þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD |
Pennsylvania | 23-0628360 | |
(State or other jurisdiction of incorporation or organization) |
(IRS Employer Identification No.) | |
96 South George Street, Suite 500 | ||
York, Pennsylvania 17401 | (717) 225-4711 | |
(Address of principal executive offices) | (Registrants telephone number, including area code) |
i. | variations in demand for, or pricing of, our products; | ||
ii. | changes in the cost or availability of raw materials we use, in particular market pulp, pulp substitutes, and abaca fiber, and changes in energy-related costs; | ||
iii. | our ability to develop new, high value-added Specialty Papers and Composite Fibers (formerly Long Fiber & Overlay Papers); | ||
iv. | 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; | ||
v. | 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 Neenah mill is located; and the costs of environmental matters at our former Ecusta Division mill; | |||
vi. | the gain or loss of significant customers and/or on-going viability of such customers; | ||
vii. | risks associated with our international operations, including local economic and political environments and fluctuations in currency exchange rates; | ||
viii. | geopolitical events, including war and terrorism; | ||
ix. | enactment of adverse state, federal or foreign tax or other legislation or changes in government policy or regulation; | ||
x. | adverse results in litigation; | ||
xi. | disruptions in production and/or increased costs due to labor disputes including the successful negotiation of a new contract for our Chillicothe Union that expires in August; | ||
xii. | the resolution of the European Commissions review of our Lydney mill acquisition; | ||
xiii. | our ability to successfully implement the EURO Program; | ||
xiv. | our ability to successfully execute our timberland strategy to realize the value of our timberlands; | ||
xv. | our ability to execute the planned shutdown of the Neenah facility in an orderly manner; and | ||
xvi. | our ability to finance, consummate and integrate acquisitions. |
1) | We completed our $65 million acquisition of J R Cromptons Lydney mill on March 13, 2006. This mills revenue in 2005 was approximately $75 million; | ||
2) | On April 3, 2006, we completed our acquisition of Chillicothe, the carbonless paper operation of NewPage Corporation with 2005 revenue of $441.5 million, for $81.8 million in cash, subject to post-closing working capital adjustments; | ||
3) | On June 30, 2006, we ceased production at our Neenah, WI facility and recorded shutdown related charges totaling $50.7 million; |
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4) | We refinanced our bank credit facility with a $100 million term loan and a $200 million revolving credit facility in addition to the issuance of $200 million 71/8% bonds to replace our $150 million 67/8% notes due July 2007. | ||
5) | During the second quarter we completed the regularly scheduled annual maintenance outages at our Chillicothe and Spring Grove facilities; | ||
6) | Demand for products in our North America-based Specialty Papers business unit remained strong as our domestic mills operated at or near capacity and selling prices strengthened; | ||
7) | The results of our Composite Fibers business unit, based in Europe, improved due to strengthening order patterns, although selling prices declined moderately; |
Six Months Ended | |||||||||
