profit |
53,610 | 50,831 | 206,193 | 186,247 | ||||||||||||
Selling, general and administrative expenses |
30,351 | 30,812 | 124,871 | 122,111 | ||||||||||||
Gains on dispositions of plant, equipment and timberlands, net |
(48 | ) | (135 | ) | (3,950 | ) | (453 | ) | ||||||||
Operating income |
23,307 | 20,154 | 85,272 | 64,589 | ||||||||||||
Non-operating income (expense) |
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Interest expense |
(12,417)(1) | (6,502 | ) | (31,794)(1) | (25,547 | ) | ||||||||||
Interest income |
175 | 238 | 666 | 808 | ||||||||||||
Other net |
(2,894)(2) | (2,453)(3) | (3,299)(2) | (6,321)(3) | ||||||||||||
Total other income (expense) |
(15,136 | ) | (8,717 | ) | (34,427 | ) | (31,060 | ) | ||||||||
Income before income taxes |
8,171 | 11,437 | 50,845 | 33,529 | ||||||||||||
Income tax (benefit) provision |
(1,570 | ) | (3,831)(3) | 8,151 | (20,905)(3) | |||||||||||
Net income |
$ | 9,741 | $ | 15,268 | $ | 42,694 | $ | 54,434 | ||||||||
Earnings Per Share |
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Basic |
$ | 0.22 | $ | 0.33 | $ | 0.94 | $ | 1.19 | ||||||||
Diluted |
0.22 | 0.33 | 0.93 | 1.17 | ||||||||||||
Cash dividends declared per common share |
$ | 0.09 | $ | 0.09 | $ | 0.36 | $ | 0.36 | ||||||||
Weighted average shares outstanding |
||||||||||||||||
Basic |
43,491 | 45,991 | 45,228 | 45,922 | ||||||||||||
Diluted |
44,073 | 46,461 | 45,794 | 46,374 |
1. | Includes the write off of unamortized deferred debt issuance costs and the remaining balance of the original issue discount, aggregating $5.9 million, in connection with the early retirement of bonds. |
2. | Includes a $3.6 million redemption premium paid in connection with the early retirement of bonds. |
3. | Includes the write-off of a $2.5 million receivable under an indemnification agreement established in connection with purchase accounting for the Concert acquisition, offset by a corresponding tax benefit as a change in tax law eliminated the indemnified tax risk. |
Business Unit Financial Information
(unaudited)
Three months ended December 31 | Advanced Airlaid | |||||||||||||||||||||||||||||||||||||||
In millions | Specialty Papers | Composite Fibers | Materials | Other and Unallocated | Total | |||||||||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||||||||
Net sales |
$ | 212.5 | $ | 208.8 | $ | 119.6 | $ | 112.0 | $ | 59.8 | $ | 55.4 | $ | - | $ | - | $ | 391.9 | $ | 376.2 | ||||||||||||||||||||
Energy and related sales, net |
1.5 | 1.8 | | | | | | | 1.5 | 1.8 | ||||||||||||||||||||||||||||||
Total revenue |
214.0 | 210.7 | 119.6 | 112.0 | 59.8 | 55.4 | | | 393.4 | 378.0 | ||||||||||||||||||||||||||||||
Cost of products sold |
183.2 | 179.3 | 100.6 | 94.8 | 53.4 | 51.3 | 2.5 | 1.8 | 339.8 | 327.2 | ||||||||||||||||||||||||||||||
Gross profit |
30.8 | 31.4 | 19.0 | 17.2 | 6.4 | 4.1 | (2.5 | ) | (1.8 | ) | 53.6 | 50.8 | ||||||||||||||||||||||||||||
SG&A |
12.6 | 14.6 | 9.9 | 9.2 | 2.6 | 3.0 | 5.3 | 4.1 | 30.4 | 30.8 | ||||||||||||||||||||||||||||||
Gains on dispositions of plant,
equipment and timberlands |
| | | | | | | (0.1 | ) | | (0.1 | ) | ||||||||||||||||||||||||||||
Total operating income (loss) |
18.2 | 16.8 | 9.1 | 8.0 | 3.8 | 1.1 | (7.8 | ) | (5.8 | ) | 23.3 | 20.2 | ||||||||||||||||||||||||||||
Non-operating income (expense) |
| | | | | | (15.1 | ) | (8.7 | ) | (15.1 | ) | (8.7 | ) | ||||||||||||||||||||||||||
Income (loss) before
income taxes |
$ | 18.2 | $ | 16.8 | $ | 9.1 | $ | 8.0 | $ | 3.8 | $ | 1.1 | $ | (22.9 | ) | $ | (14.5 | ) | $ | 8.2 | $ | 11.4 | ||||||||||||||||||
Supplementary Data |
||||||||||||||||||||||||||||||||||||||||
Net tons sold |
189.5 | 188.3 | 23.4 | 23.3 | 21.1 | 19.8 | | | 234.0 | 231.4 | ||||||||||||||||||||||||||||||
Depreciation, depletion and
amortization |
$ | 9.3 | $ | 8.7 | $ | 6.1 | $ | 6.1 | $ | 2.1 | $ | 2.2 | $ | - | $ | - | $ | 17.5 | $ | 17.0 | ||||||||||||||||||||
Capital expenditures |
11.3 | 10.2 | 6.3 | 2.3 | 2.2 | 0.7 | | | 19.8 | 13.2 | ||||||||||||||||||||||||||||||
Year ended December 31 | Advanced Airlaid | |||||||||||||||||||||||||||||||||||||||
In millions | Specialty Papers | Composite Fibers | Materials | Other and Unallocated | Total | |||||||||||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | 2011 | 2010 | |||||||||||||||||||||||||||||||
Net sales |
$ | 875.1 | $ | 842.6 | $ | 476.0 | $ | 419.2 | $ | 252.0 | $ | 193.5 | $ | - | $ | - | $ | 1,603.2 | $ | 1,455.3 | ||||||||||||||||||||
