Neenah, Inc.
Q4 2014 Earnings Call Transcript

Published: 18 Feb 2015

[Operator:]

Good morning. My name is Megan, and I will be your conference operator today. At this time, I would like to welcome everyone to the Neenah Paper Fourth Quarter 2014 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' prepared remarks, there will be a question-and-answer period. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded today February 18, 2014 [sic] 2015. Thank you. I will now turn the call over to Mr. Bill McCarthy, Vice President, Financial Analyst and Investor Relations. Please go ahead, Mr. McCarthy.

[Bill McCarthy:]

Okay. Thank you. Good morning everyone and welcome to Neenah's 2014 fourth quarter earnings call. We released earnings yesterday afternoon and also posted backup materials in the Investor Relations section of our Web site. Today after I recap a few headlines, John O'Donnell, our Chief Executive Officer and Bonnie Lind, our Chief Financial Officer will discuss activities and financial results in detail. As usual following these prepared remarks, we'll open up the call for questions. In the fourth quarter, consolidated net sales grew 6% to $217 million with adjusted earnings per share of $0.75. GAAP earnings were much higher at $1.57 per share and included benefits from prior research and development tax credits as well as one-time charges for pension settlement, restructuring and integration and debt extinguishment. For the full year, net sales topped $900 million with adjusted EBIT of $94 million, adjusted EBITDA of just under $130 million and adjusted earnings per share of $3.28. In addition, 2014 was the first year that our market cap topped $1 billion. We use adjusted figures to aid and comparability between periods, but these are a non-GAAP measure and are reconciled to corresponding GAAP figures in our press release. I will also note that our call today contains not only the usual backward looking statements but forward-looking statements as well. Risks and uncertainties that could cause actual results to differ from these forward-looking statements are outlined in our SEC filings and in the Safe Harbor disclaimer on our Web site. And with that, I'll turn things over to John.

[John O'Donnell:]

