Magnera Corp (MAGN) 2004 Q1 法說會逐字稿

Good morning ladies and gentlemen, and welcome to the GH Glatfelter first quarter earnings release conference call.

At this time all participants have been placed on a listen-only mode and the floor will be open for your questions following today’s presentation.

It is now my pleasure to turn the floor over to your host, Mr. Glen Davies.

Sir, you may begin.

Thank you and good morning.

This is Glen Davies of Glatfelter’s corporate finance group.

I’d like to welcome you to today’s conference call.

On the call with me this morning are George Glatfelter, our Chairman and CEO, John van Roden, our SVP and CFO and Dante Parrini, our SVP and GM.

Also in attendance is John Jacunski, our VP and Corporate Controller.

Before we begin our discussion, I’d like to remind you that any statements made today with regards to our future expectations may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Although such statements are made based on assumptions we believe to be reasonable, there can be no assurance that actual results will not differ materially from our expectations.

Please refer to our 2003 annual report on form 10-K filed with the SEC for important factors, which among others, could cause the company’s actual results to differ from any results which might be projected, forecasted or estimated in any such forward-looking statements.

And with that I’ll turn the call over to George.

Thank you, Glen.

Good morning and welcome everyone to our 2004 first quarter conference call.

I hope you had the opportunity to review our earnings release that was issued this morning.

After my introductory remarks, John will provide an overview of our financial performance during the first quarter, followed by a few comments from Dante on the operational side of the business.

I’ll then conclude with a few remarks before opening the call for questions.

It goes without saying that the first quarter of 2004 was certainly a very active period for Glatfelter as we continue to pursue or vision of becoming the global supplier of choice in specialty papers and engineered products.

Our 2004 first quarter results, compared to a year ago, reflect the challenge of the experience last year, particularly with respect to pricing declines that occurred throughout 2003 in our printing and converting papers business unit.

However, we believe that the economic environment for the business has improved.

Relative to the fourth quarter of 2003, I’m generally pleased with the improvement in our financial performance.

In recent months we’ve seen strong improvement in order backlogs across many of our product offerings, compared with the end of 2003, and we expect pricing improvements during the second and third quarters of this year.

However, as I’ve said on previous calls, I do not believe that the fundamental challenges that have impacted our industry in the past several years have disappeared and we’re not counting on external factors that are beyond our control to improve our financial performance.

Instead, we continue to take necessary steps to improve financial results irrespective of any short to intermediate term lift in our business.

Our decision in the fourth quarter last year to shut down equipment at our Neenah, Wisconsin facility is one such example.

In our last conference call I described the development of two focus points for our company in 2004.

I told you that we would review them in greater detail on this call.

The focus points are designed to drive sustainable financial improvement in our business.

The two focus points for Glatfelter in 2004 are the North American restructuring program and the growth strategy for our long fiber and overlay papers business.

Later in this morning’s call I’ll discuss those initiatives so that you have a clear understanding of their scope and financial benefit.

Prior to that I’d like to ask John van Roden to spend a few minutes reviewing our financial results for the quarter.

John?

John van Roden, Jr.: Thank you, George.

For the first quarter of 2004 income from continuing operations was $36.3m, or $0.83 per diluted share, compared to $26.7m, or $0.61 per diluted share in the same quarter of 2003.

The 2004 first quarter results include after tax gains totaling $34.8m from the sales of timberlands, the corporate aircraft and from insurance recoveries associated with the Fox River environmental matter.

A year ago we had after tax gains totaling $19.3m from timberland sales, net of a paper machine write off.

When you exclude these items from each quarter, adjusted first quarter 2004 earnings were 1.5m, or $0.03 per diluted share, compared to 7.4m, or $0.17 per share in the first quarter of 2003.

So overall, the primary drivers of the decline in earnings in the quarter to quarter comparison are as follows; lower product pricing primarily in the printing and convertings papers business unit – $0.11; higher effective tax rate - $0.02; impact of issues associated with the Neenah transition - $0.02; and partially offsetting these unfavorable items with the effect of foreign currency translation adjustments of $0.02.

Although the 2004 first quarter results compare unfavorably with the same quarter a year ago, they improved by $1.5m when compared with the fourth quarter of 2003.

As I mentioned earlier, we completed a significant series of transactions in the first quarter of 2004 that in the aggregate generated in excess of $58m in cash.