Energy and related sales, net |
9.3 | 10.7 | | | | | | | 9.3 | 10.7 | ||||||||||||||||||||||||||||||
Total revenue |
884.4 | 853.3 | 476.0 | 419.2 | 252.0 | 193.5 | | | 1,612.5 | 1,466.0 | ||||||||||||||||||||||||||||||
Cost of products sold |
775.7 | 740.2 | 395.7 | 350.5 | 227.7 | 181.7 | 7.2 | 7.4 | 1,406.3 | 1,279.7 | ||||||||||||||||||||||||||||||
Gross profit |
108.7 | 113.1 | 80.3 | 68.7 | 24.3 | 11.8 | (7.2 | ) | (7.4 | ) | 206.2 | 186.2 | ||||||||||||||||||||||||||||
SG&A |
51.4 | 54.7 | 39.5 | 35.8 | 10.9 | 7.4 | 23.0 | 24.3 | 124.9 | 122.1 | ||||||||||||||||||||||||||||||
Gains on dispositions of plant,
equipment and timberlands |
| | | | | | (4.0 | ) | (0.5 | ) | (4.0 | ) | (0.5 | ) | ||||||||||||||||||||||||||
Total operating income (loss) |
57.3 | 58.4 | 40.8 | 32.9 | 13.4 | 4.4 | (26.2 | ) | (31.2 | ) | 85.3 | 64.6 | ||||||||||||||||||||||||||||
Non-operating income (expense) |
| | | | | | (34.4 | ) | (31.1 | ) | (34.4 | ) | (31.1 | ) | ||||||||||||||||||||||||||
Income (loss) before
income taxes |
$ | 57.3 | $ | 58.4 | $ | 40.8 | $ | 32.9 | $ | 13.4 | $ | 4.4 | $ | (60.7 | ) | $ | (62.3 | ) | $ | 50.8 | $ | 33.5 | ||||||||||||||||||
Supplementary Data |
||||||||||||||||||||||||||||||||||||||||
Net tons sold |
779.6 | 764.7 | 93.3 | 90.4 | 88.0 | 72.8 | | | 960.9 | 927.9 | ||||||||||||||||||||||||||||||
Depreciation, depletion and
amortization |
$ | 36.0 | $ | 34.9 | $ | 24.8 | $ | 23.7 | $ | 8.5 | $ | 7.2 | $ | - | $ | - | $ | 69.3 | $ | 65.8 | ||||||||||||||||||||
Capital expenditures |
31.4 | 24.1 | 22.5 | 8.2 | 10.6 | 4.2 | | | 64.5 | 36.5 | ||||||||||||||||||||||||||||||
The sum of individual amounts set forth above may not agree to the consolidated financial statements included herein due to rounding.
Advanced Airlaid Materials reflect the results of the Concert Industries acquisition prospectively since its completion on February 12, 2010.
Selected Financial Information
(unaudited)
Year ended December 31 | ||||||||
In thousands | 2011 | 2010 | ||||||
Cash Flow Data |
||||||||
Cash provided (used) by: |
||||||||
Operating activities |
$ | 140,307 | $ | 168,005 | ||||
Investing activities |
(16,830 | ) | (264,217 | ) | ||||
Financing activities |
(180,140 | ) | 59,681 | |||||
Depreciation, depletion and amortization |
69,313 | 65,839 | ||||||
Capital expenditures |
64,491 | 36,491 | ||||||
December 31, | ||||||||
2011 | 2010 | |||||||
Balance Sheet Data |
||||||||
Cash and cash equivalents |
$ | 38,277 | $ | 95,788 | ||||
Total assets |
1,136,925 | 1,341,747 | ||||||
Total debt |
227,000 | 333,022 | ||||||
Shareholders equity |
490,404 | 552,442 |
Reconciliation of GAAP Financial Information to Non-GAAP Financial Information
This press release includes a discussion of earnings before the effects of certain specifically identified items, which is referred to as adjusted earnings, a non-GAAP measure. The Company uses non-GAAP adjusted earnings to supplement the understanding of its consolidated financial statements presented in accordance with GAAP. Non-GAAP adjusted earnings is meant to present the financial performance of the Companys core operations, which consists of the production and sale of specialty papers, composite fibers papers and airlaid non-woven materials. Management and the Companys Board of Directors use non-GAAP adjusted earnings to evaluate the performance of the Companys fundamental business in relation to prior periods. The performance of the Companys operations is evaluated based upon numerous items such as tons sold, average selling prices, gross margins and overhead, among others. Gains on the sale of timberlands, acquisition and integration related costs, debt refinancing costs and restructuring charges are excluded from the Companys calculation of non-GAAP adjusted earnings because management believes each of these items is unique and not part of the Companys core business, and will only impact the Companys financial results for a limited period of time. Gains from timberland sales are distinct from revenues generated from paper product sales. Unlike items such as cost of raw materials and overhead costs, acquisition and integration related costs, debt refinancing, and restructuring charges are unique items that do not represent direct costs incurred in the manufacture and sale of the Companys products.