Thanks, Bill. 2014 was a terrific year at Neenah and I'm pleased that we ended with a very solid fourth quarter as well. Bonnie will cover results for the quarter in detail. I would like to summarize some key accomplishments during the past year and talk about a few of our strategic initiatives as we move forward. In 2014, all of our teams executed well, delivering organic sales growth of 6% in technical products and 2% in fine paper. Including revenues from our attractive mid-year filtration acquisition, consolidated sales grew 7%. This good top-line performance translated into an impressive bottom-line as well. Adjusted operating income and earnings both grew by more than 10% with improved margins and efficiencies. Cash from operation was almost $95 million and we deployed it through attractive organic capital investment opportunities, a value-adding acquisition and a 50% increase in dividend payments all the while maintaining a very strong balance sheet. Last but not least, we maintained our return on invested capital at around 12% as improvements in our heritage businesses offset the short-term effects from the acquisition. As we start 2015, our strategic priorities remain consistent. First, we'll continue to expand our meaningful positions in product categories at a core to Neenah. Our largest core categories are filtration, performance [packings] [ph] and premium fine papers. In our call in November, I spoke about transportation filtration, our largest end-use market. This morning, I would like to share more about our plans to grow this business in North America by expanding our footprint and supporting our global growth plans with added capacity. Transportation filtration based in Bavaria has grown at an annual rate of more than 8% over the past ten years. While serving a global market with global customers, our business has been concentrated in Europe where we're market leaders and known for our innovative high-value products. With continued market growth and share gains, we expect to consume our existing capacity in two to three years. To meet future growth needs, we plan to repurpose one of our fine paper machines located in Wisconsin at our Appleton mill. This is only possible as a result of the investments and capabilities and significant increases in productivity that our fine paper manufacturing teams have made over the past few years. As we continue to successfully grow and transform this business, we will be able to meet customer needs and support future growth with 7 paper machines instead of 8, improving fine paper return on capital while enabling an attractive investment in our global filtration strategy. By repurposing an existing paper machine, we can leverage our existing infrastructure and manufacturing know-how in a very capital efficient manner. As a reminder, we add the greatest value with processes furthest from the end of the paper machine. With that well understood, we also plan to invest in advanced saturating capabilities that allow us to make the high-end performance products we're best known for. These include products that satisfy evolving market needs like greater dust holding capacity and safe flame-retardant filters. Total capital spending will still be maintained within our targeted range of 3% to 5% of sales and we expect to be at the higher end of this range for a few years with additional spending of approximately $15 million to $20 million compared with recent levels. Engine platforms and environmental and safety requirements are becoming more demanding by replicating the technical capabilities we have in Germany, we can ensure the consistent high-quality and performance our products are known for. And maintain the high barriers to entry this market commands. In addition, this investment provides added flexibility to deliver the product solutions our customers need now and in the future with consistent state-of-the-art technology and in a more rapid, more global manner. We've been working closely with U.S. customers, many of whom are also customers in Europe and we're very encouraged by their support and desire for another high-quality supplier in this important region. While our U.S. transportation filtration sales are currently less than 10% of global sales, the business has been growing at a double-digit pace, was up more than 20% in the fourth quarter. In fact our products are already specified in many well-known cars and trucks like our flame-retardant air filter in the Ford F-150. With a planned start-up in the first quarter of 2017, we'll speak more about this project in our global transportation filtration growth on future calls. But this is an important next step for us and for our customers. And we're pleased to share our plans with you today. A second strategic priority is to increase our presence and scale in profitability and defensible segments of growing markets that value our capabilities. Examples of targeted categories include specialized filtration media, premium packaging and performance oriented technical products. We expect to expand in these areas both organically and through acquisitions. The filtration business we purchased in 2014 is a great example of a company with a strong strategic fit that allowed to us broaden our end markets, acquire new technologies and add to our product development capabilities. Integration has gone extremely well and we continue to be excited about the potential this business has not only to grow with current products in existing markets, but also to develop new products and solutions for markets where we participate today and for markets that are new to Neenah. You may have noted in our press release that we renamed our fine paper segment, fine paper and packaging. This change reflects the growing importance of premium packaging in our portfolio, while representing only 10% of fine paper today, this business is growing rapidly, up 20% in 2014 and we have communicated in prior calls that we see opportunities to expand our size in this $300 million addressable market. I would be remiss if I didn't also note the great year our flagship fine paper and packaging business had. Each year this team continues to find ways to increase sales of high-quality colored and textured papers. We're expanding in markets and focusing on uses where image matters and unlike commodity paper categories, where the likelihood of electronic substitution is much lower. Last but not least, we intend to deliver attractive returns to shareholders including a meaningful cash component. With our strong cash flows and balance sheet, we have the means to deploy capital to create value and we'll continue to do so on a thoughtful manner. We also remain committed to providing an attractive dividend and most recently announced 11% increase effective in March. In addition, we have more than $20 million available under our share buyback program. So before turning things over to Bonnie, let me summarize by saying how pleased I'm with how well our businesses are performing, with our strong financial position and with our plans to grow and add value for our shareholders in the days ahead. While as always there are few near-term challenges and I'll cover these later in the call, I'm confident our teams will continue to rise to the occasion and add to their strong track record of results. Bonnie?

[Bonnie Lind:]

