YORK, Pa.--Oct. 28, 2004-- Glatfelter today reported income from continuing operations of $2.2 million, or $0.05 per diluted share, for the third quarter of 2004 compared to a loss of $6.7 million, or $0.15 per diluted share, for the same quarter of 2003. Reported results for the third quarter of 2004 include gains from insurance recoveries and timberland sales aggregating $6.9 million, or $0.15 per diluted share, after tax, and a restructuring charge totaling $10.2 million, or $0.23 per diluted share, after tax. The third quarter of 2003 results included restructuring charges, reserves for costs associated with the former Ecusta division and asset write-downs that aggregated $10.3 million, or $0.23 per diluted share, after tax. Excluding these items from both quarters' results, adjusted earnings were $5.6 million, or $0.13 per diluted share, in the third quarter of 2004 compared with $3.7 million, or $0.08 per diluted share in the third quarter of 2003.
"Our improved financial results reflect our solid performance in higher-value specialty papers markets driven by our strategic emphasis to grow our Long Fiber & Overlay Papers and Engineered Products businesses," said George H. Glatfelter II, Chairman and Chief Executive Officer. "In addition, the strategic initiatives that we announced earlier this year that are designed to significantly reduce costs in North America are beginning to take hold and we expect these to have a positive impact on our future results."
Net sales totaled $143.1 million for the third quarter of 2004, an increase of $11.2 million, or 8.5%, compared to $131.9 million for the year-earlier quarter. Higher net sales were primarily driven by volume increases in the Long Fiber & Overlay Papers and Engineered Products business units of 19.4% and 10.0%, respectively, in the quarter-to-quarter comparison. Volume was particularly strong in the Food and Beverage market of the Long Fiber & Overlay business unit. Printing & Converting Papers' net tons sold declined 4.5% in the comparison reflecting the impact from the fourth quarter of 2003 shutdown of a papermaking machine at the Company's Neenah, WI facility. The favorable effect of foreign currency translation adjustments on Long Fiber & Overlay Papers' net sales approximated $3.5 million in the quarter-to-quarter comparison.
Pricing for products in the Printing & Converting Papers business unit was higher compared to the both the same quarter a year ago and second quarter of 2004. Average selling prices in the Company's Long Fiber & Overlay Papers business unit declined slightly, on a constant currency basis, due, in part, to the adverse effect of the weaker U.S. dollar relative to the Euro on the price competitiveness of its products.
For the three months ended September 30, 2004 and 2003, costs of products sold totaled $118.7 million and $114.6 million, respectively. The $4.1 million increase was primarily due to product mix changes and the unfavorable effect of foreign currency translation. Gross profit for the third quarter of 2004 increased to $27.0 million compared to $20.0 million in the comparable quarter of 2003.
Selling, general and administrative ("SG&A") expenses in the third quarter of 2004 totaled $14.7 million compared with $14.5 million in the year-earlier quarter. Total SG&A expenses for the third quarter of 2004 includes $0.9 million of legal and professional fees related to insurance recoveries and $0.5 million of costs associated with implementing the North American Restructuring Program.
During the third quarter of 2004, the Company recorded restructuring charges totaling $16.5 million related to the previously announced workforce reduction initiative at the Spring Grove, PA facility. The Company previously disclosed the initiative was expected to result in charges of between approximately $13 million and $20 million primarily for enhanced pension benefits, post-retirement medical benefits and other related employee severance costs. During the third quarter of 2003, the Company recorded a $0.6 million charge related to the 2003 Neenah restructuring initiative.
The Company's effective tax rate for the third quarter of 2004 was 5% reflecting changes to its tax treatment of timberland sales and insurance recoveries completed earlier this year. The effective tax rate on adjusted earnings for the third quarter and first nine months of 2004 was 39% and 44%, respectively.
For the first nine months of 2004, earnings from continuing operations totaled $36.8 million or $0.84 per diluted share, compared to $20.7 million and $0.47 per diluted share, respectively, for the comparable period in 2003. The results for the nine months of 2004 benefited from after-tax gains totaling $41.9 million, or $0.95 per share, from the sales of timberlands and the corporate aircraft and from insurance recoveries. In addition, the results for the first nine months of 2004 include after-tax restructuring charges totaling $10.8 million, or $0.24 per diluted share. Results for the first nine months of 2003 included an after-tax gain of $20.0 million, or $0.46 per share, on the sale of timberlands and after-tax charges totaling $11.0 million, or $0.26 per diluted share, for reserves associated with the Company's former Ecusta division, the Neenah restructuring and asset writedowns. Excluding these items from each period, adjusted earnings were $5.7 million, or $0.13 per share, in the first nine months of 2004 compared to $11.7 million, or $0.27 per share, in the same period of 2003.
In October 2004, as part of its 2003 Neenah restructuring initiative, the Company concluded the negotiation of an amendment to a long-term steam supply contract. Pursuant to terms of the amendment, which is effective immediately, steam acquired under the contract will be based on the cost of coal instead of the more volatile market price of natural gas. The Company paid a $3.0 million fee to modify the contract. This Neenah restructuring related charge will be recorded in the fourth quarter of 2004. Including this amount, the Company will have recorded charges related to this initiative totaling $16.7 million. At the time the initiative was announced, the Company estimated the restructuring charges would total between $20 million and $28 million. Management expects the revised contract will better position it to more fully realize the previously announced financial benefits from the Neenah restructuring initiative.
Mr. Glatfelter added, "As we look further into the fourth quarter and into 2005, we remain cautious about the impact that higher energy prices, among other factors, could have on global economic conditions and our business. However, each of our businesses is experiencing strong demand and pricing, in many cases, is trending upward. In addition, we are actively implementing several revised business processes designed to reposition our product portfolio and reduce costs. We are on target to generate the anticipated benefits originally expected from our North American Restructuring Program."
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