We used these funds to reduce debt and ended the quarter with net debt of $199m, which is a debt to capital ratio of 33%, down from 39% at the end of the year.

We remain focused on maintaining the strength of our balance sheet.

On the CapEx side, we continue to expect CapEx in 2004 to be approximately 50% our annual depreciation expense.

That concludes my comments.

Thank you and I’ll turn it back to George.

Thanks John.

Now I’d like to ask Dante to provide an overview of the operational side of the business.

Dante?

Thank you, George, and good morning.

I’ll provide some comments on the performance of our three business units and other areas of interest for the first quarter of 2004.

Let’s start with business units.

Printing and converting, which this business unit produced premium quality fine papers for the book publishing and envelope converting industries.

Net sales for the first quarter were 23% below the first quarter of 2003 and volumes were down 16% in the comparison.

Each of these reflects the impact of shutting down capacity at our Neenah facility in the fourth quarter of 2003, as well as weaker selling prices.

However, on a more positive note, the printing and converting business unit had its single largest shipment month since October of 2003, during the month of March.

We experience a strengthening in our backlogs that began in the latter part of January, which continues today.

As stated in our previous call, we are enhancing our book-publishing product and service offering to combine improved product availability and speed of delivery with Glatfelter’s recognized best in class quality.

We believe this will further strengthen our leadership position in our largest market segment, especially at a time when some competitors are exiting from certain parts of the book publishing business.

A few comments on near-term demand and pricing outlook.

Demand is strong in North America and we expect this trend to continue and our pricing outlook is more positive.

We have implemented a price increase for our envelope papers that will favorably impact the second quarter.

We have also announced a price increase for trade book paper; effective early May, to be fully implemented by July 1st.

Now let’s move on to engineered products.

This business produces customized solutions for the digital imaging, casting and specialty release, pressure sensitive and industrial specialty markets.

Products include inkjet papers, heat transfer papers, medical nonwovens, playing cards and postage stamps, to name a few.

Net sales and volumes were favorable in the first quarter by double-digits, versus the same quarter a year ago.

This excellent growth performance was largely driven by increased sales of uncoated specialties across a number of our market segments.

Our new product development process is working very well as we continue to upgrade our technical and business development skills and capabilities.

We are also finding more customers approaching Glatfelter to be their supplier of choice as more smaller, non-integrated specialty players experience difficulties.

We are focused on further top line growth through the development of new products, new markets and geographic expansion.

In terms of near-term demand and pricing outlook, near-term demand for this business unit is strong, pricing is stable, with some select price increases to be implemented during the second quarter.

Now I’ll move to our long fiber and overlay business unit.

This business is a world leader in the manufacture of high quality filter papers for the food and beverage markets, overlay papers for the composite laminate industry, metallized papers and several niche technical specialties.

The first quarter 2004 net sales was 16% ahead of the same quarter a year ago, which is largely due to the translation effect of foreign currency and a strong performance from the metallized business.

Volumes increased approximately 7% in a quarter to quarter comparison.

We did experience price pressure in our core markets of teabag and overlay papers during the first quarter, due to three primary factors; a strong Euro, weak and unexpected demand for teabag papers and the need to defend market share in certain regions of the world.

We continue to make progress in the growth and development of our technical specialties segment and anticipate revenue growth to occur toward the end of the year.

In terms of near-term demand and pricing outlook, as many of you know, the busy season for teabag papers is now behind us as we enter the warmer Spring and Summer months.

Demand for overlay products remains solid.

Our metallized business is experiencing very strong demand and the near-term outlook for pricing in this business unit is comparable to our current levels.

A couple of comments on new product development.

During the first quarter of 2004, approximately 55% of our net revenue came from products less than five years old, which is an all time high for Glatfelter.

Volume growth in engineered products and long fiber and overlay products contributed significantly to this performance.

We were also pleased to see our new DigiBOOK products gaining acceptance in the book publishing market for short run, on demand print applications.

This concludes my comments.

I’ll turn it back to you, George.

Thank you, Dante.

As you just heard, this has been a very busy quarter for Glatfelter.

I’ll try to boil it down.

Although we’re seeing indications of improvements in our business, our company’s financial performance is not where it needs to be, and the conditions in our industry demand that we change the way we do things.