Thanks, John. Let me start with technical products today. Fourth quarter sales of $111 million increased 12% compared with $99 million last year. Excluding sales from our filtration acquisition and impacts of currency translation, technical products organic revenues grew a very impressive 5%. This growth reflected increased volumes across most categories as well as higher value mix and product pricing. Currency translation reduced U.S. dollar sales by about $5 million as the euro averaged 1.25 in the quarter, down 8% from the prior year. Excluding restructuring and integration costs of $300,000, mostly related to the acquisition, operating income of $10.3 million was flat with the prior year. However, results from the quarter included costs for our annual filtration down in Germany which occurred in the third quarter last year. The down was extended in 2014 to increase the capabilities and capacity of one of our production mines. Year-on-year, the fourth quarter impact of this was almost $2 million. Turning to fine paper and packaging, sales in the quarter were $100 million, essentially flat with the prior year. Our commercial print brands continue to perform strongly and premium packaging also did really well growing 20% in the quarter. Growth in these areas was offset in part by reduced sales of non-branded business which tends to be lower value and can come in big chunks at various times throughout the year. Operating income at fine paper of $15.4 million increased 5% from the prior year. Increased costs due to input prices and timing of advertising spending were more than offset by excellent operational performance at our mills. Unallocated corporate costs of $4.4 million compared with $3.6 million last year with increased costs in 2014 primarily due to the timing of spend. 2014 costs excluded $4.3 million of one-time charges for a pension settlement, restructuring and debt extinguishment. On an annual basis, we expect unallocated costs to average approximately $4 million per quarter in line with the levels of the last few years. We expect to improve SG&A efficiencies as we grow and we did. Full year SG&A as a percent of sales improved to 9.2% in 2014, down from 9.4% last year. In the fourth quarter spending was $23.1 million, up from $19.4 million at 2013 with the increase due to the acquired filtration business as well as timing of advertising and some other expenses. Going forward, we expect SG&A to average around $21 million to $22 million per quarter. Net interest expense of $2.7 million was unchanged from last year; however, in December of 2014, we replaced our U.S. revolving credit facility with a larger, lower cost and more flexible global credit facility. In December we borrowed $50 million against this facility in Germany and repatriated this amount to the United States. This provided funds for the plant filtration project in a tax efficient manner and our timing was good as the dollar subsequently strengthened significantly. We will incur increased interest expenses of about $0.5 million per year until we payoff the loan. In 2014, we completed an extensive study of tax credits available for R&D activities and changed our methodology to allow us to claim additional credits. In the fourth quarter, we recognized net credits of almost $17 million for prior year periods and over $1.5 million for credits related to 2014 activities. Excluding the one-time impact of prior year tax credits, our 2014 effective tax rate was 33% for the full year and about 30% for the fourth quarter. Since R&D credit needs to be renewed by Congress each year, we expect to start 2015 with an effective tax rate of about 37%. This would drop to a full year rate of 35% if this credit is renewed. While our cash tax position remains favorable in the near term as a result of these R&D credits, we will start to pay more cash taxes in the United States in 2015 and we expect our consolidated cash tax rate to be approximately 20%. Turning next to pension items, I am pleased to note that our plans are in excellent shape as a result of actions we've taken to fund and derisk them over the years. After making annual contributions to our U.S. plan averaging $20 million in the past two years, our defined benefit pension plan is now fully funded. Consequently, we expect a significantly reduce contributions to around $10 million in 2015 and beyond. In the fourth quarter, we further derisked the plan with lump-sum settlements for deferred-vested employees. This reduced pension liabilities by more than 5% and resulted in a one-time non-cash settlement charge of $3.5 million. With our actions and the good returns achieved on our planned investments, our pension expense will not increase in 2015. Let me close with a few comments on cash flow and cash deployment. In the fourth quarter, cash from operations was $22 million up from $19 million in 2013. The increase was primarily due to lower investments in working capital in 2014. Capital spending was $13 million, up from $8 million last year as 2014 included spending during the filtration down in Germany that I mentioned earlier. Full year capital spending was $28 million or 3.1% of sales at the lower end of our targeted range of 3% to 5% of sales. As we look ahead, we're in very good shape. Our businesses generate sizable cash flows, evidenced by the $95 million of cash from operations in 2014, which was also boosted by significant working capital improvements. Our balance sheet is strong; we have low debt; plenty of financing capacity and no near-term needs for financing. This gives us plenty of flexibility in choosing how we deploy capital to add value. Our sustaining capital needs are modest and as John noted, we're continuing to invest strategically in the international growth of our transportation filtration business by adding a U.S. footprint. Like most organic capital projects, this generates an attractive financial return with an IRR in the mid teens. We'll continue to look first for these good organic investments that represent our highest priority use of cash. Our acquisition screening process is active and we continue to evaluate investment opportunities that are a good strategic fit and meet our financial return requirements. And we'll continue to support our shareholders with direct cash returns through an attractive dividend and share buybacks. With our strong cash flows, we are in a desirable position of not having to pick and choose between deployment opportunities, but can act upon multiple choices and ways that can create the most value. With that, I'll turn it back to you, John to provide a few additional comments on the 2015 outlook.

