Feb 16, 2005. /Lesprom Network/. Glatfelter (NYSE: GLT) reported income from continuing operations of $19.3 million, or $0.44 per diluted share, for the fourth quarter of 2004 compared to a loss of $7.7 million, or $0.18 per diluted share, for the same quarter of 2003. The fourth quarter of 2004 results include gains from timberland sales aggregating $13.6 million, or $0.31 per diluted share, after tax, and a restructuring charge totaling $2.0 million, or $0.04 per diluted share, after tax.

The fourth quarter of 2003 results included restructuring charges and asset write-downs that aggregated $7.7 million, or $0.18 per diluted share, after tax. Excluding these items from both quarters’ results, adjusted earnings were $7.7 million, or $0.17 per diluted share, in the fourth quarter of 2004 and were break even in the fourth quarter of 2003.

“I am very pleased with our execution of previously announced profit improvement plans. Through these efforts, we have increased productivity, reduced costs and strengthened the mix of higher value niche products that we produce,” said George H. Glatfelter II, Chairman and Chief Executive Officer.

“These actions led to significantly improved profitability in the fourth quarter compared to last year and an improvement compared to the third quarter of this year despite the seasonal challenges that we generally experience in the fourth quarter.”

Net sales totaled $139.3 million for the fourth quarter of 2004, an increase of $10.0 million, or 7.7%, compared to the year-earlier quarter. Higher net sales were primarily driven by increased volume in the Long Fiber & Overlay Papers business unit of 10% and stronger product pricing in the Company’s North American-based markets, partially offset by 4% lower shipping volume in North America.
Volume was particularly strong in the Food and Beverage market of the Long Fiber & Overlay Papers business unit. Lower volume in North America was primarily due to the previously announced shutdown of a paper machine at our Neenah, Wisconsin facility in late 2003.

Higher pricing for products in the Company’s North American operations increased revenue by $4.1 million compared to the same quarter a year ago and was higher than that of the third 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. However, foreign currency translation adjustments on Long Fiber & Overlay Papers’ net sales favorably impacted the 2004 fourth quarter comparison to a year ago by approximately $4.0 million.

Glatfelter Fourth Quarter and Full Year 2004 Results

Costs of products sold declined $8.2 million to $112.5 million for the fourth quarter of 2004 compared with $120.7 million in the same quarter a year ago. The decline was due to $5.0 million of charges included in the fourth quarter of 2003 primarily for accelerated depreciation on equipment abandoned related to the restructuring of the Company’s Neenah, WI facility, cost reduction initiatives under the North American Restructuring Program and lower shipping volumes. These factors were partially offset by a $3.0 million unfavorable effect of foreign currency translation adjustments. Gross profit for the fourth quarter of 2004 increased to $28.8 million compared to $11.0 million in the comparable quarter of 2003.

Selling, general and administrative (“SG&A”) expenses in the fourth quarter of 2004 totaled $14.8 million compared with $14.9 million in the year-earlier quarter. Total SG&A expenses for the fourth quarter of 2004 includes $0.5 million of legal and professional fees related to insurance recoveries and $0.5 million from the unfavorable effect of foreign currency translation.

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. The $3.0 million fee paid to modify the contract is recorded as a restructuring charge in the fourth quarter 2004 results.
Management expects the revised contract will better position it to more fully realize the previously announced financial benefits from the Neenah restructuring initiative.

The Company completed the sale of 2,400 acres of timberlands in the fourth quarter of 2004 for an aggregate of $23.5 million in cash. These transactions resulted in a pre-tax gain of $23.0 million.

Adjusted earnings for the fourth quarter of 2004 reflect an effective tax rate of 24.8%, and 34.6% and 37.1% for the full year of 2004 and 2003, respectively. The lower effective tax rate in the fourth quarter of 2004 was primarily due to the favorable resolution of certain federal tax matters.

Full Year Results

“Despite difficult market conditions that persisted until the latter part of 2004, our operating results showed significant improvement, and we made great strides in achieving the benefits of our North American Restructuring Program and our Long Fiber & Overlay Growth Plan,” said Mr. Glatfelter.

“Our successful on going cost reduction efforts and improving share in our targeted niche markets position us well for 2005.”

2004 Highlights
• Achieved 60% of total sales from new products introduced in the last five years.
• Developed and executed the North American Restructuring Program:
o Introduced improved product and service offerings for the book publishing market and increased market share in the premium book market.
o Developed pipeline of products to grow revenue from uncoated specialty papers.
o Implemented a 20% workforce reduction program while maintaining full production capability at the Company’s Spring Grove facility. This program will be completed by the end of the first quarter of 2005.
o Reduced production costs by implementing improved and expanded supply-chain management strategies in North America.
o Reduced certain SG&A expenses.
• Strong growth in targeted markets led by a 13% increase in volume in the Long Fiber & Overlay Papers business unit.
• Improved pricing in North America which more than offset raw material cost increases.

Glatfelter Fourth Quarter and Full Year 2004 Results

• Enhanced financial flexibility by reducing net debt by $67 million through improved operating performance and monetization of timberland assets.
For the full year of 2004, income from continuing operations totaled $56.1 million or $1.27 per diluted share, compared to $13.0 million and $0.30 per diluted share, respectively, in 2003. The results for 2004 benefited from after-tax gains totaling $55.5 million, or $1.26 per share, from sales of timberlands and the corporate aircraft and from insurance recoveries. In addition, the full year results include after-tax restructuring charges totaling $12.7 million, or $0.29 per diluted share. Results for 2003 included an after-tax gain of $20.0 million, or $0.46 per share, from the sale of timberlands and after-tax charges of $18.0 million, or $0.42 per share, related to the Neenah restructuring initiative, a reserve related to its former Ecusta Division and asset writedowns at the Spring Grove, PA and Gernsbach, Germany facilities. Excluding these items from each period, adjusted earnings were $13.4 million, or $0.30 per diluted share, in 2004 compared to $11.0 million, or $0.25 per share, in 2003.

Commenting on the outlook for 2005, Mr. Glatfelter stated, “Although escalating input costs for certain key raw materials present an ongoing concern, we believe that our strategies to grow our presence in niche markets through technical innovation and superior customer service will generate continued improvement in product mix and revenue growth. In addition, the impact of our North American Restructuring Program, which will be largely implemented by the end of the first quarter, is expected to offset the raw material price increases that are currently prevalent in the market.”