June 30 | |||||||||
In thousands, except per share | 2006 | 2005 | |||||||
Net sales |
$ | 440,326 | $ | 289,179 | |||||
Gross profit |
25,998 | 48,427 | |||||||
Operating income (loss) |
(40,404 | ) | 16,344 | ||||||
Net income (loss) |
(32,587 | ) | 7,999 | ||||||
Earnings per share |
(0.73 | ) | 0.18 | ||||||
In thousands, except per share | After-tax | Diluted EPS | ||||||
2006 | Gain (loss) | |||||||
Shutdown and restructuring charges |
$ | (32,506 | ) | $ | (0.73 | ) | ||
Acquisition integration related costs |
(3,263 | ) | (0.07 | ) | ||||
Redemption premium |
(1,820 | ) | (0.04 | ) | ||||
Timberland sales |
590 | 0.01 | ||||||
Insurance recoveries |
130 | 0.00 | ||||||
2005 |
||||||||
Insurance recoveries |
$ | 1,430 | $ | 0.03 |
Business Unit Performance | For The Six Months Ended June 30, | |||||||||||||||||||||||||||||||||||
In thousands | Specialty Papers | Composite Fibers | Other and Unallocated | Total | ||||||||||||||||||||||||||||||||
2006 | 2005 | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | |||||||||||||||||||||||||||||
Net sales |
$ | 305,810 | $ | 187,227 | $ | 134,516 | $ | 101,924 | $ | 0 | $ | 28 | $ | 440,326 | $ | 289,179 | ||||||||||||||||||||
Energy sales, net |
5,304 | 5,259 | | | | | 5,304 | 5,259 | ||||||||||||||||||||||||||||
Total revenue |
311,114 | 192,486 | 134,516 | 101,924 | 0 | 28 | 445,630 | 294,438 | ||||||||||||||||||||||||||||
Cost of products sold |
286,493 | 169,353 | 115,722 | 84,041 | 17,417 | (7,383 | ) | 419,632 | 246,011 | |||||||||||||||||||||||||||
Gross profit (loss) |
24,621 | 23,133 | 18,794 | 17,883 | (17,417 | ) | 7,411 | 25,998 | 48,427 | |||||||||||||||||||||||||||
SG&A |
23,987 | 20,069 | 12,585 | 12,270 | 5,165 | 2,025 | 41,737 | 34,364 | ||||||||||||||||||||||||||||
Shutdown and restructuring charges |
| | | | 25,955 | | 25,955 | | ||||||||||||||||||||||||||||
Gains on dispositions of plant,
equipment and timberlands |
| | | | (1,085 | ) | (81 | ) | (1,085 | ) | (81 | ) | ||||||||||||||||||||||||
Gain on insurance recoveries |
| | | | (205 | ) | (2,200 | ) | (205 | ) | (2,200 | ) | ||||||||||||||||||||||||
Total operating income (loss) |
634 | 3,064 | 6,209 | 5,613 | (47,247 | ) | 7,667 | (40,404 | ) | 16,344 | ||||||||||||||||||||||||||
Nonoperating income (expense) |
| | | | (10,317 | ) | (5,257 | ) | (10,317 | ) | (5,257 | ) | ||||||||||||||||||||||||
Income
(loss) before income taxes |
$ | 634 | $ | 3,064 | $ | 6,209 | $ | 5,613 | $ | (57,564 | ) | $ | 2,410 | $ | (50,721 | ) | $ | 11,087 | ||||||||||||||||||
Supplementary Data |
||||||||||||||||||||||||||||||||||||
Net tons sold |
307,940 | 221,943 | 32,552 | 23,727 | 10 | 7 | 340,502 | 245,677 | ||||||||||||||||||||||||||||
Depreciation expense |
$ | 16,354 | $ | 17,869 | $ | 8,291 | $ | 7,787 | | | $ | 24,645 | $ | 25,656 | ||||||||||||||||||||||
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Six Months Ended | |||||||||||||
June 30 | |||||||||||||
In thousands | 2006 | 2005 | Change | ||||||||||
Net sales |
$ | 440,326 | $ | 289,179 | $ | 151,147 | |||||||
Energy sales net |
5,304 | 5,259 | 45 | ||||||||||
Total revenues |
445,630 | 294,438 | 151,192 | ||||||||||
Costs of products sold |
419,632 | 246,011 | 173,621 | ||||||||||
Gross profit |
$ | 25,998 | $ | 48,427 | $ | (22,429 | ) | ||||||
Gross profit as a percent of Net
sales |
5.9 | % | 16.7 | % | |||||||||
Percent of Total | |||||||||
2006 | 2005 | ||||||||
Business Unit |
|||||||||
Specialty Papers |