[John O'Donnell:]

Thanks Bonnie. We covered our expectations for financial items like pensions and capital spending and taxes. So let me add a couple of comments about some of the external influences we see this year. Europe continues to get a lot of headlines. Geographically, Neenah has more than 60% of sales in North America and this percentage increased with last year's filtration acquisition. However, Europe does represent about 25% of consolidated sales in half of our technical products business. I just returned from Germany last week and from what we are seeing, the economic growth in Europe is not predicted to be dramatically different than last year. The region has continued to grow modestly and Germany where our operations are located continues to be among the best performers. Filtration which is our largest business there also tends to be the most resilient. We do however expect to see an impact from currency translation. The euro was currently trading below 115 versus an average of almost 135 in 2014. As a rule of thumb $0.10 decline in the euro reduces translated U.S. dollar sales for Neenah by approximately $25 million with an impact on operating earnings equal to 10% of that amount. So while it's difficult to overcome large translation effects due to currency changes, our teams in the past have worked successfully to maintain margins and mitigate any additional impacts through effective cost control actions such as an increased exports. Turning next to input cost, we expect oil-based materials such as some synthetic fibers and latex to benefit from the drop in crude oil prices, prices for items don't move as quickly as oil due to their specialized nature and in some cases we also have longer term contracts or selling price adjustors. Nonetheless, we should see a net benefit from these as well as from lower pulp and energy prices. At this point, headwinds from currency appeared to be largely offset by these lower input costs. So to wrap up, 2014 was a very good year for Neenah and our shareholders. Each of our businesses delivered impressive top and bottom-line organic growth through share gains, new products and operating and administrative efficiencies. We acquired and successfully integrated value adding filtration business in North America. Cash flow generation remained very strong and in addition to organic capital spending and the specialty filtration acquisition, we increased dividends by 50%. Our corporate team secured substantial tax credits and implemented a new global financing structure providing added flexibility and efficiencies and our stock price reflected this good performance. Once again, was in the top-quartile of the Russell 2000 Index. As we look at 2015, our core businesses are well-positioned competitively and we have a number of exciting initiatives underway to further our strategy. We are supporting the global growth of our transportation filtration business with the capital efficient investment in North America. Premium packaging is continuing to demonstrate meaningful growth and focusing resources to expand in this market. Our specialty filtration businesses in North America and Germany are growing and our teams are developing new products to further our market reach. The acquisition pipeline remains robust as we consider opportunities and target market that deliver attractive financial returns. Free cash flow is expected to remain strong despite higher capital spending as cash from operations benefits from reduced pension and contribution and tax credits. And we continue to increase cash returns to shareholders with 11% increase in our dividend effective next month. If this sounds like we have a lot going on, well, you are absolutely right, but just combination of activities and cash deployment choices that allows us to be successful and have the largest impact on value. Some times it goes without saying but not for me without the talent and passionate commitment of our employees and their ability to successfully execute against all these initiatives, we couldn't deliver the consistently good results that we are fortunate to report to you each quarter. I believe success requires a thoughtful combination of courage and insightful risk-taking and patients to deliver the consistent improvement and value that we stride to provide each and every year. We greatly appreciate the support of our Board as well as our shareholders who continue to prosper from our teams' ability to create value. At this point, I would be happy to open up the call to any questions.

[Operator:]

[Operator Instructions] Your first question comes from the line Daniel Jacome with Sidoti & Company.

[John O'Donnell:]

Hi, Dan.

[Dan Jacome:]

Can you hear me?

