May 02, 2007. /Lesprom Network/. Glatfelter reported on May 1 net sales of $281.0 million for the first quarter ended March 31, 2007, compared with $160.6 million for the first quarter of 2006. Net income for the 2007 first quarter was $3.3 million, or $0.07 per diluted share, compared with a loss of $11.9 million, or $0.27 per diluted share, for the prior-year period. First-quarter 2007 net income includes $1.9 million in gains from the sale of timberlands, a $3.7 million charge to increase the company’s reserve for environmental matters at the Fox River, $0.1 million in shutdown and restructuring charges, and $0.4 million in acquisition integration costs, all after taxes. The results for the previous year’s first quarter included $17.9 million of Neenah facility shutdown charges and $1.0 million of restructuring charges, on an after-tax basis. Excluding these items from each period’s results, first-quarter 2007 adjusted earnings per share, which constitute a non-GAAP financial measure, were $0.12 per diluted share, compared to $0.16 per diluted share in the first quarter of 2006. For a reconciliation of adjusted earnings to GAAP earnings, refer to the tabular presentation at the end of this release. “Our results for the quarter were below our expectations, largely reflecting challenges associated with the Chillicothe acquisition,” said George H. Glatfelter II, chairman and chief executive officer. “However, the balance of our specialty papers business unit performed well, benefiting from a more favorable pricing environment and the solid operating performance at our Spring Grove facility. Further, our composite fibers business unit continues to perform very well, as demonstrated by a 59% growth in operating income year-over-year from the momentum generated by the Lydney acquisition.” Specialty papers First quarter net sales in the company’s specialty papers business unit increased $94.6 million to $196.9 million. Carbonless and forms net sales related to the Chillicothe acquisition represented $91.2 million of the increase. Operating income totalled $6.7 million, up slightly from $6.5 million the same quarter a year ago. Price increases in the book, envelope and engineered products markets positively impacted operating income by $4.7 million in the first quarter compared with the year-earlier quarter. In addition, operating income reflects a $1.2 million increase in carbonless prices, which was announced in mid-2006. The full benefit of the carbonless price increase is expected to be realized by mid-2007. Shipping volumes, excluding carbonless products, were flat in the quarter compared to a year ago. Specialty papers’ production costs increased in the quarterly comparison primarily due to $1.5 million of higher coal costs and $0.8 million of higher fiber costs at our Spring Grove facility. These cost increases were partially offset by the improved productivity at the facility with paper production increasing 2.6% and pulp production increasing 4.4%. Chillicothe generated operating income during the first quarter of $0.2 million including $0.9 million of favorable pricing related to book products included in the price variance noted above. These results include an unplanned pulp mill production outage and weather related costs which reduced operating income by an aggregate $1.8 million. Composite fibers In composite fibers, net sales were $84.1 million for the 2007 first quarter, with operating income of $5.0 million, up from $58.3 million and $3.1 million, respectively, from the prior-year period. Lydney contributed $17.5 million of additional revenue in the comparison. On a constant currency basis, average selling prices increased $1.7 million, and volumes increased approximately 4.3%, excluding the impact of Lydney, with increases seen in food and beverage and metalized. Energy and raw material costs were $1.5 million higher than a year ago. Outlook For 2007, Glatfelter expects a stable to improving pricing environment in both specialty papers and composite fibers. For the second quarter, shipping volumes are expected to improve somewhat from the first quarter although second quarter volumes are expected to be slightly lower than the 2006 second quarter. During the second quarter of 2006, the company operated its Neenah, Wisconsin facility, which was shutdown on June 30, 2006. As previously announced, the company will complete annually scheduled maintenance outages at both its Spring Grove and Chillicothe facilities in the second quarter, with an estimated $0.22 to $0.24 per share impact. The company continues to expect that Lydney and Chillicothe acquisition integration costs will be approximately $3.0 million to $4.0 million in 2007, of which approximately $0.6 million has been incurred to date. The company expects to achieve its previously provided accretion target for Chillicothe of $0.45 to $0.50 per year in 2008. The company continues to expect Lydney to add, on an annualized basis by the fourth quarter of 2007, approximately $9 million of operating income, including $2 million of depreciation and amortization. Commenting on the company's outlook Mr. Glatfelter said, “We are seeing improving market conditions in specialty papers and we expect continued solid performance from our composite fibers business unit. We are aggressively focused on improving the cost structure and operations at Chillicothe and expect to begin to see the benefit from these actions in the second half of the year. Although progress toward achieving our goals has been slower than anticipated we continue to be excited about the Chillicothe acquisition. We are convinced Chillicothe will ultimately deliver the level of accretion we originally projected.” Headquartered in York, Pennsylvania, Glatfelter is a global manufacturer of specialty papers and engineered products. U.S. operations include facilities in Spring Grove, Pennsylvania, and Chillicothe and Fremont, Ohio. International operations include facilities in Germany, France, the United Kingdom and the Philippines and a representative office in China. Glatfelter’s common stock is traded on the New York Stock Exchange.