69.5 | % | 64.7 | % | |||||
Composite Fibers |
30.5 | 35.3 | |||||||
Total |
100.0 | % | 100.0 | % | |||||
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Six Months Ended | |||||||||||||
June 30 | |||||||||||||
In thousands | 2006 | 2005 | Change | ||||||||||
Recorded as: |
|||||||||||||
Costs of products sold |
$ | 7,453 | $ | 7,413 | $ | 40 | |||||||
SG&A expense |
512 | 833 | (321 | ) | |||||||||
Total |
$ | 7,965 | $ | 8,246 | $ | (281 | ) | ||||||
Six Months | ||||
Ended | ||||
June 30, | ||||
In thousands | 2006 | |||
Restructuring initiative: |
||||
Recorded as: |
||||
Costs of products sold |
$ | 24,868 | ||
Shutdown and restructuring charge |
25,875 | |||
Total |
$ | 50,743 | ||
Six Months | ||||
Ended | ||||
June 30, | ||||
In thousands | 2006 | |||
Accelerated depreciation |
$ | 22,457 | ||
Inventory write-down |
2,411 | |||
Severance and benefit continuation |
6,592 | |||
Pension and other retirement benefits
curtailments |
7,675 | |||
Contract termination costs |
11,386 | |||
Other |
222 | |||
Total |
$ | 50,743 | ||
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Six Months | ||||
In thousands | Ended June 30 | |||
Favorable |
||||
(unfavorable) |
||||
Net sales |
($3,981 | ) | ||
Costs of products sold |
3,602 | |||
SG&A expenses |
404 | |||
Income taxes and other |
49 | |||
Net income |
$ | 74 | ||
Three Months Ended | |||||||||
June 30 | |||||||||
In thousands, except per share | 2006 | 2005 | |||||||
Net sales |
$ | 279,720 | $ | 145,283 | |||||
Gross profit |
5,733 | 19,833 | |||||||
Operating income |
(24,664 | ) | 5,080 | ||||||
Net income (loss) |
(20,722 | ) | 1,709 | ||||||
Earnings (loss) per share |
(0.46 | ) | 0.04 | ||||||
In thousands, except per share | After-tax | Diluted EPS | ||||||
2006 | Gain (loss) | |||||||
Shutdown and
restructuring charges |
$ | (14,901 | ) | $(0.33 | ) | |||
Acquisition integration related costs |
(2,319 | ) | (0.05 | ) | ||||
Redemption premium |
(1,820 | ) | (0.04 | ) | ||||
Timberland sales |
590 | 0.01 | ||||||
Insurance recoveries |
130 | 0.00 | ||||||
2005 |
||||||||
Insurance recoveries |
$ | 1,430 | $ 0.03 | |||||
Business Unit Performance | For the Three Months Ended June 30, | |||||||||||||||||||||||||||||||||||
In thousands, except net tons sold | Specialty Papers | Composite Fibers | Other and Unallocated | Total | ||||||||||||||||||||||||||||||||
2006 | 2005 | 2006 | 2005 | 2006 | 2005 | 2006 | 2005 | |||||||||||||||||||||||||||||
Net sales |
$ | 203,461 | $ | 94,497 | $ | 76,263 | $ | 50,779 | $ | (4 | ) | $ | 7 | $ | 279,720 | $ | 145,283 | |||||||||||||||||||
Energy sales, net |
2,847 | 2,715 | | | | | 2,847 | 2,715 | ||||||||||||||||||||||||||||
Total revenue |
206,308 | 97,212 | 76,263 | 50,779 | (4 | ) | 7 | 282,567 | 147,998 | |||||||||||||||||||||||||||
Cost of products sold |
197,459 | 89,202 | 66,693 | 42,831 | 12,682 | (3,868 | ) | 276,834 | 128,165 | |||||||||||||||||||||||||||
Gross profit (loss) |
8,849 | 8,010 | 9,570 | 7,948 | (12,686 | ) | 3,875 | 5,733 | 19,833 | |||||||||||||||||||||||||||
SG&A |
14,705 | 9,707 | 6,504 | 6,125 | 3,831 | 1,142 | 25,040 | 16,974 | ||||||||||||||||||||||||||||
Shutdown and restructuring charges |
| | | | 6,657 | | 6,657 | | ||||||||||||||||||||||||||||
Gains on dispositions of plant,
equipment and timberlands |
| | | | (1,095 | ) | (21 | ) | (1,095 | ) | (21 | ) | ||||||||||||||||||||||||
Gain on insurance recoveries |
