YORK, Penn.--Oct. 22, 2003-- Glatfelter today reported a net loss for the third quarter of 2003 of $6.7 million, or $0.15 per diluted share. The 2003 third quarter operating results include pre-tax charges totaling $16.3 million, consisting of $2.1 million for the previously announced restructuring of the Company's Neenah, WI facility, an $11.5 million reserve for costs expected to be incurred related to its former Ecusta Division and $2.7 million of asset writedowns at the Spring Grove, PA and Gernsbach, Germany facilities. On an after-tax basis, the charges totaled $10.3 million, or $0.23 per diluted share. For the 2002 third quarter, the Company earned $13.3 million, or $0.30 per diluted share, including an after-tax gain of $2.3 million, or $0.05 per share, related to a settlement with the prior owner of the Company's Schoeller & Hoesch Division. Excluding all of the charges discussed above, adjusted earnings in the third quarter of 2003 were $3.7 million, or $0.08 per diluted share, compared to adjusted earnings of $11.0 million, or $0.25 per diluted share in the year-earlier quarter. On this basis, the decline in operating results in the quarter-to-quarter comparison was primarily due to lower non-cash pension income, lower sales volumes and higher costs of products sold.
"The third quarter results are affected by a number of significant actions taken to reallocate resources and eliminate unprofitable assets," said George H. Glatfelter II, Chairman and Chief Executive Officer. "In addition, the results reflect charges for potential financial exposure emanating from our former Ecusta Division. Although the need for this reserve is disappointing, I believe the clarity provided by the recent Ecusta related developments coupled with our successful negotiation of a significant portion of the Fox River matter, is important to our shareholders and allows us to focus our energy on executing our core business strategy."
"Consistent with earlier quarters this year, our highly specialized Long-Fiber & Overlay and Engineered Products business units continued to perform relatively well. We are particularly pleased with the progress demonstrated this quarter by each of these business units," Mr. Glatfelter added. "Although our Printing & Converting business unit continues to face a very challenging environment, we believe the actions we announced in September demonstrate our commitment to reposition the Company to focus on profitable growth opportunities. We remain committed to maintaining our strong balance sheet and maximizing the value of our assets as evidenced by the revised common stock dividend and the recently announced $17 million land sale in Delaware."
In September 2003, the Company announced the strategic decision to reallocate resources and permanently shut down certain equipment and processes at the Neenah, WI facility. These initiatives, which are to be completed by the end of 2003, are designed to improve profitability and enhance operating and financial flexibility and will result in the elimination of approximately 200 jobs. The results of operations in the third quarter of 2003 include related pre-tax charges of $2.1 million, of which $1.5 million are reflected in the consolidated income statement as components of cost of products sold and $0.6 million are reflected as "Restructuring charges." Management continues to expect additional charges in the fourth quarter of 2003.
The Company recorded a $11.5 million pre-tax charge during the third quarter of 2003 relating to its former Ecusta Division, which was sold in 2001. Under the Ecusta Division acquisition agreement, the Company is indemnified for certain liabilities that have been assumed by the buyers. The Company paid the portion of these liabilities that became due and has sought reimbursement from the buyers. Management believes it is prudent to establish a reserve for the recorded amounts. The third quarter 2003 charge includes $5.5 million to fully reserve such receivables and an additional $6.0 million related to contingent environmental liabilities.
"We are extremely disappointed that the buyers of Ecusta have not yet honored their obligations under the acquisition agreement," added Mr. Glatfelter. "We believe we have a strong legal position in this matter and we intend to vigorously pursue collection through all appropriate avenues."
Net sales totaled $131.9 million for the third quarter of 2003 compared to $135.1 million for the year-earlier quarter, a decrease of $3.2 million, or 2.4%. The decline was primarily attributable to weaker demand and pricing pressure in the Printing & Converting business unit and to lower tobacco paper sales related to the Company's previously stated intention to eliminate tobacco paper products. These factors more than offset the favorable effect of a weaker U.S. dollar on translated results of international operations. The Company's Engineered Products and Long-Fiber & Overlay business units experienced solid sales growth in the quarter-to-quarter comparison.
For the three months ended September 30, 2003 and 2002, costs of products sold totaled $114.6 million and $104.3 million, respectively. As discussed above, the 2003 third quarter costs of products sold includes a $1.5 million pre-tax charge related to strategic actions announced in September 2003, specifically for accelerated depreciation and an adjustment to net realizable value of spare parts and supplies inventory related to equipment to be abandoned. Excluding this charge, costs of products sold increased $8.8 million in the comparison primarily due to lower non-cash pension income; the impact of higher pulp, wastepaper, and energy prices; the writedown to estimated net realizable value of certain excess inventory; and the unfavorable effect of a weaker U.S. dollar. Net non-cash pension income reduced costs of products sold in the third quarter of 2003 and 2002 by $3.4 million and $6.6 million, respectively, resulting from the overfunded status of the Company's defined benefit pension plans. Gross profit for the third quarter of 2003 totaled $20.0 million compared to $33.6 million in the comparable quarter of 2002.
Selling, general and administrative ("SG&A") expenses in the third quarter of 2003 totaled $14.5 million compared with $13.4 million in the year-earlier quarter. The increase was primarily due to the unfavorable effect of a weaker U.S. dollar on translated results of international operations and a reduced amount of non-cash pension income. Net non-cash pension income reduced reported SG&A expenses $0.5 million in the third quarter of 2003 and $1.3 million in the third quarter of 2002.
For the first nine months of 2003, earnings totaled $20.4 million or $0.46 per diluted share, compared to $32.0 million or $0.73 per diluted share, respectively, for the comparable period in 2002. The results for the first nine months benefited from an after-tax gain of $20.0 million, or $0.46 per share, on the sale of timberlands during the first quarter of 2003. Net sales totaled $403.8 million for the nine months ended September 30, 2003, compared to $403.1 million for the year-earlier period. Gross profit for first nine months of 2003 totaled $68.5 million compared to $96.7 million in the comparable period of 2002 and SG&A expenses totaled $44.3 million compared with $42.1 million.
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