Glatfelter Reports Rise in Fourth Quarter Net Income
Feb. 14, 2006 - Glatfelter today reported net income of $26.9 million, or $0.61 per diluted
share, for the fourth quarter of 2005, compared to $19.3 million, or
$0.44 per diluted share, in the fourth quarter of 2004. The current
year's quarterly results include after tax gains totaling $22.8
million, or $0.51 per diluted share, from the sale of timberlands and
insurance recoveries as well as after-tax restructuring charges
totaling $1.0 million, or $0.02 per diluted share. The fourth quarter
of 2004 results include gains from timberland sales aggregating $13.6
million, or $0.31 per diluted share, after tax, and a restructuring
charge totaling $2.0 million, or $0.04 per diluted share, after tax.
Excluding these items from each quarter's results, adjusted earnings
(which are reconciled to net income in the accompanying financial
tables) were $5.2 million, or $0.12 per diluted share in the fourth
quarter of 2005, compared with $7.7 million, or $0.17 per diluted
share in the year-earlier quarter.
Operating income in the Specialty Papers business unit totaled
$2.0 million in the fourth quarter of 2005 compared with $4.0 million
in the same quarter a year ago. The benefits of stronger pricing
conditions and demand across most markets were more than offset by
higher input costs. Long Fiber & Overlay Papers' operating income
declined $2.3 million to $3.2 million in the quarter-to-quarter
comparison primarily due to higher input costs and softer pricing in
this business unit's key markets.
"We experienced strong growth in our Specialty Papers business
unit during the quarter," said George H. Glatfelter II, Chairman and
Chief Executive Officer. "Volume in this business increased 8% led by
a very strong 21% increase in Engineered Products. Our new product
development capabilities resulted in the scale-up of several new
business opportunities and we expect this progress to continue. While
Specialty Papers' fourth quarter results were lower than a year ago,
we are becoming more optimistic about the first half of 2006."
"In addition, despite a difficult business climate in certain
Long Fiber & Overlay Papers markets that resulted in substantial
market-related downtime, we are beginning to see indications of
improvement in this unit's key markets," added Mr. Glatfelter.
Net sales totaled $143.2 million for the fourth quarter of 2005,
an increase of 2.7% compared to the same quarter a year ago. In the
Company's Specialty Papers business unit, net sales increased $9.2
million, or 11.0%, consisting of an 8.2% increase in volume and $2.3
million attributable to higher product pricing. Net tons shipped in
the quarter-to-quarter comparison were particularly strong in this
unit's engineered products and envelope & converting markets, which
generated volume growth of approximately 21% and 7%, respectively.
Long Fiber & Overlay Papers' shipments increased approximately 4% and
selling prices declined $1.5 million on a constant currency basis in
the quarter-to-quarter comparison.
Costs of products sold increased $9.9 million, to $122.4 million,
compared to the same quarter a year ago. The increase was primarily
due to higher net tons shipped, $3.8 million attributable to higher
costs of fiber, other raw materials and energy, as well as higher
maintenance costs. Further, the Company experienced market-related
downtime during the fourth quarter of 2005 approximating 8% of the
production capacity of its Long Fiber & Overlay Papers business unit.
Gross profit declined to $23.1 million for the fourth quarter of 2005
compared to $28.8 million in the year earlier quarter.
During the fourth quarter of 2005, the Company began to implement
its European Restructuring and Optimization Program ("EURO Program"),
a comprehensive series of actions designed to improve the operating
performance of the Long Fiber & Overlay Papers business unit.
Restructuring charges in the current quarter associated with this
program totaled $1.6 million, pre tax, and were for severance and
related benefits associated with the elimination of certain positions
at the Gernsbach, Germany facility.
Sales of timberlands completed during the quarter consisted of
2,488 acres for $21.0 million in cash. In the year ago quarter, the
Company completed the sale of 2,400 acres of timberlands for $23.5
million in cash. These transactions resulted in a pre-tax gain of
$20.3 million and $23.0 million, respectively.