Unlike net income determined in accordance with GAAP, non-GAAP adjusted earnings does not reflect all charges and gains recorded by the Company for the applicable period and, therefore, does not present a complete picture of the Companys results of operations for the respective period. However, non-GAAP adjusted earnings provides a measure of how the Companys core operations are performing, which management believes is useful to investors because it allows comparison of such operations from period to period. Non-GAAP adjusted earnings should not be considered in isolation from, or as a substitute for, measures of financial performance prepared in accordance with GAAP.
Free Cash Flows | Three months ended December 31 | |||||||
In thousands | 2011 | 2010 | ||||||
Cash from operating activities |
$ | 59,172 | $ | 44,625 | ||||
Less: |
||||||||
Capital expenditures |
(19,849 | ) | (13,222 | ) | ||||
Free cash flows |
$ | 39,323 | $ | 31,403 | ||||
Free Cash Flows | Year ended December 31 | |||||||
In thousands | 2011 | 2010 | ||||||
Cash from operating activies |
$ | 140,307 | $ | 168,005 | ||||
Less: |
||||||||
Capital expenditures |
(64,491 | ) | (36,491 | ) | ||||
Free cash flows |
$ | 75,816 | $ | 131,514 | ||||
Calculation of Net Debt | December 31 | |||||||
In thousands | 2011 2010 | |||||||
Short term debt |
$ | | $ | 798 | ||||
Long term debt |
227,000 | 332,224 | ||||||
Total |
227,000 | 333,022 | ||||||
Less: Cash and cash equivalents |
(38,277 | ) | (95,788 | ) | ||||
Total debt less cash and cash equivalents |
188,723 | 237,234 | ||||||
Less: Collateralized debt |
| (36,695 | ) | |||||
Net Debt |
$ | 188,723 | $ | 200,539 | ||||
Exhibit 99.2
Conference Call transcript
February 7, 2012
P. .H. Glatfelter Company
CORPORATE PARTICIPANTS
John Jacunski Glatfelter SVP, CFO
Dante Parrini Glatfelter Chairman, CEO
CONFERENCE CALL PARTICIPANTS
James Armstrong Vertical Research Partners Analyst
Debbie JonesAnalyst
Stuart Benway Standard & Poors Analyst
PRESENTATION
Operator
Good morning. My name is Candace and I will be your conference operator today. At this time, I would like to welcome everyone to the earnings conference call.
All lines have been placed on mute to prevent any background noise. After our speakers remarks, there will be a question-and-answer session. (Operator Instructions). Mr. John Jacunski, you may begin your call.
John Jacunski - Glatfelter SVP, CFO
Thank you Candace. Good morning and welcome to Glatfelters 2011 fourth-quarter earnings conference call. Im John Jacunski. Im the Companys CFO.
Before we begin our presentation, I have a few standard reminders. During our call this morning, we will use the term adjusted earnings as well as other non-GAAP financial measures. Reconciliation of these financial measures to our GAAP-based results is included in todays earnings release and in the investor slides.
We will also make forward-looking statements today that are subject to risks and uncertainties. Our 2010 Form 10-K filed with the SEC and available on our website discloses factors that could cause our actual results to differ materially from those forward-looking statements. These forward-looking statements speak only as of today and we undertake no obligation to pay them.
Finally, we have made available a slide presentation to accompany our comments on this call. You may access the slides on our website or through this mornings webcast provider.
I will now turn the call over to Dante Parrini, Glatfelters Chairman and Chief Executive Officer.
Dante Parrini - Glatfelter Chairman, CEO
Thank you John. Good morning and thank you for joining our call today.
Earlier this morning, we reported earnings for the fourth quarter and Slide 3 of todays presentation summarizes these results. Adjusted earnings for the fourth quarter came in at $0.32 per share compared to $0.31 last year, which included $0.06 per share for a favorable tax rate. Our business performed well in the fourth quarter. Revenue was up 4% and each business grew operating profit.
Composite Fibers operating profit was up 13%, led by a 45% increase in single-serve coffee products. Our Advanced Airlaid Materials business operating profit increased to $3.8 million compared to $1.1 million in the fourth quarter of last year. This was driven by a 6% increase in shipments and the positive impact our continuous improvement initiatives had on improving our cost structure.