These are tough times.

But throughout this period we’ve made a lot of progress.

We’ve strengthened our balance sheet.

We’ve extracted significant cash from undervalued assets and we’ve repositioned our business.

If we are in fact at the early stages of a cyclical upturn, Glatfelter will enter it with a solid financial base, streamlined approach to the business and strong positions in key market niches.

However, we need to do more and we will.

During the last call I referred to a company wide initiative designed to reduce operating cost and further improve our product mix.

These are our focus points for 2004 and 2005.

But first, the North American restructuring program will significantly reduce our cost structure and fundamentally improve the way we go to market.

It’s being implemented now and will extend throughout the year, through 2005.

There are five components of this program.

First, as Dante had mentioned, we are strengthening our commitment to the book publishing market by streamlining our product offerings in a manner that will provide our customers with better value while reducing our cost to serve this market.

Secondly, we’re going to focus on new opportunities to grow revenue in uncoated specialties.

Third, we intend to generate significant improvements in workforce efficiency by changing the way that work is done.

This will result in a 20% reduction in the workforce of our Spring Grove Mill.

Fourth, we expect to extract greater value from our supply chain.

And fifth, we’re going to reduce SG&A expenses across the span of the business.

We expect these efforts to generate financial benefits beginning in the latter part of this year, that will approximate $15m-$20m annually, beginning in the year 2006.

Our second focus point is to continue to implement our long fiber and overlay business growth strategy.

We’ve built new capabilities that we will use to expand our presence in global teabag and copy papers markets, optimize our leadership position in the overlay papers markets, penetrate new technical specialty markets and diversify in nonwovens, another new market for our company.

In conclusion, we remain in a highly competitive industry with global over-capacity.

However, as I described, we’re taking steps to fundamentally change our cost structure and improve the profitability of our product mix on a sustainable basis.

I continue to believe that irrespective of the influence of global economic forces, a significant opportunity exists within this industry for the specialized niche player.

In that respect I believe we’re well positioned for success.

The way to make it work is to be nimble, innovative and cost conscious and that’s what we plan to do.

I want to thank you again for your participation in today’s conference call.

I’d now like to turn it back to Glen.

Thank you, George.

That concludes the prepared remarks section of our call.

At this time we’re prepared to answer questions you may have.

I’d like to ask Maria to provide you with instructions for the Q&A portion of the call.

Maria?

Thank you.

The floor is now open for questions.

If you have a question, please press star one on your touch-tone telephone at this time.

If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key.

We do ask that while you pose your question that you please pick up your handset to provide optimum sound quality.

Once again ladies and gentlemen, that is star one on your touch-tone telephone at this time.

Our first question is coming from Mark Connelly, from Credit Suisse First Boston.

Please go ahead with your question.

Thank you.

I’ve got a couple of things.

The first is that I noticed that your new cost reduction and restructuring program doesn’t have a spiffy name like your last ones used to.

I wonder if you can, George, help us contrast the emphasis of what you’re doing now in this program, versus what you did with Drive and Impact.

Thanks Mark.

I appreciate the question.

And I guess the reason we don’t have a spiffy name is maybe we just didn’t have time to think of one.

I think the name though is pretty indicative of what we’re doing.

This is truly a restructuring effort, designed at this point across our North American assets.

It is focused on improving our product mix as well as reducing our cost to serve.

And that, I think just by virtue of its scope, differentiates it from past efforts that were focused perhaps specifically on cost control or specifically on market niches.

I think the way that I characterize this initiative is that it truly is a recognition that we exist today in a global market.

That presents us with challenges that perhaps we haven’t had in the past.

And it also presents us with opportunities.

But it also means that to deal with both of those we’ve got to run the business differently.

We don’t have a spiffy name.

The restructuring efforts from the standpoint of cost reduction ultimately will involve a substantial number of employees at our Spring Grove facility.

In order to achieve those reductions we’re going to have to learn to do work differently.

We’re going to have to work very collaboratively with all of our constituents, to the same objective.

And I think that it’s fair to say that that’s a tough decision for the Spring Grove operation.

But in talking with employees, I think everyone realizes the challenges that this company is facing.

They realize that they are fundamental global challenges and they realize we’ve got to do something about them.

So to boil it all down, it’s a comprehensive effort, Mark.