| | | | (205 | ) | (2,200 | ) | (205 | ) | (2,200 | ) | ||||||||||||||||||||||||
Total operating income (loss) |
(5,856 | ) | (1,697 | ) | 3,066 | 1,823 | (21,874 | ) | 4,954 | (24,664 | ) | 5,080 | ||||||||||||||||||||||||
Non-operating income (expense) |
| | | | (7,940 | ) | (2,756 | ) | (7,940 | ) | (2,756 | ) | ||||||||||||||||||||||||
Income (loss) before income taxes |
$ | (5,856 | ) | $ | (1,697 | ) | $ | 3,066 | $ | 1,823 | $ | (29,814 | ) | $ | 2,198 | $ | (32,604 | ) | $ | 2,324 | ||||||||||||||||
Supplementary Data |
||||||||||||||||||||||||||||||||||||
Net tons sold |
188,854 | 111,205 | 17,667 | 12,048 | 10 | 2 | 206,531 | 123,255 | ||||||||||||||||||||||||||||
Depreciation expense |
$ | 7,679 | $ | 9,000 | $ | 4,493 | $ | 3,790 | | | $ | 12,172 | $ | 12,790 | ||||||||||||||||||||||
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Three Months Ended | |||||||||||||
June 30 | |||||||||||||
In thousands | 2006 | 2005 | Change | ||||||||||
Net sales |
$ | 279,720 | $ | 145,283 | $ | 134,437 | |||||||
Energy sales net |
2,847 | 2,715 | 132 | ||||||||||
Total revenues |
282,567 | 147,998 | 134,569 | ||||||||||
Costs of products sold |
276,834 | 128,165 | 148,669 | ||||||||||
Gross profit |
$ | 5,733 | $ | 19,833 | $ | (14,100 | ) | ||||||
Gross profit as a percent of
Net sales |
2.0 | % | 13.7 | % | |||||||||
Percent of Total | |||||||||
2006 | 2005 | ||||||||
Business Unit |
|||||||||
Specialty Papers |
72.7 | % | 65.0 | % | |||||
Composite Fibers |
27.3 | 35.0 | |||||||
Total |
100.0 | % | 100.0 | % | |||||
Three Months Ended | |||||||||||||
June 30 | |||||||||||||
In thousands | 2006 | 2005 | Change | ||||||||||
Recorded as: |
|||||||||||||
Costs of products sold |
$ | 3,964 | $ | 3,877 | $ | 87 | |||||||
SG&A expense |
280 | 489 | (209 | ) | |||||||||
Total |
$ | 4,244 | $ | 4,366 | $ | (122 | ) | ||||||
Three | ||||
Months | ||||
Ended | ||||
June 30, | ||||
In thousands | 2006 | |||
Restructuring initiative: |
||||
Recorded as: |
||||
Costs of products sold |
$ | 16,645 | ||
Shutdown and restructuring charges |
6,616 | |||
Total |
$ | 23,261 | ||
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Three | ||||
Months | ||||
Ended | ||||
June 30, | ||||
In thousands | 2006 | |||
Accelerated depreciation |
$ | 16,645 | ||
Inventory write-down |
- | |||
Severance and benefit continuation |
4,831 | |||
Pension and other retirement benefits
curtailments |
1,372 | |||
Contract termination costs |
277 | |||
Other |
136 | |||
Total |
$ | 23,261 | ||
Three Months | ||||
Ended | ||||
In thousands | June 30, 2006 | |||
Favorable | ||||
(unfavorable) | ||||
Net sales |
$ | (2,467 | ) | |
Costs of products sold |
2,075 | |||
SG&A expenses |
258 | |||
Income taxes and other |
(29 | ) | ||
Net income |
$ | (163 | ) | |
Six Months Ended | |||||||||
June 30 | |||||||||
In thousands | 2006 | 2005 | |||||||
Cash and cash equivalents at beginning of period |
$ | 57,442 | $ | 39,951 | |||||
Cash provided by (used for) |
|||||||||
Operating activities |
(31,534 | ) | 4,911 | ||||||
Investing activities |
(175,763 | ) | (13,875 | ) | |||||
Financing activities |
172,282 | (6,460 | ) | ||||||
Effect of exchange rate changes on cash |
1,374 | (1,878 | ) | ||||||
Net cash provided (used) |
(33,641 | ) | (17,302 | ) | |||||
Cash and cash equivalents at end of period |
$ | 23,801 | $ | 22,649 | |||||
June 30, | December 31, | |||||||
In thousands | 2006 | 2005 | ||||||
New revolving credit facility,
due April 2011 |
$ | 52,893 | $ | | ||||
