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| GLT > SEC Filings for GLT > Form 10-Q on 6-Nov-2009 | All Recent SEC Filings |
6-Nov-2009
Quarterly Report
ii. changes in the cost or availability of raw materials we use, in particular pulpwood, market pulp, pulp substitutes, caustic soda and abaca fiber;
iii. changes in energy-related costs and commodity raw materials with an energy component;
iv. our ability to develop new, high value-added Specialty Papers and Composite Fibers products;
v. our ability to renew our electricity sales agreement at acceptable margins in relation to our current coal supply contract;
vi. the impact of competition, changes in industry paper production capacity, including the construction of new mills, the closing of mills and incremental changes due to capital expenditures or productivity increases;
vii. the impairment of financial institutions as a result of the current credit market conditions and any resulting impact on us, our customers or our vendors;
viii. the gain or loss of significant customers and/or on-going viability of such customers;
ix. cost and other effects of environmental compliance, cleanup, damages, remediation or restoration, or personal injury or property damages related thereto, such as the costs of natural resource restoration or damages related to the presence of polychlorinated biphenyls ("PCBs") in the lower Fox River on which our former Neenah mill was located;
x. risks associated with our international operations, including local economic and political environments and fluctuations in currency exchange rates;
xi. geopolitical events, including war and terrorism;
xii. enactment of adverse state, federal or foreign tax or other legislation or changes in government policy or regulation;
xiii. adverse results in litigation; and
xiv. our ability to finance, consummate and integrate future acquisitions.
Introduction We manufacture, both domestically and internationally, a wide
array of specialty papers and engineered products. Substantially all of our
revenue is earned from the sale of our products to customers in numerous
markets, including book publishing, envelope & converting, carbonless papers and
forms, food & beverage filter papers, decorative laminates for furniture and
flooring, metallized papers and other highly technical niche markets.
Overview Our results of operations for the first nine months of 2009 when
compared with the same period of 2008 were impacted by the weak global economic
conditions. Overall volumes shipped by Specialty Papers declined 1.6% and
Composite Fibers declined 8.9% in the period-to-period comparison. As a result
of the soft demand for most of our products and our efforts to reduce inventory,
during the second quarter of 2009, we incurred significant market-related
downtime at many of our facilities which adversely affected results of
operations. This downtime continued within our Composite Fibers business unit
into the third quarter, although to a lesser extent. In the first nine months of
2009, we generated $119.5 million of cash from operations, including alternative
fuel mixture credits, and we reduced inventories through close monitoring of
supply and demand. During 2009, we registered two of our facilities with the
U.S. Internal Revenue Service as alternative fuel mixers based on their use of
black liquor as an alternative fuel source. Our results of operations in the
first nine months of 2009 included, on a pre-tax basis, $75.6 million of
alternative fuel mixture credits, of which $29.7 million was received in cash
and another $10.9 million was used to offset interim estimated tax payments. We
intend to realize the remaining $34.9 million of credits in the form of
non-taxable refundable income tax credits.
Specialty Papers' operating income totaled $32.8 million and $33.6 million
for the first nine months of 2009 and 2008, respectively. During of the first
nine months of 2009, the weak economic environment adversely affected demand in
all markets served by Specialty Papers. As a result of weak demand and our
efforts to reduce inventory, this unit incurred market related downtime totaling
19,400 tons of paper. During the year, we reduced Specialty Papers' inventories
by 29.2%.
Our Composite Fibers business unit's operating income declined to
$14.9 million from $21.3 million in the first nine months of 2008. Volumes
shipped during the first nine months of 2009 declined 8.9% compared to 2008 as a
result of the weak economic environment and our customers' actions to reduce
their inventory
levels. Demand for tea and coffee filter papers, this unit's largest product
line, declined by 5.0% primarily due to weak order patterns and customers'
inventory destocking primarily in Russia, Eastern Europe and other related
regions. As a result of weak demand and our inventory reduction efforts, during
the first nine months of 2009 we incurred unscheduled downtime totaling 6,480
tons of paper, or 9% of the unit's total capacity for the period.
In addition, our after-tax consolidated results of operations in 2008
included $17.8 million of lower gains than in 2009 from the sale of timberlands.