And it’s focused on the realization that at the end of the day whether you’re a specialized player or a commodity player, you’re playing in a global environment today and you’ve got to deal with your product mix and you’ve got to deal with your cost structure continuously.

Can you give us a sense of how significant the streamlining is going to be in your book business.

Is it taking out 10% of your offerings?

I don’t know whether it’s best to think about it in offerings or SKUs.

I’m just curious how big it’s going to be from a customer standpoint?

Mark, this is Dante.

Hello.

If you look at our book publishing product line, one of the things that we had been recognized for, for many years is having the broadest and deepest product offering in the industry.

And over time, if you look at the SKUs, they have proliferated to a level that became unmanageable and inconsistent with what our customers’ needs are today.

Our customers have more streamlined their operations and the feedback that we got from them was issues around product availability, speed of delivery, best value for dollar invested, were of paramount importance to them.

And so if I were to quantify the number of SKUs that we reduced out of the gate, first phase 25%, it could equal as much as 50% of our SKUs.

But for those who aren’t familiar with our product line, I don’t know that those numbers mean much.

That still gives us the flexibility to respond to special needs of our book publishing customers.

So we feel very good that we found the appropriate balance between addressing the 80% day in and day out needs of the market, while still positioning Glatfelter as unique in terms of our ability to respond to special needs.

I hope that answers your question.

Sure, pretty dramatic changes.

Switching over to the long fiber business, you talked about the sources of weakness.

Can you give us a sense of how much of that weakness is deriving from your FX position and how much is, you know, people aren’t drinking enough tea?

I would say that a majority of it is derived from the FX position.

So when you talk about needing to defend market share, it’s usually because of offerings from other competitors who may have cost structure in US dollar, for example.

I would say that’s a majority of it, as opposed to people are not drinking tea anymore.

Okay.

I hadn’t noticed that trend.

And one last question before I let go.

When we talk about CapEx being below depreciation, I guess I keep asking the same question, but is there something that is changing in the way you’re spending money or is it just a matter of scrutinizing projects more carefully?

I’m trying to get a sense of whether what you spent CapEx on in the last couple of years is going to be dramatically different than what you’re spending it on in the next couple of years.

Well, I’ll take that Mark and offer the opportunity for others to join in here.

It’s pretty clear that we just emerged from a period of high capital expenditures.

One of those major expenditures was an infrastructure expenditure, SAP.

The second was an environmental expenditure, regulatory.

And the third was an expenditure based on business growth, opportunistic.

Those were all three expenditures that we felt we needed to commit to, to secure the long-term position of this business and reposition the business for growth, particularly in the area of long fiber and overlay.

It’s very clear that we’re not alone at looking at capital as a resource that needs to be very judiciously dealt with.

And that’s what our focus is going forward.

Most of our major capital spending is behind us.

We have a certain level of maintenance capital that has to be expended on a yearly basis.

We’re scrutinizing that carefully.

We feel that the CapEx that we have in front of us and in the range that we have and the commitment that we have to maintain our CapEx below depreciation levels, allows us to do two things.

First of all, maintain the capability of our asset base.

And secondly, offer opportunities for focus growth that might be driven by CapEx.

That’s very helpful.

Thank you, George.

Thank you.

Our next question is coming from Mark Wilde, with Deutsche Bank.

Please pose your question.

Good morning.

George, I guess to kind of open with a little bit of a cliche, it’s not your father’s Glatfelter is it?

Mark, truer words could not have been spoken.

It’s a different company.

I was talking to employees just yesterday.

And I said if you’ve worked for this company more than 10 years, you’ve seen two different companies.

For the first 15, 16 years of my career here, I was working for a Glatfelter company that was competing within North America in markets that were stable and in markets where, although competitive pressure certainly existed, stability was the name of the game.

Today our business clearly, again, is global.

It’s much more dynamic.

We have to make tough decisions.

We have to do that.

And the companies that do that and do it well are going to be the winners.

We hopefully have been smart about this.

We’re confronting globalization in this industry.

We’re not the first industry that’s done that.

We’ve been studying others; textiles, chemicals, automotive, steel.

And there are clear formulaic approaches to those companies that survived globalization and do it well.

In the seal industry, for example.

The companies that have turned that corner and are prosperous today in North America, are companies that were able to diversify their product base, build specialization, build defensibility into the grades that they make, and then secondly, manage their cost structure.