Term loan, due April 2011 |
99,440 | | ||||||
Revolving credit facility, due
June 2006 |
| 19,650 | ||||||
71/8% Notes, due May 2016 |
200,000 | | ||||||
61/8% Notes, due July 2007 |
| 150,000 | ||||||
Note payable SunTrust, due
March 2008 |
34,000 | 34,000 | ||||||
Total long-term debt |
386,333 | 203,650 | ||||||
Less current portion |
(7,500 | ) | (19,650 | ) | ||||
Long-term debt, excluding
current portion |
$ | 378,833 | $ | 184,000 | ||||
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Year Ended December 31 | At June 30, 2006 | |||||||||||||||||||||||||||
Dollars in thousands | 2006 | 2007 | 2008 | 2009 | 2010 | Carrying Value | Fair Value | |||||||||||||||||||||
Long-term debt |
||||||||||||||||||||||||||||
Average principal outstanding |
||||||||||||||||||||||||||||
At fixed interest rates |
$ | 234,000 | $ | 234,000 | $ | 208,500 | $ | 200,000 | $ | 200,000 | $ | 234,000 | $ | 222,931 | ||||||||||||||
At variable interest rates |
152,333 | 146,709 | 129,834 | 107,959 | 82,959 | 152,333 | 152,333 | |||||||||||||||||||||
Weighted-average interest rate |
||||||||||||||||||||||||||||
On fixed interest rate debt |
6.64 | % | 6.64 | % | 6.99 | % | 7.13 | % | 7.13 | % | ||||||||||||||||||
On variable interest rate debt |
5.49 | 5.47 | 5.47 | 5.25 | 4.99 | |||||||||||||||||||||||
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i. | The election of two members of the Board of Directors to serve for full three-year terms expiring in 2009. |
Director | For | Withheld | ||||||
George H. Glatfelter II |
38,223,792 | 241,283 | ||||||
Ronald J. Naples |
38,111,900 | 353,175 | ||||||
Richard J. Smoot |
37,556,332 | 908,743 |
31.1 | Certification of George H. Glatfelter II, Chairman and Chief
Executive Officer of Glatfelter, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|||
31.2 | Certification of John P. Jacunski, Senior Vice President and Chief
Financial Officer of Glatfelter, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. |
|||
32.1 | Certification of George H. Glatfelter II, Chairman and Chief
Executive Officer of Glatfelter, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. |
|||
32.2 | Certification of John P. Jacunski, Senior Vice President and Chief
Financial Officer of Glatfelter, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. |
P. H. GLATFELTER COMPANY (Registrant) |
|||||
August 23, 2006 | |||||
By: | /s/ David C. Elder | ||||
David C. Elder | |||||
Corporate Controller | |||||
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Exhibit Number | Description | |||
31.1 | Certification of George H. Glatfelter II, Chairman and
Chief Executive Officer of Glatfelter, pursuant to Section
302 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350 Chief Executive Officer, filed herewith. |
|||
31.2 | Certification of John P. Jacunski, Senior Vice President
and Chief Financial Officer of Glatfelter, pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002 Chief
Financial Officer, filed herewith. |
|||
32.1 | Certification of George H. Glatfelter II, Chairman and
Chief Executive Officer of Glatfelter, pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 Chief Executive
Officer, filed herewith. |
|||
32.2 | Certification of John P. Jacunski, Senior Vice President
and Chief Financial Officer of Glatfelter, pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350 Chief Financial Officer, filed herewith. |
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