Specialty Papers operating profit grew 8%. This is predominately related to improved operating efficiency and stringent cost control. Shipments for this business were up 1%, which again outperformed the broader uncoated free sheet market for the seventh consecutive year.
Id like to offer some comments on full-year results and some of our longer-term trends, which begin on Slide 4. Since 2006, weve been shifting our portfolio of businesses with a goal of increasing our exposure to growth markets. As you can see, revenue from our global growth businesses increased to 45% in 2011 compared to 30% in 2006. We now generate 48% of our profitability from growth businesses versus 40% in 2006. We expect to continue shifting our portfolio toward growth businesses while maintaining significant cash flow from our North American Specialty Papers business.
Slide 5 shows that adjusted earnings per share, excluding pension, has increased at a compound annual growth rate of 30% over the last five years. We were up 15% in 2011. I would categorize 2011 as a successful year with great progress made on executing our strategy. Net sales increased 10% to a record $1.6 billion. Composite Fibers operating profit grew 24% and is up 86% over the last two years, driven by continued strong growth in tea and single-serve coffee products and successful execution of our continuous improvement initiatives. Profit for the Airlaid business tripled after a disappointing 2010, and margins expanded in both of our global growth businesses.
On Slide 6, you can see we again generated substantial free cash flow totaling $76 million in 2011. We substantially improved the cash flow profile of our business over the last several years. This has allowed the completion of a $50 million share repurchase program, the refinancing of our debt at significantly lower interest rates which will be accretive to 2012 earnings, while we continue making investments to grow our business, such as the recent Composite Fibers capacity expansion that we announced. This has all been done while maintaining a strong balance sheet and financial flexibility.
On Slide 7, you will see some data on return on invested capital. This is a key measure that we monitor regularly and we are providing this information to the investment community for the first time today. We are committed to getting to returns that exceed our cost of capital. As you can see, weve made great progress increasing performance over the last eight years. The result of disciplined capital allocation and growth of earnings has increased ROIC to 8.6% in 2011, just short of our weighted average cost of capital.
All in all, Im very encouraged by the performance of Glatfelter people in 2011, delivering another strong year for our shareholders.
Let me now turn the call over to John Jacunski to provide more in-depth comments on Q4 results. John?
John Jacunski - Glatfelter SVP, CFO
Thank you Dante. I will begin my remarks on Slide 8.
On a GAAP basis for the fourth quarter, we reported net income of $9.7 million, or $0.22 per share, compared to $15.3 million, or $0.33 per share, in the fourth quarter of last year. The current-year results were significantly impacted by costs related to the early retirement of $100 million of our 7 1/8% fixed rate bonds.
The bridge shown here on Slide 8 of adjusted earnings per share shows that, during the fourth quarter, we earned $14.2 million, or $0.32 per share, on an adjusted earnings basis. This excludes the impact of debt redemption cost, workforce efficiency charges, and income related to Timberland sales. Our fourth quarter of 2010 adjusted earnings were $14.6 million, or $0.13 per share, which included an unusually low tax rate.
Both Specialty Papers and Composite Fibers improved their results in the fourth quarter, adding $0.02 per share to earnings, while Advanced Airlaid Materials businesss improved profitability added $0.04 per share. The higher tax rate in the fourth quarter this year reduced earnings per share by $0.06. As I mentioned, the fourth quarter included an unusually low tax rate last year due to the year-end passage of tax legislation for the research and development credit that resulted in a full-year credit being recorded in one quarter. We also released a number of tax reserves last year. Our tax rate on adjusted earnings in the fourth quarter of 2011 was a more typical 25.8%. Earnings per share this quarter also benefited by $0.02 from our share of purchase program.
Turning to slide 9, Specialty Papers operating income increased $1.4 million, or 8%, compared to last year. Net sales increased $3.7 million or 2% and totaled $212.5 million for the quarter. This increase was driven by higher average selling prices and slightly higher shipments, which again beat the broader market, which was down 3.4%.
We grew shipments in non carbonless forms by 9% and in envelope and engineered products each by 5%. This offset a 15% decline in shipments of carbonless products. This decline was due in part to the long-term decline in the market but also due to a reduction of lower margin export sales.
We continue to use our flexible assets, superior customer service, and new product and new business development capabilities to offset the impact of the declining uncoated free sheet market. We expect to be able to continue to find market opportunities to offset the impact of the broader market decline to keep our facilities running at or near capacity.
The fourth quarter of 2011 was again impacted by higher input costs totaling $6.4 million, which outpaced the increase in selling prices by $1.6 million. Pulp prices declined in the quarter, generating a favorable impact of $1.1 million, but nearly all other input costs increased, the most significant of which was for wood, which was up $2.8 million. Continuing wet weather in our preferred wood basket again caused higher costs and required us to source wood from longer distances. We also experienced cost increases for starch, caustic, and energy.
We continue to aggressively manage our cost structure in this business. We have been improving efficiency and reducing headcount at our Chillicothe, Ohio facility since our acquisition in 2006, but we accelerated this work during the fourth quarter by reducing the salary and hourly workforces by about 60 positions. This required us to take a $1 million pretax charge during the quarter.