That’s exactly what we’re talking about here and it’s not my father’s Glatfelter, that’s true.

And I’m not taking anything away from the challenges that those folks faced when they had the business responsibilities.

But it is clearly a different industry, number one, and this is clearly a different company.

Yes.

Let me just detail questions.

Timberland sales, this is another, it looks to me like probably $13,000 or $14,000 an acre block of sales.

I think this is probably that stuff down near Rehoboth Beach, Delaware?

Correct.

Am I correct in recalling that there might still be about another 1,000 acres on top of this or where do we stand?

Mark, this is John.

There is more HBU land, higher, better use land out there and we are working on the possibility of more sales in 2004.

I really can’t provide you much more detail than that, but I think the chance that there are some significant sales coming up this year or next are probably high.

Okay thanks.

The second question, on the Fox River, can you just bring us all up to date on where we stand up there right now in terms of the remediation efforts, what you might be on the hook for?

I’ll just go over the actual cash flows on that first of all, Mark.

As I said, we did have a recovery during the quarter of $25.2m from insurance companies that were found to have coverage for this.

And we had already accrued expenses for the Fox River of about $29m prior to this quarter.

So, in March we made a contribution of $10m to an escrow fund to do the cleanup of the Fox and we will contribute another $15m in June to that escrow fund.

And that’s the amount that we, under our consent to [create it], we had to contribute to the escrow fund.

Okay.

And what kind of negotiations or discussions remain, or suits would remain up there right now?

We are continuing to hold discussions with defendants in our legal action related to insurance coverage.

But I think it’s premature to comment on any likely outcome of these discussions.

Okay.

I want to move next to the cost take out efforts.

The 20% cut in Spring Grove staff is really quite large.

Are there some paper machine closures that you’re contemplating there?

No Mark, there are not.

Okay, so that’s strictly 20% less staff to run the same assets?

That’s correct.

Okay.

And are you examining opportunities to make similar moves over in Germany?

Well, I think the initiative that we have introduced is focused on – I know the initiative that we’ve introduced is focused on North America.

We at this point don’t have plans to follow through with a similar approach in our European facilities.

However, the concept of effective cost management certainly spans the Atlantic.

And the folks in Germany and France are also focused on individual cost reduction programs, albeit not of the magnitude and without the impact on employment.

Okay.

And then one of the areas that you mentioned for growth was nonwovens and I guess that raised two questions for me.

I thought that when you bought the German operation that there was a small French nonwovens business that came with that.

And then it also seems to me that there has been some turmoil in the nonwovens business over the last few quarters.

I think I just saw that one of the other North American players was closing down a European nonwovens operation.

I wonder if you could just talk about that?

Sure.

Mark, this is Dante.

Maybe it would be helpful if I provided some context to the nonwovens industry.

As many of you know, it’s over $11b in size.

And over the last number of years has grown somewhere in the neighborhood of 6% a year.

So, it’s a big world out there.

And there are certainly different categories of nonwovens.

Not to bore our listeners with the gory details, but there are a variety of categories, whether it’s wet laid nonwovens, air laid et cetera.

And there are certain segments of the wet laid nonwovens market where we see market opportunity and a good fit with our capabilities, especially some of the recent investments we’ve made in Germany specifically, where we would be able to present a product and service offering that would fit a need and be very competitive in something that’s defensible.

The comment you raised earlier about the small melt blown facility we had in Wisches, France, which only employed 20 people, was not consistent with the direction that we wanted to go in the broader nonwovens industry.

Okay.

And then finally, you didn’t mention either energy or fiber costs and I just wondered if you could comment on both of those issues?

It looks like the pulp market is still going up.

Maybe you could also just remind us of what your exposure there might be?

Well Mark, energy is somewhat higher than last year, but not that much higher.

So when we did the year to year comparison it didn’t really fall out as one of the big movers as it did in many of the quarters last year, although energy price is still a little high.

And pulp pricing is going up, which will of course offset some of the increase in selling prices that we see.

You want to add to the pulp prices, Dante?

No, I think that everybody is well aware of the pretty significant increases. in the first quarter our supply chain people made some decisions pretty early in the year that paid dividends and helped mitigate some of the rising pulp costs.