[John O'Donnell:]

Yes, Dan.

[Dan Jacome:]

Great. Appreciate the time. Nice job.

[John O'Donnell:]

Thank you.

[Bonnie Lind:]

Thank you.

[Dan Jacome:]

Couple of quick questions. I guess first input costs, you mentioned both benefits press release and then just – right now. Are you seeing any difference softwood versus hardwood? I think you guys use both and where are your seeing most of the benefit right now and then when do we begin to see that in your numbers?

[John O'Donnell:]

Yes. Both are going down modestly, so and you're right, we do use both. And you'll see that as we go through the year. We're seeing the decline beginning to see the decline come through. I've said in past calls that we actually lag announced declines by three months and we announce – or we lag announced increases by three months and that enables us to continue to reduce the impact on our margins. So you should see them in the early part of this year. Probably have a bigger impact on our energy in the first quarter.

[Dan Jacome:]

Energy would be more of a benefit in the first quarter?

[John O'Donnell:]

Yes.

[Dan Jacome:]

Okay.

[John O'Donnell:]

That's correct, Dan.

[Dan Jacome:]

Got you. And then moving, fine paper segment obviously pretty stable. Just maybe we could walk back into the third quarter. I think in that quarter you had got maybe some bulk orders of lower grade and then products shipped to the composition of the segment of the papers. And this quarter, correct me if I'm wrong, but maybe it was kind of like a reverse effect where you didn't have enough of the large orders so maybe give us a little bit of nuance there would be great.

[John O'Donnell:]

Sure. If you're talking about a very stable business, fine paper first half, second half is typically doesn't have a lot of cyclicality. We do have especially in our packaging business where we have large I think Bonnie characterized it as chunks of businesses. What we do see in typical – and that was a third quarter description, carrying it to the fourth quarter we saw very a very strong mix of branded in the fourth quarter. Majority of our sales and fine paper sold through wholesale distributors. They manage our inventories at year-end either reduce or increase depending on the demand and 80% of our fine paper sales are in branded. So what you saw in the back half third quarter and fourth quarter is probably fairly typical some periods with high packaging demand and some periods with high branded demand. So --

[Dan Jacome:]

Got you.

[John O'Donnell:]

Pretty typical.

[Dan Jacome:]

Okay. And then lastly, M&A opportunities, have you seen, what are you seeing like a trajectory of these evaluations out in the marketplace right now? I'm just wondering maybe on the non-woven side and domestic producers, if you've seen any changes in their valuations maybe perhaps because of what's going on in volatility and currency or anything you could provide there would help us.

[John O'Donnell:]

Yes. I don't know that I'm going to be able to give you a tremendous amount of insight there. Acquisitions are going to be a big part and have been a big part of our strategy, three in the last three years from that standpoint. We've got a dedicated resources focused on that process itself. We're really focused on the fit. So I'll probably put a lot more energy on the fit than from that standpoint. What we are seeing is – where we can deliver meaningful value or the company's a lot better up because we're the owner of it. That's where our energy is. Interest rates are low so multiples are still up from that standpoint.

[Dan Jacome:]

Okay.

[John O'Donnell:]

All right.

[Dan Jacome:]

And then lastly, just quick housekeeping. So for the guidance parameters would have you – are you assuming 133 U.S. to euro or is it the current 115 level?

[Bonnie Lind:]

We wish 133.

[John O'Donnell:]

Yes. I think our assumption is that we aren't going to see that 133 again. So you can make the assumption it's going to be where we are today or there are many suggestions that it gets to parity one day, who knows?

[Dan Jacome:]

Yes, who knows? We'll see. Just checking. All right. Thank you very much.

[John O'Donnell:]

Thanks Dan.

[Bonnie Lind:]

Thank you, Dan.

[Operator:]

Your next question comes from the line of Jon Tanwanteng with CJS Securities.

[Jack O'Brien:]

Good morning, John and Bonnie. This is actually Jack O'Brien filling in for Jon.

