Glatfelter Reports First Quarter Loss on Charges
May 9, 2006 (Press Release) - Glatfelter today reported adjusted earnings of $7.0 million, or $0.16 per diluted share, for the first quarter of 2006, compared to $6.3 million, or $0.14 per diluted share in the same quarter a year ago. The 2006 first quarter adjusted earnings exclude Neenah facility shutdown charges aggregating $17.9 million, after-tax, and $1.0 million, after-tax, of integration costs related to the Company's recently completed acquisitions (refer to page 5 for a reconciliation of net income to adjusted earnings). Including these non-recurring items, reported earnings in the first quarter of 2006 were a loss of $11.9 million, or $0.27 per diluted share.
"Our first quarter results reflect the solid performance of our Specialty Papers business unit, in which we continue to benefit from strong orders, a more favorable pricing environment and success of new product development efforts" said George H. Glatfelter II, Chairman and Chief Executive Officer. "Furthermore, operating results have stabilized in our Long Fiber & Overlay Papers business unit, which throughout much of 2005 faced a very challenging market environment."
Net sales totaled $160.6 million for the first quarter of 2006, an increase of $16.7 million, or 11.6%, compared to the same quarter a year ago. This growth was primarily driven by a 7.5% increase in volume and $3.7 million from higher average selling prices in the Specialty Papers business unit compared with the same quarter a year ago. Long Fiber & Overlay Papers' volumes shipped increased 27.4% and selling prices declined $2.5 million in the quarter-to-quarter comparison. The acquisition of J R Crompton's Lydney mill, which was completed on March 13, 2006, contributed $3.5 million of net sales during the quarter and the translation of foreign currencies unfavorably impacted 2006 first quarter net sales by $1.5 million compared to the same quarter a year ago.
In connection with its agreement to acquire the Chillicothe, OH-based carbonless paper operations of NewPage Corporation, the Company announced it would permanently shutdown its Neenah, WI facility by June 30, 2006. Products currently manufactured at the Neenah facility will be transferred to Chillicothe. The results of operations for the first quarter of 2006 include related pre-tax charges of $27.5 million, of which $8.2 million is reflected in the consolidated income statement as components of cost of products sold and $19.3 million is reflected as "Restructuring charges." Additional Neenah shutdown related charges totaling $25 million to $30 million are expected to be recorded in the second and third quarters of 2006.
Costs of products sold totaled $142.8 million for the first quarter of 2006, an increase of $25.0 million compared with the same quarter a year ago. As discussed above, the 2006 first quarter costs of products sold includes an $8.2 million pre-tax charge for inventory write-downs and accelerated depreciation on property and equipment to be abandoned in connection with the Neenah shutdown. Excluding these charges, the increase in costs of products sold was primarily due to a $14.2 million effect of increased shipping volumes, as well as higher raw material and energy prices that increased costs of products sold by approximately $3.6 million. The translation of foreign currencies reduced costs by $1.5 million.
Selling, general and administrative ("SG&A") expenses totaled $16.7 million in the first quarter of 2006 compared to $17.4 million in the year-earlier quarter. The amounts reported for the first quarter of 2006 include approximately $1.5 million of acquisition integration related expenses. Excluding these non-recurring costs, SG&A expenses declined $2.2 million due to lower legal and professional fees as a result of the resolution of certain legal matters including insurance recoveries.
Adjusted earnings for the first quarter of 2006 reflect an effective tax rate of 36.0% compared to 28.2% in the same quarter a year ago. The lower effective tax rate in the first quarter of 2005 was primarily due to the favorable resolution of certain state tax matters.
Commenting on the outlook for 2006, Mr. Glatfelter stated, "Pricing has strengthened since the start of the year and, as we look forward into 2006, Specialty Papers is expected to continue to operate at or near capacity. Likewise, we expect improved results from our Long Fiber & Overlay business as orders have picked up and pricing has stabilized. We have worked hard to position ourselves to benefit from these favorable business conditions and are focused on maximizing profit opportunities presented by improving fundamentals."
Mr. Glatfelter added, "With respect to our recent acquisitions, we continue to aggressively execute our integration plans and are committed to fully realizing the anticipated financial benefits. Since the Chillicothe acquisition closed in early April, we successfully qualified a significant portion of our book publishing business for production at the Chillicothe facility. We are well ahead of our expectations in this respect and are confident about other aspects of our integration plan."