That’s decreasing to a certain extent in the second quarter and depending ultimately on where pulp prices go, it will certainly have an impact on our cost structure.

Dante, how much do you buy per quarter right now?

How much market pulp do we buy per quarter?

Or per year, it doesn’t matter, either way?

The answer changed because of the recent changes in process we made in Neenah, Wisconsin.

We had been purchasing 75,000-80,000 tons a year of market pulp prior to shutting down the de-ink mill.

So we’re north of that number now.

A variety of categories you could imagine.

Do you have any idea of what the number now might be?

I could get back to you on that one, Mark.

All right, sounds good.

Thank you.

Thank you.

Our next question is coming from Deborah [Warhoff], with [Minnow Mountain] Partners.

Please go ahead with your question.

I’ve been wondering.

I’ve been reading Publishers Weekly and some of your competitors seem to be working on campaigns to better establish their brand’s identity right across the book industry, among the editors for example and the more junior people as well as the manufacturing purchasing people.

Specifically Boise Cascade has quite an attractive campaign for coated book papers and Domtar has a campaign that somewhat was successful.

And I just wondered what Glatfelter is looking at long-term in terms of brand name defense and brand building as a marketing strategy and market maintenance strategy?

Sure.

This is Dante Parrini.

I’d be happy to address your question.

As most of you know, we are the market leader in book publishing in North America and have been for quite some time.

Over the last three years we have invested pretty significantly in a brand awareness campaign and getting that out to all of our stakeholders within the book publishing industry.

We have had historic practice of maintaining contact with publishers, printers, the merchant community and making sure that we develop relationships at multiple levels.

We’re going to continue to do that.

We’re very committed to this market.

It’s our single largest market segment.

It’s important to us and we’re not going to go anywhere.

To address the other question that you raised about some of our competitors and their brand awareness campaigns.

You referenced Boise.

I’m not sure if you’re aware of this or not, but just within the last couple of weeks they announced that they are going to cease making their trade book grade and withdraw from this part of the book publishing industry.

So again, my comments earlier about certain competitors withdrawing from parts of the industry as we get busier in general, we think there’ll be a sifting out and a proof of who’s truly committed long-term to these industries and we feel really good about how we’re positioned.

Okay.

And a sort of follow-up question.

I see more book printing moving to China and India and I know you’ve been wanting to compete for at least some of that printing and I wonder what you’re thinking about it?

A couple of quick comments.

China and India come up in virtually every conversation we have about many of our businesses.

As it pertains to book publishing, the areas that we play in most frequently are the adult trade sectors, educational, school and college, a variety of the segments that we still have a very strong North American presence.

I think when you look at juvenile and some of the other categories, you’ve seen a lot of printing moving offshore.

That’s something we’re paying attention to, but for right now I have no further comment.

Okay, thank you.

Thank you.

Our next question is coming from Robert Carl, with [De Carl] LLC.

Please pose your question.

Hello George and John.

Upbeat report.

I’m very happy for you.

Just about every one of my questions was ably asked and ably answered.

I’m sort of down on the bottom of the list, but I do have one and it’s to John on interest rate sensitivity on the liability side of your balance sheet.

I know you probably have a lot of swaps in there.

I wonder if you could comment, to correlate, say, what a 100 basis point increase in short-term rates would have, say, on your interest expense, net of the hedges and all that.

John van Roden, Jr.: With our debt being paid down, we were paying off variable rate debt, so we don't have much left.

So mostly we have our $150m bond offering which is fixed rate.

And we only have $49m of non-fixed rate debt at the end of the quarter.

So a full 100 basis point increase in interest rates would be about a 500,000 or less increase in interest expense.

Okay.

And John and George, just a more general question.

As you know I’ve been a shareholder here for a long time and I follow the progress of the company and the reformation of the company.

Would you say as a general rule, the company is positioned to benefit in an increasing inflationary environment?

Which obviously we haven’t seen, certainly not in the paper area.

We’re seeing a little bit in other commodities recently sort of just drop down with the increasing of the dollar.

You may have a secular change here.

The last 10 or 15 years have really been very deflationary.

If we look to a return to normalcy, do you see beginning of light at the end of this very long tunnel that you’ve been in?

I wonder if you can just comment, perhaps George, generically on that?

Okay Bob, I’ll give it a shot.