[John O'Donnell:]

Good morning.

[Bonnie Lind:]

Good morning.

[Jack O'Brien:]

Congratulations on the quarter.

[John O'Donnell:]

Thank you.

[Bonnie Lind:]

Thank you.

[Jack O'Brien:]

First off, margins were pretty strong in the technical segment despite maintenance down in Germany, going forward, can we expect margins to rebound in short order or is there going to be more of a ramp up to get back up to where you were?

[John O'Donnell:]

The big impact in technical products in the quarter was the maintenance down that we had. So from that standpoint, there wasn't a major change in our overall business or any impact from that standpoint. We've improved margins over the last few years to get to a double-digit margin for technical products expect the first half to be stronger than that where we ended the quarter.

[Jack O'Brien:]

Okay. And then over to Crane. I was hoping you guys could just give an update on how the acquisition is going, what the synergy opportunities in growth profiles are looking like versus your initial expectations of the business?

[John O'Donnell:]

Sure. Acquisition is done. Integration is now done from that standpoint and as you know that lots of value can be lost in how you integrate a company very successful from that standpoint. We've actually are exceeding our expectations for the value we had placed on that. And we're probably the most encouraged by the R&D efforts in the future growth opportunities that between the Crane team and our German R&D team, what they've been able to pull together. So I would say it's definitely on the higher end of expectations.

[Jack O'Brien:]

All right, great. And then finally, moving over to cash flow, in your press release you mentioned that you're going to have strong free cash flow generation in 2015. I was just hoping you could elaborate a bit more on that. Given the impacts of FX and the increased capital spending you guys are going to have in 2015, are you guys going to see growth this year?

[John O'Donnell:]

Well, when I was referencing strong, it was the performance of our operating groups I think from that standpoint. I don't know that you'll see everything trade off from that. We are increasing capital spending by $15 million to $20 million I think before and we are getting benefit from lower pension.

[Bonnie Lind:]

And we had $66.6 million of free cash flow for 2014. That did include some very strong collections at the end of the year that have shifted money into 2014 instead of 2015. We expect that our pension contributions will be down anywhere from $10 million to $15 million versus where we had contributed in 2014. But we think our cash taxes will be up by $10 million. So in as much as the capital spending goes up by more than the $5 million that we can save in the other two and the working capitals and --

[John O'Donnell:]

Bonnie is good with numbers, but I think that's strong.

[Bonnie Lind:]

It's still strong. I don't think we're trying to guide you that it's going to be better or worse. We're just saying that it's good.

[Jack O'Brien:]

Okay. Well, thanks for your time.

[John O'Donnell:]

You bet.

[Operator:]

And your next question comes from the line of Steve Chercover with D.A. Davidson.

[John O'Donnell:]

Hi, Steve.

[Steve Chercover:]

Good morning, everyone.

[John O'Donnell:]

How are you?

[Steve Chercover:]

I'm well. Thank you for taking my call. First question, when will the Appleton machine conversion be complete?

[John O'Donnell:]

Well, it's going to actually – we're going to invest in a number of phases. So the first phase will be in saturation capabilities. That will happen in this year itself. And then the paper machine conversion will happen at the end of 2016, start-up will be in the first quarter of 2017. So if complete, we'll have product that will bring from potentially bring from Germany to saturate at that facility. Then we'll produce the product on the paper machine to saturate that facility and we'll still bring some very high-end products from our German facilities, not alone combination products. But, we expect that by the beginning of 2017 with all that phased-in approach that we would be up and running.

[Steve Chercover:]

And the actual saturation will be in an adjacent facility?

[John O'Donnell:]

Yes. It will be right next to our paper manufacturing facility.

[Steve Chercover:]

And did you say that your volumes will be unchanged despite shipping the machine because you are gaining just efficiency on the remaining seven?