We also will complete an investment in a new craft wrap line in Ohio in the second quarter of 2012. This will allow us to improve product flow and substantially reduce costs, and improve product quality and customer service. We expect these actions, as well as our ongoing continuous improvement initiatives, to benefit 2012 results and continue our strong cash flow generation from this business.
Slide 10 shows that Composite Fibers had another strong quarter with operating income improving by 13% to $9.1 million. Net sales were up $7.6 million, or 7%. This came from higher selling prices and an improved mix. In particular, single-serve coffee products were up 45% and our mix within our composite laminates and our metalized product lines both improved.
We continue to see attractive growth opportunities in single-serve coffee applications and tea products. We recently announced a $50 million capacity expansion to serve these markets with start-up expected in the first half of 2013.
Raw material cost increases for abaca, synthetic fibers and natural gas in Europe offset the benefit of higher selling prices for this business. Our continuous improvement initiatives have been a significant driver of financial performance for this business during 2011, where we improved paper production by 5% and lowered waste levels by 20%. This helped our Composite Fibers business generate record profits in 2011.
Turning to Slide 11, you see Advanced Airlaid Materials generated operating income of $3.8 million, which was significantly higher than last year. This was driven by higher shipments and improved operating efficiencies, both of which have been a focus for this business.
Net sales were up $4.5 million, or 8%, driven by higher selling prices and a 6.3% increase in shipments across nearly all product lines. Similar to our other businesses, the benefit of higher selling prices was offset by higher raw material and energy costs.
During 2011, significant profit improvement was driven by our continuous improvement initiatives that spanned improving productivity, reducing waste and generating better efficiencies in our supply chain. Our Airlaid production during 2011 increased by 6% and we reduced waste by 13%. We also started up our new festooner in our Canadian facility and we have an opportunity to further grow shipments and improve mix from this in 2012.
Ill move now to Slide 12 and provide some update on a number of other financial matters. During the fourth quarter, we unwound a Timberland installment sale that we entered into in 2007. Under the installment sale, we received a note receivable of $43.2 million from the buyer backed by a letter of credit. This allowed us to defer the taxes on the sale for 20 years. We then used the note receivable and letter of credit as collateral for a bank borrowing of $36.7 million. Due to the downgrade of the letter of credit bank, we unwound the transaction in December, so we collected the note receivable and paid off the borrowing for a net cash flow benefit of $6 million. Due to changes to our tax situation, the recognition of the gain for tax purposes will have a minimal impact on our cash taxes.
During the fourth quarter, we also released certain tax reserves totaling $2.5 million, related to prior Timberland sales due to changes in estimates and the expiration of the statutes of limitation for audits. This impact was excluded from our adjusted earnings. As I mentioned earlier, our tax rate on adjusted earnings was 25.8% during the quarter.
Turning to Slide 13, in January, we completed the share repurchase program that we announced in April of last year. Under the program, we repurchased a total of 3.6 million shares or almost 8% of our diluted shares at an average price of $13.94 per share. This reduced fully diluted shares outstanding during the fourth quarter by 2.8 million and added $0.02 to earnings per share. Fully diluted shares outstanding for the first quarter of 2012 will be reduced by about another 827,000 shares compared to the fourth quarter.
Moving to Slide 14, free cash flow was again strong in 2011 totaling $75.8 million. This includes $17.8 million from the sale of some biofuel credit and reflects an increase in capital spending of $28 million after two years of constricted investment due to the global economic situation.
Capital spending for 2011 totaled $64.5 million and includes the $7.6 million festooner investment in Canada. In 2012, we expect capital spending to be $95 million to $105 million. This includes $30 million to $35 million of the $50 million capacity expansion project in Composite Fibers.
Working capital was again favorable this year despite our revenue growth. This has been a great success story for Glatfelter. Since instituting a more aggressive working capital management program in 2009, we have generated $65 million of cash flow, including $10 million in 2011. We have improved our days in working capital by 30% over this period, including a 7% improvement in 2011.
Moving to Slide 15, you see a summary of the status of our pension plans. Our qualified plan remains fully funded and we will not be required to make cash contributions to the plan in 2012, nor do we expect to have to make contributions for the foreseeable future. However, pension expense will continue to be a drag on earnings and we expect it to increase by $2 million to $12.4 million for 2012. This increase is due to further declines to interest rates in 2011 as well as investment returns that were lower than our accounting assumption. So while these lower discount rates and investment performance are reflected in our funded status, it will continue to negatively impact our earnings.
Finally, on Slide 16, you see a summary of our balance sheet. During the fourth quarter, we amended our revolving credit agreement to increase the capacity by $125 million to $350 million, extend the maturity to November 2016, and lower the interest rates and fees that we pay under the agreement. In December, we then used cash on our balance sheet and the new revolver to redeem our $100 million 7 1/8% bond issue. This allows us to replace fixed rate debt with much lower variable rate debt.