The Company also successfully resolved certain claims under
insurance policies related to the Fox River environmental matter.
Insurance recoveries included in the 2005 fourth quarter's results
totaled $18.0 million and have been fully received in cash.
The Company's effective tax rate for the fourth quarter of 2005
and 2004 was 36.9% and 36.2%, respectively. The effective tax rate on
adjusted earnings for the fourth quarter of 2005 and 2004 was 14.3%
and 24.8%, respectively.
Full Year Results
For the full year of 2005, net income totaled $38.6 million or
$0.87 per diluted share, compared to $56.1 million and $1.27 per
diluted share, respectively, in 2004. The reported results for the
full year 2005 include after tax gains totaling $24.0 million, or
$0.54 per diluted share, from insurance recoveries and the sale of
timberlands, as well as restructuring charges totaling $1.0 million,
or $0.02 per diluted share, after-tax. The results for 2004 benefited
from after-tax gains totaling $55.5 million, or $1.26 per share, from
sales of timberlands and the corporate aircraft and from insurance
recoveries. Restructuring charges in 2004 totaled $12.7 million,
after-tax, or $0.29 per diluted share. Excluding these items from each
year's results, adjusted earnings (which are reconciled to net income
in the accompanying financial tables) were $15.6 million, or $0.35 per
diluted share, in 2005 compared with $13.4 million, or $0.30 per
diluted share a year ago.
Commenting on the near term outlook, Mr. Glatfelter stated,
"Heading into 2006, we are seeing strong demand for our Specialty
Papers products and prices in many of these markets are strengthening.
At the same time, high input costs, that in certain instances continue
to rise, reflect an ongoing concern. We are keenly focused on
addressing the challenges facing our Long Fiber & Overlay Papers
business. We have begun to see indications of improving demand for
this unit's products, particularly in the Food & Beverage markets.
However, sluggish economic conditions and an imbalance of supply and
demand in our Composite Laminates markets will continue to adversely
impact the overall performance of this business unit. As part of the
EURO Program, we are implementing a significant workforce efficiency
plan at each of our European facilities. Together with other aspects
of the EURO Program, we expect to achieve step-change improvement in
our cost structure from these efforts which will approximate $7
million to $9 million annually, by 2008."
The Company recently completed an extensive study to determine the
optimum approach for managing its timberlands in a way that creates
the greatest value for its shareholders. The study considered many
factors including, among others, land valuations, external and
internal wood costs and future fiber requirements. The Company
concluded that the most advantageous approach is to sell all 40,000
acres of higher and better use ("HBU") properties in an orderly
fashion. In some cases, low cost, low risk opportunities may exist to
add value to some of these acres through entitlements. It is estimated
that the cost of fiber will increase by approximately $0.03 to $0.06
per share annually when the entire 40,000 acres are sold but that the
benefit from the proceeds will far outweigh this increased cost. For
the present, the Company intends to retain the pure timberland
properties to mitigate the cost of replacing internally generated wood
with outside sources. Execution of the Timberland Strategy is expected
to take approximately three to five years to complete and is estimated
to provide pre-tax cash proceeds of approximately $150 million to $200
million, assuming, among other factors, acceptable market conditions
and a carefully executed plan of disposition.
Mr. Glatfelter stated, "We continue to approach our business in a
fiscally disciplined manner and further monetization of our timberland
assets will allow us to create additional benefit for our
shareholders, maintain our strong balance sheet, and generate
increased flexibility for value creation."
Headquartered in York, Pennsylvania, Glatfelter is a global
manufacturer of specialty papers and engineered products. U.S.
operations include facilities in Spring Grove, PA and Neenah, WI.
International operations include facilities in Germany, France and the
Philippines and an office in China. Glatfelter's common stock is
traded on the New York Stock Exchange under the ticker symbol GLT.