[John O'Donnell:]

That's pretty incredible, isn't it? What I would say is that we have been, okay, so to believe that there's a light switch. In 2012 when we acquired the brands from Wausau, we filled up our asset base that provide us with a lot of efficient loadings and an experiential curve that enabled greater throughput. So we have been working our way. We were in the high 80s from an utilization at that point. We have been working our way downward in the mid to lower 80s from an utilization standpoint. So that almost 10% increase in productivity from back in 2011 to here as well as the capabilities, the nice part about fine papers the seven assets, we've got a lot of redundant capabilities. So it's got a lot of freedom to move things around. So our expectations in two years when we roll this out, we'll have moved everything off of the fine paper facilities. You'll see fine paper increasing in their utilization back up to the upper 80s again and then we'll have the availability of the incremental filtration capacity with the Appleton machine.

[Steve Chercover:]

So to put it another way, you actually have excess capacity or the ability to satisfy incremental orders?

[John O'Donnell:]

Yes, absolutely. And it didn't sneak up on us, by the way. What we communicated today has been a big part of our strategy for a number of years. Some people have heard me say, I don't want to build another paper machine and that's really because this has been a big part of our strategy which is ensuring that we have plenty of paper machines as we become more efficient with that, moving them around our system both locally and globally gives us a – we think a real advantage.

[Steve Chercover:]

Yes. New paper machine is definitely a four-letter word.

[John O'Donnell:]

[Hey man] [ph], it's a four-letter word too.

[Steve Chercover:]

When that machine in Wisconsin is not making base stock, can it too make fine paper?

[John O'Donnell:]

Once we convert to a purpose-built filtration machine, it's like have a sewing machine, but it wouldn't have the capabilities or the cost position that we really need to have to compete in a global filtration business from that standpoint. So it won't be able to swing back, but as I said, I have seven machines that can and so as we talked in the earlier question, we have movements, a majority of fine paper is sold through inventory which is wonderful. That gives us the opportunity to run the assets in a smooth way and rise or fall from an inventory standpoint. So we'll have a lot of flexibility in fine paper still.

[Steve Chercover:]

Great. I hope I'm not taking too much time. I've got two more quick questions. First of all on taxes when will you know if those R&D tax credits are renewed and how many years in succession has this happened?

[Bonnie Lind:]

So the R&D, you mean that we have the law where we can get R&D credit?

[Steve Chercover:]

Well, I mean clearly this is something that happens every year.

[John O'Donnell:]

Right.

[Bonnie Lind:]

Right. So well, since 1988, the Congress has passed a law and the President has signed it. I mean in one time that I know off, they didn't sign the law in the current year. I think that was 2012. So we have an expectation that the law would be renewed, but there's no guarantee. And then we only reflect the tax credits in our effective tax rate once the law has been renewed, and it almost always when it does got renewed is in December.

[Steve Chercover:]

Okay. So we should model 37% with the expectation that it will ultimately come down by 200 basis points?

[Bonnie Lind:]

That is what we would expect.

[Steve Chercover:]

Okay. And final question, it looks like you bought $4 million worth of stock in the fourth quarter. Can you either tell us how many shares were repurchased because it looks like you issued some or what was the average price?

[Bonnie Lind:]

Yes. So one million of those shares that you're seeing in our cash flow were repurchased through our buy-back program and the rest of them were repurchased at the very end of the year to satisfy employee taxes. So most of it again is from purchases for the taxes.

[John O'Donnell:]

And the average price would be in the low 50s, 55s, somewhere around there. I don't have it in front of me.

[Bonnie Lind:]

I have it in front of me and can't find it.

[John O'Donnell:]

Okay.

[Steve Chercover:]

Well, I think that's close enough. Thank you very much.

[John O'Donnell:]

Thanks Steve. Thanks. Good talking to you.

[Operator:]

Now back to you, Mr. McCarthy for any closing remarks.

[Bill McCarthy:]

Okay. Well, thank you. On behalf of the whole team here in Neenah, I would like to thank everyone for your time and interest and I hope you gathered that we're excited about all that's going on here as 2015 gets underway. We'll look forward to updating you on our progress on our next call in May. Thank you.