While we took an after-tax charge of $6.1 million for this refinancing, the incremental cash costs were $3.2 million and the payback will be less than nine months. We will see substantially lower interest expense beginning in the first quarter which will add to our earnings.
As a result of our refinancing and the Timberland installment sale unwind, at December 31, we had $227 million of debt outstanding comprised of $200 million of 7 1/8% notes due 2016 and $27 million outstanding under our revolving credit agreement. Despite using $48 million for share repurchases, $16.6 million for dividend payments and the cash costs of our debt refinancing, our balance sheet remains in great shape. We finished the year with $38 million of cash and $318 million available under our revolving credit agreement. Our leverage remains low at 1.2 times on a net debt basis.
This concludes my comments. I will turn the call back to Dante.
Dante Parrini - Glatfelter Chairman, CEO
Thanks John. Before opening the call for questions, I have a few comments on our outlook which are summarized on Slide 17. Clearly, continued uncertainty and volatility in the global economic conditions remains a front-burner issue for us all. Most notably are the sovereign debt issues we see in Europe and improving but still high unemployment levels in the United States.
The issues in Europe are leading the isolated instances of soft and inconsistent demand in this region for some of our more consumer driven products like feminine hygiene and composite laminates as our customers more cautiously manage inventory levels and end consumers more carefully consider the timing of their purchases and the alternatives available. Its important to recognize that we do expect to see global demand growth in fem-hy in 2012.
Over time, weve demonstrated the ability to perform well under a variety of circumstances. I believe weve created substantial and sustainable momentum for our Company. Going forward, we will continue to leverage our leading product platforms in growing global markets and focus on strong day-to-day execution.
For the first quarter 2012, we expect shipments to be up slightly in each of our businesses compared to the fourth quarter, reflecting in part normal seasonality with shipments a little more challenging for the European markets. We expect selling prices to be in line with Q4, with the exception of a slight decline in our Airlaid business due to certain customer contract provisions. While inflationary pressure continues with many of our inputs, overall we expect input costs to decline slightly in the first quarter compared to the fourth quarter.
In Composite Fibers, we will be taking two machines down for upgrades during the first quarter, one in the UK and the other in France. The machine upgrade in France is more extensive and will require about six weeks to complete. These upgrades will increase productivity, improve reliability and maintenance performance and in the case of France add new capabilities. These upgrade-related outages will create a cost penalty of about $700,000 during the first quarter. We will also continue to execute our continuous improvement initiatives to improve our cost structure and our overall performance.
In closing, Id like to share with you why I am optimistic about Glatfelters future. Weve demonstrated that weve changed the cash flow profile of this business and we are generating more consistent levels of cash flows. The strength of our balance sheet and the flexibility it provides gives us options and alternatives and allows us to continue making smart investments to provide value-added services and products to our customers, and create value for our shareholders.
Growth opportunities. Today, nearly half of Glatfelters business portfolio is in growing global specialty businesses where we have leading market positions and we are investing in growth. Two recent examples are the recently commissioned festooner in Gatineau, Canada that will help us better serve growing demand for hygiene and other consumer products in the Americas, and the $50 million investment to expand capacity in Composite Fibers to meet global growth opportunities in single-serve applications for coffee, tea products and other technical specialties.
The combination of our financial strength and global growth opportunities provides a solid foundation to further improve return on invested capital performance and reward shareholders. Examples are the recently completed $50 million share repurchase program which reduced our outstanding shares by 8%, and a $0.36 dividend that we continue to maintain. These actions underline our confidence in our ability to generate sustainable and substantial cash flows, grow our earnings, and deliver value to our shareholders.
We enter 2012 prepared for the challenges and excited about the opportunities that lie ahead. I believe we are well positioned to continue the progress we are making in profitably growing Glatfelter. I look forward to updating you on progress during our next call. Id like to open the call for questions at this point.
QUESTION AND ANSWER
Operator
(Operator Instructions). James Armstrong, Vertical Research.
James Armstrong - Vertical Research Partners Analyst
Good morning. First, on the Composite Fibers expansion, relative to your coffee the single-serve market today, with the $50 million expansion, how much can you grow that business before you would have to add even further capacity?
John Jacunski - Glatfelter SVP, CFO
The upgrade will add about 10,000 tons of capacity for the single-serve coffee and tea products. So our expectation is thats a two- to three-year time horizon perhaps depending on how fast we can grow. So thats I would say its in that range.
James Armstrong - Vertical Research Partners Analyst
Okay, that helps. Real quickly, just could you remind us what your if you have any pass-through provisions in any of your markets, and what is the lag associated with those provisions?
John Jacunski - Glatfelter SVP, CFO
We do have pass-through provisions in our Airlaid business. In most of the contracts, the pass-through tends to be immediate, so both on the way up as input costs are increasing as well as decreasing we are generally passing those through pretty much real-time.
James Armstrong - Vertical Research Partners Analyst
Lastly, as you look to deploy capital in 2012, youre doing a great job all around whether buying assets or returning cash to shareholders. But could you help us understand first whats your optimal debt, net debt level, and to the extent you return cash to shareholders, whats your preferred method going forward?
