Glatfelter Reports Operating Results (10-Q)

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Nov 06, 2009
Glatfelter (GLT, Financial) filed Quarterly Report for the period ended 2009-09-30.

Glatfelter is a paper manufacturing company that manufactures printing papers and tobacco and other specialty papers. The company sells its products throughout the United States and in a number of foreign countries. Most of the company's printing paper products are directed at the uncoated free-sheet portion of the industry. The company's tobacco and other specialty papers are used for cigarette manufacturing and other specialty uses such as the manufacture of playing cards stamps labels and surgical gowns. Glatfelter has a market cap of $535.3 million; its shares were traded at around $11.75 with a P/E ratio of 15.7 and P/S ratio of 0.4. The dividend yield of Glatfelter stocks is 3.1%. Glatfelter had an annual average earning growth of 3.5% over the past 5 years.

Highlight of Business Operations:

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.

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.

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

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.

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.

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.

Read the The complete ReportGLT is in the portfolios of Third Avenue Management.