We also recorded $5.6 million of pension expense in the first nine months of
2009 compared with pension income of $11.9 million in the year-earlier quarter.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 2009 versus the
Nine Months Ended September 30, 2008
The following table sets forth summarized results of operations:
Nine months ended September 30
In thousands, except per share 2009 2008
Net sales $ 882,889 $ 965,545
Gross profit 184,780 133,828
Operating income 105,097 78,847
Net income 77,402 44,493
Diluted earnings per share 1.69 0.97
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The consolidated results of operations for the nine months ended September 30, 2009 include the following significant items:
After-tax Diluted EPS
In thousands, except per share Gain (loss)
2009
Alternative fuel mixture credit $ 63,308 $ 1.38
2008
Timberland sales $ 11,027 $ 0.24
Reversal of shutdown and restructuring charges 527 0.01
Acquisition integration related costs (828 ) (0.02 )
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The above items increased earnings by $63.3 million, or $1.38 per diluted share, in the first nine months of 2009. In the comparable period a year ago, the above items increased earnings by $10.7 million, or $0.23 per diluted share.
GLATFELTER
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For the nine months ended September 30
Dollars in thousands Specialty Papers Composite Fibers Other and Unallocated Total
2009 2008 2009 2008 2009 2008 2009 2008
Net sales $ 595,606 $ 634,270 $ 287,283 $ 331,274 $ - $ 1 $ 882,889 $ 965,545
Energy sales, net 6,193 7,612 - - 1 - 6,194 7,612
Total revenue 601,799 641,882 287,283 331,274 1 1 889,083 973,157
Cost of products sold 528,207 566,334 246,122 280,972 (70,026 ) (7,977 ) 704,303 839,329
Gross profit 73,592 75,548 41,161 50,302 70,027 7,978 184,780 133,828
SG&A 40,777 41,940 26,298 29,038 13,289 3,336 80,364 74,314
Shutdown and
restructuring charges - - - - - (856 ) - (856 )
Gains on dispositions of
plant, equipment and
timberlands - - - - (681 ) (18,477 ) (681 ) (18,477 )
Total operating income 32,815 33,608 14,863 21,264 57,419 23,975 105,097 78,847
Nonoperating income
(expense) - - - - (13,129 ) (13,178 ) (13,129 ) (13,178 )
Income before income
taxes $ 32,815 $ 33,608 $ 14,863 $ 21,264 $ 44,290 $ 10,797 $ 91,968 $ 65,669
Supplementary Data
Net tons sold 556,214 564,983 59,445 65,225 - - 615,659 630,208
Depreciation, depletion
and amortization $ 28,372 $ 26,619 $ 17,451 $ 19,755 $ - $ - $ 45,823 $ 46,374
Capital expenditures 9,095 14,586 7,509 26,253 100 - 16,704 40,839
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Business Units Results of individual business units are presented based on our
management accounting practices and management structure. There is no
comprehensive, authoritative body of guidance for management accounting
equivalent to accounting principles generally accepted in the United States of
America; therefore, the financial results of individual business units are not
necessarily comparable with similar information for any other company. The
management accounting process uses assumptions and allocations to measure
performance of the business units. Methodologies are refined from time to time
as management accounting practices are enhanced and businesses change. The costs
incurred by support areas not directly aligned with the business unit are
allocated primarily based on an estimated utilization of support area services
or are included in "Other and Unallocated" in the table above.
Management evaluates results of operations of the business units before
pension income or expense, alternative fuel mixture credits, charges related to
the Fox River environmental reserves, restructuring related charges, unusual
items, certain corporate level costs, and the effects of asset dispositions.
Management believes that this is a more meaningful representation of the
operating performance of its core papermaking businesses, the profitability of
business units and the extent of cash flow generated from these core operations.
Such amounts are presented under the caption "Other and Unallocated." This
presentation is aligned with the management and operating structure of our
company. It is also on this basis that the Company's performance is evaluated
internally and by the Company's Board of Directors.
Sales and Costs of Products Sold
Nine months ended
September 30
In thousands 2009 2008 Change
Net sales $ 882,889 $ 965,545 $ (82,656 )
Energy sales - net 6,194 7,612 (1,418 )
Total revenues 889,083 973,157 (84,074 )
Costs of products sold 704,303 (1) 839,329 (135,026 )
Gross profit $ 184,780 $ 133,828 $ 50,952
Gross profit as a percent of Net sales 20.9 % 13.9 %
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(1) Includes $73.8 million of alternative fuel mixture credits, net of related expenses.