Dante Parrini - Glatfelter Chairman, CEO
Its Dante. Yes, we continue to focus very actively on being financially disciplined and making sure that we have a strong balance sheet and afford ourselves the latitude and flexibility to look at all ways of returning value to the shareholder and continue to invest in growing our business. So I think, if you look at the strength of the balance sheet that we have today and the capacity that we have and the fact that weve just completed a share repurchase program and we have a $0.36 dividend, were going to continue to look at a variety of ways that we think in aggregate provide the highest total return to the shareholder.
That being said, I believe that weve been successful in investing in organic growth in our business. Now, with nearly 50% of our portfolio in growing global markets, it gives us more opportunities to do that. Weve also been successful at identifying, valuing, and acquiring and integrating acquisitions. Were going to continue to look for the right opportunities to profitably grow Glatfelter.
At the same time, we review with our Board on a regular basis what do we do with our cash and whats the best use for this? Well continue to look at shareholder-friendly ways to redeploy some of the capital over time if we believe weve exhausted all of our high return investment opportunities.
James Armstrong - Vertical Research Partners Analyst
That helps. Ill turn it over. Thank you.
Operator
Your next question is from Debbie Jones.
Debbie Jones Analyst
Good morning. I was just wondering, in your Specialty Papers business, you talked about declines in other products. I know you touched on it before, but I was wondering if you could just is this really book paper or is it export markets? Then if you could also talk about the mix erosion you experienced in the quarter?
Dante Parrini - Glatfelter Chairman, CEO
This is Dante. Ill give you some perspective and then maybe John wants to add. So, in the fourth quarter, we had growth in a number of our categories, envelope, engineered products; our book paper was essentially flat on a year-over-year basis. We did have a decline in carbonless which as weve stated in the past is a business that is in structural decline. The decline was a little bit higher than the annualized rate. That had to do with some of the mix as we moved away from some of the lower-margin export business. Anything you want to add, John?
John Jacunski - Glatfelter SVP, CFO
No, I think thats exactly what happened.
Debbie Jones Analyst
Okay. Then again, in book paper, I think one of your competitors had talked about gaining share in that business. Im just wondering where your share is at currently and if youve experienced any impact from that and also just what you guys are thinking about the book paper business going forward.
Dante Parrini - Glatfelter Chairman, CEO
Again, Ill say that our book paper was flat in Q4 on a year-over-year basis. For the entire year of 2011, it was off about 4%. Weve estimated that the market decline rate may be around 5%, so from our vantage point, we have not lost share, and from our point of view, we still are number one in terms of our share position for uncoated free sheet papers.
Debbie Jones Analyst
Then in the Airlaid business, you guys talk about taking a week of downtime in Germany. A couple of things there. one, can you quantify the impact of that? Then two, I know you said you are pointing to growth in that market in 2012, but Im just curious about the trends that are driving the weakness youre seeing there. Is it beyond just depleting inventories? Additionally, I wouldnt think this is a cyclical business.
Dante Parrini - Glatfelter Chairman, CEO
So Ill start off and then maybe John wants to comment on financial impact of the downtime. So I think lets start with big picture. We expect to see global growth in fem-hy in 2012. So market has been growing at about 6%, and thats our assertion for 2012.
What we are seeing is, due to the uncertainty and the volatility in Europe, we have a slightly more occluded view of forecasting demand for that region. Its related to a whole host of potential factors that range from our customers being more cautious with working capital management and how they manage their inventories and buying patterns. We are aligned with the global leaders in these categories. Our materials tend to be used in kind of the premium and super premium categories, so if certain regions of the world have more movement from premium to value brands, that can influence demand. But, again, we expect to grow with or better than the market in 2012, so our regional mix may change a little bit during the course of the year, but its important to recognize that we still expect to grow our fem-hy business.
John Jacunski - Glatfelter SVP, CFO
From a financial perspective, wed expect the week of downtime to impact operating income by about $300,000 to $400,000 in the first quarter.
Debbie Jones Analyst
Thats helpful. Can you just talk a little bit more about the improvements that youve made in your Canadian operations and how much more you think there is to do there?
Dante Parrini - Glatfelter Chairman, CEO
Sure. Were very proud of the progress that has been made at our Gatineau facility and the improvements have been recognized not only internally, but by some of our biggest customers through their audits of their supply-chain processes. The investment in the festooner will clearly give us additional capabilities that help us improve our mix, and supply this type of converted product which has a price premium for this converting step associated with it. We think there is more upside from our continuous improvement initiatives, and we expect to continue to grow our operating income and focus on margin expansion not just in Canada, but throughout the entire business unit.
Debbie Jones Analyst
I guess the last question, I saw a release the other day about AF&PA talking about their opposition to I guess the proposed retroactive clawback of the renewable fuel tax credit. Im just wondering if you have any color on this, if this is something you guys would be exposed to.
Dante Parrini - Glatfelter Chairman, CEO
John?