And I’ll go back to I guess my early days, which would be the mid ‘70s and ‘80s when inflation was running quite strong and that was a definite tail wind for the company in terms of driving profitability.

The value of the last incremental ton produced was huge.

And so that was again, a very positive period for this company.

Today we’re a different company.

And so your question is very, very difficult for me to work through.

I think that logically speaking and from a--.

George, can I just interrupt one second.

I guess what I’m getting at is how we reformed the company to exist in a period of deflation and now we’re looking at perhaps inflation.

That’s what I’m sort of getting at.

I think I understand.

Well, we certainly have reformed the company to be able to be successful in a deflationary pricing environment.

I think where I was going with this, today being a multinational company, it’s really difficult.

Fifty percent of our – well, not 50%, but 30% of our revenues today are coming from foreign operations, the remainder here in the US.

It’s tough for me to envision how a strong inflationary move would impact this business today.

It’s not nearly as linear as it once was, I know that.

That’s about the best I can do without speculating beyond where I have any comfort.

Sure.

Okay George.

Thanks a lot.

Thank you.

Once again, ladies and gentlemen, if you have a question, please press star one on your touch-tone telephone at this time.

Our next question is a follow-up from Mark Connelly, with Credit Suisse First Boston.

Please go ahead with your question.

Thanks.

Just a couple of smaller things.

First, can you give us a little bit of a sense of color of what’s actually going on product wise in the metallized part of your business?

Sure Mark.

This is Dante.

Over the last two plus years we have spent a lot of time expanding geographically that part of our business.

Predominantly in the past it had been more of a European business and it was quite cyclical, very strong in the second and third quarters, very weak demand in the first and fourth quarters and it was clearly tied to weather and beer consumption from bottles.

So, we had a very strong concerted effort to expand into Asia, parts of South America, to again, smooth out some of the cyclical peaks and valleys of that business.

We’ve also been somewhat successful at expanding our product offering outside of wet glue applied beer labels.

But the primary driver of the improved performance in that business unit has been the excellent business development work being done outside of continental Europe.

And could you talk about the laminate market in the same respect?

What’s happening there?

If you look at the composite laminate industry, it’s clearly tied to economic performance, because many of the purchases of the products that the laminators ultimately make, such as countertop material, flooring material, are tied to disposable income and general GDP type trends.

We have a very large position, as you know, in terms of our market share globally and different product categories are experiencing various levels of growth in competition.

The areas that we have seen change because of technology are the high abrasive overlay flooring and some new process changes have introduced different types of overlay materials that can be used.

We are a market leader in those categories, but it also expands the number of competitors that we face in those respective markets.

So again, when you’re largest in a market, you get a lot of attention.

And so we’re focused on innovation and focusing on the next generation of new products, so that we can further drive innovation into that part of the business.

Dante, is your FX position materially affecting your competitiveness there?

Yes, it does to a degree, because our largest competitor has a cost structure in US dollars.

Okay, thank you.

That’s perfect.

Thank you.

Due to time restraints we only have time for another question.

And that is coming from Mark Wilde, from Deutsche Bank.

I wondered if we could, the last question, just do a catch up on the situation with regards to any Ecousta liability?

We couldn’t hear that, Mark.

Anything in terms of Ecousta liabilities?

Okay.

There’s nothing new to report on that at all, Mark.

Can you just remind us where that stands, George?

Well, if I recall correctly, in past disclosures, we had set aside about $10, if my memory is correct, to cover things like landfill closures and perhaps some other incidental claims that we felt were our obligation.

We’ve seen nothing to indicate that that risk has changed at all.

That situation down there seems to be progressing along normal lines.

I don’t see anything, frankly, that’s extraordinary at this point in time that affects Glatfelter.

All right.

And on the other side of the tobacco paper business, the transition out of tobacco paper in Germany, where are we at with that?

As I recall you had some kind of a two-year agreement there?

Yes.

We’re winding down and we’ll be out of that business by mid-year.

Yes, for all intensive purposes we’re done this quarter.

Okay, very good.

Thank you.

Thank you.

At this time I would like to turn the floor back over to management for any closing remarks.

No, that is the conclusion of our presentation on our conference call this morning and I thank everyone for their participation.

Thank you.

Thank you.

This does conclude today’s teleconference.

You may disconnect your lines at this time and have a wonderful day.