The following table sets forth the contribution to consolidated net sales by each business unit:
Percent of Total
2009 2008
Business Unit
Specialty Papers 67.5 % 65.7 %
Composite Fibers 32.5 34.3
Total 100.0 % 100.0 %
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Net sales totaled $882.9 million for the first nine months of 2009, a
decrease of $82.7 million, or 8.6%, compared to the same period a year ago.
In the Specialty Papers business unit, net sales for the first nine months of
2009 decreased $38.7 million to $595.6 million. Operating income totaled
$32.8 million, a slight decline from $33.6 million compared to the same period a
year ago. Operating income was adversely impacted by the costs of unplanned
downtime at the Spring Grove and Chillicothe facilities totaling approximately
$8.8 million in the first nine months of 2009 compared to the same period of
2008. In addition, this unit recorded $1.4 million of
accelerated depreciation related to the write down of certain equipment in the
first nine months of 2009. Operating income was also negatively impacted by
lower volumes shipped and mix changes between carbonless papers and uncoated
papers.
In Composite Fibers, net sales were $287.3 million for the first nine months
of 2009, a decline of $44.0 million from the year-earlier period. Operating
income declined by $6.4 million in the comparison to $14.9 million. Total
volumes shipped by this business unit declined 8.9% led by lower shipments of
composite laminates and food & beverage paper products, which declined 24.4% and
5.0%, respectively. The translation of foreign currencies adversely impacted net
sales by $32.0 million; however, higher average selling prices contributed
$7.2 million.
Energy and raw material costs in the Composite Fibers business unit were
$4.3 million higher in the first nine months of 2009 than in the same period a
year ago. Market-related downtime adversely impacted operating results by
$6.6 million in the first nine months of 2009 compared to the same period of
2008.
Alternative Fuel Mixture Credits The U.S. Internal Revenue Code provides a
tax credit for companies that use alternative fuel mixtures to produce energy to
operate their businesses. The credit, equal to $0.50 per gallon of alternative
fuel contained in the mixture, is refundable to the taxpayer. On May 11, 2009,
we were notified by the Internal Revenue Service that our application to be
registered as an alternative fuel mixer was approved. We received a payment from
the Internal Revenue Service on June 30, 2009 in the amount of $29.7 million for
the alternative fuel mixture consumed at our Spring Grove, PA and Chillicothe,
OH facilities during the period February 20, 2009 through May 17, 2009. For the
third quarter of 2009, we earned $33.0 million of alternative fuel mixture
credits for which no cash was received as we intend to claim a refundable income
tax credit in connection with the filing of our 2009 federal corporate income
tax return. Since we began mixing and burning eligible alternative fuels, we
have earned $75.6 million of alternative fuel mixture credits of which
$29.7 million has been received in cash, $10.9 million was used to reduce
estimated interim tax payments and $34.9 million will be claimed as refundable
income tax credits.
According to the Internal Revenue Code, the tax credit is scheduled to expire
on December 31, 2009. However, there can be no assurances that the incentive
program for alternative fuel mixtures will continue in effect or that its
provisions, including taxes applicable to the credits, will not be changed, or
that we will be successful in receiving future credits under the program.
Pension Expense/Income Pension expense or income results from the over-funded
status of our pension plans. The following summarizes the amounts of pension
expense or income recognized for the first nine months of 2009 compared to the
same period of 2008:
Nine months ended
September 30
In thousands 2009 2008 Change
Recorded as:
Costs of products sold $ (3,756 ) $ 8,214 $ (11,970 )
SG&A expense (1,807 ) 3,730 (5,537 )
Total (expense) income $ (5,563 ) $ 11,944 $ (17,507 )
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The amount of pension expense or income recognized each year is determined
using various actuarial assumptions and certain other factors, including the
fair value of our pension assets as of the beginning of the year. As discussed
in Item 1 - Financial Statements - Note 9, the fair value of the plans' assets
declined approximately 29% during 2008. As a result, during 2009 we expect to
recognize net pension expense totaling approximately $7.3 million, on a pre-tax
basis. However, we do not expect to be required to make cash contributions to
our qualified defined benefit pension plans in 2009.