John Jacunski - Glatfelter SVP, CFO
Yes. We have about $6 million of biofuel credits still available to us that we would expect to use in 2012. The legislation that is being discussed includes preventing companies from using any credits they currently have available, as well as not allowing companies to trade some of the alternative fuel mixture credits for the sales of biofuel credits through an amendment of their returns. We certainly dont think that its good policy for retroactive changes to tax laws that prevent us from using credits that were allowed under the tax laws at the time that we claimed them, so we dont think its a smart policy, and certainly we are opposed to it.
Operator
(Operator Instructions). Stuart Benway, Standard & Poors.
Stuart Benway - Standard & Poors Analyst
Thank you. Good morning. A little bit more on Specialty Papers. You talked about areas that were declining and mostly I guess carbonless, but can you give us some idea of some examples of where you see growth opportunities in that segment that will offset the secular declines in other areas?
Dante Parrini - Glatfelter Chairman, CEO
Sure. This is Dante. As I stated, we just finished our seventh consecutive year of outperforming the broader uncoated free sheet market in terms of our year-over-year shipments. That has to do directly with a very robust and active new business development and new product development infrastructure that weve built throughout Glatfelter and used quite extensively in our North American business. So if you think about the decline in carbonless papers for business forms, weve been very successful at expanding sales of non-carbonless products we would sell to the same forms manufacturers. Thats one example where weve had substantial growth on a year-over-year basis to help offset the secular decline in carbonless.
We have utilized the capability of the Chillicothe acquisition of 2006 to expand the geographic scope, whereby we are able to supply the envelope converters with what I believe is viewed as industry-best programs which allow us to pick up share. Weve grown that business in high double digits over the last five years. So we continue to look at all kinds of subcategories that fit our assets. The types of investments we make are very targeted, designed for short payback, high return to either lower our cost structure or substantially improve our capability that allows us to be much more versatile with the type of products that we can make and the size of runs that we can do cost effectively. Thats why weve outperformed the market for seven years in a row and thats why we have confidence that we will be able to continue to run these assets at full capacity.
Stuart Benway - Standard & Poors Analyst
Okay. The Airlaid business still has margins that are a little lower than your other segments. Do you still expect to get those margins up to or even above the level of the other businesses?
Dante Parrini - Glatfelter Chairman, CEO
So your observation is accurate. As I stated earlier, we had a disappointing 2010, which was our first year with this business. Weve seen substantial improvement in a number of sequential quarter-over-quarter improvements through the course of 2011. Weve made the targeted investment in the festooning capabilities. We continue to invest in continuous improvement. Our overall operating rates continue to escalate and the fact that were serving global markets and have leading positions all give us confidence that will be able to continue to grow our margins to a level that is acceptable from a Glatfelter point of view. So, we expect to continue to grow the margins in that business.
Stuart Benway - Standard & Poors Analyst
Your customers there, are they the major providers of those products?
Dante Parrini - Glatfelter Chairman, CEO
So we do serve the major players on a worldwide basis because we have the leading share position for Airlaid solutions in the hygiene business. We also supply more than the handful of the big market makers, but a majority of our volume goes to the big global players.
Stuart Benway - Standard & Poors Analyst
What would you say roughly is your share in the single-serve filter area for Composite Fibers?
Dante Parrini - Glatfelter Chairman, CEO
Sure. So single-serve coffee, these are pads and pods. Our estimation of the market is that we have upwards of 70% market share.
Stuart Benway - Standard & Poors Analyst
How many competitors are there for the remaining 30-? Is it just a couple or is it ?
Dante Parrini - Glatfelter Chairman, CEO
Its a short list.
Stuart Benway - Standard & Poors Analyst
Okay. Your CapEx is expected to rise quite a bit this year, as you talked about, and a lot of thats going into Composite Fibers. Are you planning any spending on energy projects? Some other companies have gone a lot deep into that area, getting projects that make them energy self-sufficient.
Dante Parrini - Glatfelter Chairman, CEO
Yes.
Stuart Benway - Standard & Poors Analyst
Are you planning any plans to reduce your purchases of outside energy?
Dante Parrini - Glatfelter Chairman, CEO
Yes. So a good part of our continuous improvement initiatives Company-wide are focused on energy efficiency. We think these are very attractive projects because they have obvious positive impacts of lowering your costs but they also have a positive impact on the environment as well. So, whether youre looking at it from a sustainability point of view or pure dollars and cents point of view, it makes sense for us and we see opportunities and we are, again, investing more in targeted projects.
Stuart Benway - Standard & Poors Analyst
How about repurchases? Any plans do you think to start up another program for that this year?
John Jacunski - Glatfelter SVP, CFO
We currently do not have an authorization. As Dante mentioned, we review with our Board both our share repurchase opportunities as well as our dividend policy on a regular basis, but we dont have anything further to add to that at this time.
Stuart Benway - Standard & Poors Analyst
Thank you.
Operator
(Operator Instructions). We have no further questions at this time. I would now like to turn the call back over to Dante Parrini for closing remarks.
Dante Parrini - Glatfelter Chairman, CEO
Id just like to say thank you again for joining us today. John and I appreciate your questions and your interest in the Company and we look forward to speaking with you again next quarter. Have a good day.
Operator
This concludes todays conference call. You may now disconnect.