Selling, general and administrative ("SG&A") SG&A expenses increased
$6.1 million in the period-to-period comparison and totaled $80.4 million for
the first nine months of 2009. The increase was primarily due the $5.5 million
effect of recording $1.8 million of pension expense in the first nine months of
2009 compared with $3.7 million of pension income in the same period of 2008.
Gain on Sales of Plant, Equipment and Timberlands During the first nine months of 2009 and 2008, we completed sales of timberlands which are summarized by the following table:
Dollars in thousands Acres Proceeds Gain
2009
Timberlands 189 $ 728 $ 699
Other n/a - (18 )
189 $ 728 $ 681
2008
Timberlands 4,561 $ 19,280 $ 18,646
Other n/a - (169 )
4,561 $ 19,280 $ 18,477
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Income taxes Our results of operations for the first nine months of 2009
reflect an effective tax rate of 15.8% compared to 32.2% in the same period a
year ago. The decline in the effective tax rate is primarily due to
$75.6 million of alternative fuel mixture credits taxed at a lower effective tax
rate, $45.8 million of which are non-taxable, and from a lower proportion of
timberland gains, which are taxed at a higher effective tax rate.
Foreign Currency We own and operate paper and pulp mills in Germany, France,
the United Kingdom and the Philippines. The local currency in Germany and France
is the Euro, in the UK it is the British Pound Sterling, and in the Philippines
the currency is the Peso. During the first nine months of 2009, Euro functional
currency operations generated approximately 19.5% of our sales and 18.6% of
operating expenses and British Pound Sterling operations represented 10.3% of
net sales and 10.5% of operating expenses. The translation of results from these
international operations into U.S. dollars is impacted by changes in foreign
currency exchange rates.
The table below summarizes the effect from foreign currency translation on
first nine months of 2009 reported results compared to the first nine months of
2008:
Nine months
In thousands ended September 30
Favorable
(unfavorable)
Net sales $ (31,990 )
Costs of products sold 31,330
SG&A expenses 3,922
Income taxes and other 119
Net income $ 3,381
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The above table only presents the financial reporting impact of foreign currency translations. It does not present the impact of certain competitive advantages or disadvantages of operating or competing in multi-currency markets.
Three Months Ended September 30, 2009 versus the Three Months Ended September 30, 2008 The following table sets forth summarized results of operations:
Three months ended
September 30
In thousands, except per share 2009 2008
Net sales $ 312,358 $ 339,822
Gross profit 82,465 57,172
Operating income 53,171 36,345
Net income 45,994 21,662
Diluted earnings per share 1.00 0.47
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The consolidated results of operations for the three months ended September 30 include the following significant items:
After-tax Diluted EPS
In thousands, except per share Gain (loss)
2009
Alternative fuel mixture credit $ 32,890 $ 0.72
2008
Timberland sales and related transaction costs $ 2,371 $ 0.05
Acquisition integration (240 ) (0.01 )
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The above items increased earnings by $32.9 million, or $0.72 per diluted share, and $2.1 million, or $0.04 per diluted share, in the third quarters of 2009 and 2008, respectively.
Business Units The following table sets forth profitability information by business unit and the composition of consolidated income before income taxes:
Business Unit Performance For the three months ended September 30
Dollars in thousands Specialty Papers Composite Fibers Other and Unallocated Total
2009 2008 2009 2008 2009 2008 2009 2008
Net sales $ 211,635 $ 226,028 $ 100,723 $ 113,794 $ - $ - $ 312,358 $ 339,822
Energy sales, net 2,131 2,885 - - 1 - 2,132 2,885
Total revenue 213,766 228,913 100,723 113,794 1 - 314,490 342,707
Cost of products sold 178,060 192,110 85,746 96,114 (31,781 ) (2,689 ) 232,025 285,535
Gross profit 35,706 36,803 14,977 17,680 31,782 2,689 82,465 57,172
SG&A 14,852 13,961 9,176 9,329 5,275 1,512 29,303 24,802
Gains on dispositions of
plant, equipment and
timberlands - - - - (9 ) (3,975 ) (9 ) (3,975 )
Total operating income 20,854 22,842 5,801 8,351 26,516 5,152 53,171 36,345
Nonoperating income
(expense) - - - - (4,006 ) (4,338 ) (4,006 ) (4,338 )
Income before income taxes $ 20,854 $ 22,842 $ 5,801 $ 8,351 $ 22,510 $ 814 $ 49,165 $ 32,007
. . .
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