Magnera Corp (MAGN) 2002 Q3 法說會逐字稿

Good morning and thank you for standing by.

All participants will be able to listen only until the question and answer session of the conference.

This conference is been recorded at the request of P. H. Glatfelter.

If you have any objections you may disconnect at this time.

I would like to introduce the host for today's conference Miss

.

Miss

you may begin.

Thank you.

My name is

Corporate Manager of Communications for Glatfelter and I would like to welcome you today to our conference call.

On the call today is George Glatfelter Chairman and Chief Executive Officer.

Bob Newcomer our President and Chief Operating Officer.

Today's call will last approximately 30 minutes.

Miss

will provide a review of operations and market conditions for the company and share financial highlights for the quarter.

Mr. Glatfelter will offer closing remarks and entertain questions from corporate participants.

I would like to remind you that the statements made today with regard to our future expectations may constitute forward looking statements within the meaning of the Private Security Litigation reform act of 1995.

Although we make such statements based on assumptions we believe to be reasonable, there can be no assurance that actual results will not differ materially from our expectations.

And now I would like to turn the call over to Mr. Newcomer.

Thanks

and good morning everyone.

I'd like to review several areas of our business with you this morning starting with the market conditions that we experienced during the third quarter for our three business units and our expectations for these market areas for the next quarter.

I'll then review our mill operational highlights, update you on our ERP, our Enterprise Resource Planning Tool that we're using with SAP software and finally provide updates on the drought situation in Pennsylvania and the crime status of our labor contract negotiations.

So let me begin with the market conditions for our three business units and I'll start with printing and converting which our products primarily made for the book publishing industry such as hard bound quality books and novels written by authors such as

and

and paper for envelope manufacturers.

I'll begin with printing and converting where demand during the quarter I characterize as relatively weak.

Typically we experience an increase on demand from book papers during the latter part of third quarter but that increase in demand has been muted this year.

As a result our backlogs are weaker than what they were at the end of the second quarter.

We believe that the printing and converting markets will remain a challenge for the balance of this year.

From pricing standpoint there have been two changes during the quarter.

First we increased prices for most of our book papers in July and for the most part that price increase is holding.

Secondly we followed a price increase for envelope papers that went into effect late last month and to date that price increase is also holding.

We do not foresee any other changes to pricing in this business unit for the balance of this year.

It is interesting to know that even though demand for printing and converting has been relatively weak our volume for the first nine months of this year is two percent ahead of the first nine months of 2001.

These results support our value proposition during these most difficult economic times.

Our second business unit is engineer products.

These are highly specialized paper products with multiple end uses.

Some examples would be the pressure sensitive stamp paper, disposable surgical gowns, ink jet papers, playing cards and transfer release and other casting papers.

Demand for these products remain relatively strong in the third quarter.

Our backlogs and within this business unit are actually quite strong and so we have the opportunity to work on improving our margins by improving our product mix.

Certain lower margin products are being replaced by higher margin products either in the same or in different market segments.

One of the coders that is used in manufacturing engineered products began to operate its third shift earlier this quarter.

This new shift will provide approximately six percent additional volume with little additional out of pocket expense for late run over head and hence we anticipate a nice improvement in margin for engineered products.

Prices within this business unit are relatively stable there are pockets of price pressure within certain markets as a result of the weakness in the broader

of paper markets.

But on the other hand we have successfully implemented selected price increases within several niche markets.

Our forecast for the near term is continuing strong demand and stable pricing.

We're very pleased with a growth in this business unit over the last two years.

We have grown our volume by seven percent for the first nine months of this year compared to the first nine months of 2001.

And filling the capacity generated from the third shift on the one code or along with improving our margins by improving our product mix will continue to be our focus for the balance of this year.

Our third business unit is

with over laid papers.

These are the primary products within these business unit are tea bag papers and papers for laminates in both flooring and furniture applications.

Demand has been relatively stable within this business unit.

Tea bag paper demand was somewhat weaker in the third quarter.

But demand generally increases as the Northern hemisphere moves into the colder weather months.

We expect that trend to repeat as we move further into the fourth quarter.

Over laid paper demand has been good with certain segments of that market stronger than others.

For the first nine months of this year our total volume within this business unit is 11 percent ahead of last years nine months.

With over laid papers leading the way at 34 percent higher volumes than last year.

This business unit is our other area of focus for growth and just a reminder of the announcement that we made now a year ago to invest 30 million dollars to increase our capacity to produce and sell both tea bag and over lay papers.

That project is scheduled to be completed toward the end of next year.

We are excited about our growth opportunities in these key markets.

Our outlook for

over lay papers remains positive in the near term.

We expect to remain - we expect demands to remain consistent, pricing to be relatively constant and margins to remain healthy.

Let me give you a brief operations update - during the third quarter we experienced excellent operational results at all of our locations.

All the mills performed at or above planned levels.

Cost control is also good with spending levels at or below our budget.

We continue to benefit from cost saving ideas generated from an extension of drive, which was our cost reduction program from last year.

The drive process remains in place and good cost saving ideas to continue to come through from our employees.

Our employees are keenly interested in keeping our operations cost competitive and they realize that they have significant control over the major elements of our cost structure.

A key cost element as well as a leading indicator of the strength of the paper industry is pulp.

This commodity which was showing signs of improvement earlier this year is now showing signs of weakling.

The bench mark grade which is

that's the bench mark grade and it's probably price increased from about $460 per ton in January of this year, to $510 per ton a few months ago.

And is currently still stated at $510 per ton.

However spot transactions are occurring well below the list price.

And most experts forecast list prices to decline in the months ahead.

A decline in pulp helps our cost structure in the short-term, but longer-term can put pressure on prices for paper products.

Our hope is that pulp will decline only modestly, and allow us to continue to recognize the higher price levels that we recently implemented in our printing and converting business.

Let me now move to a few updates on other areas of interest in our business.

And I'll start with an update on our ERP, our Enterprise Resource Planning system, which uses SAP software.

A reminder that we went live in the United States at both of our mill sites on April 1st.

On August 1st, we went live in

, and in France on October 1st.

We're pleased to say that it's been a very successful implementation at all of our locations.

There have been absolutely no business interruptions, and only a minimal number of

internally.

We are quite pleased with the planning and the execution of this initiative.

This project will come in on time, and under budget.

There will continue to be a learning curve as we develop our competencies in using this system.

But the excellent

will lessen the slope of that curve.

Our next focus will be to recognize the benefits from having consistent, reliable, and more timely information available.

The real benefits of this system come from making better, more informed decisions, and making them faster so that positive actions can be taken to improve performance.

These benefits will accrue over time as we absorb the information and make it work to our advantage.

We continue to work on leveraging our web base technology, mygladfelter.com by extending its use to more customers.

Our goal is to have 80 percent of our North American revenue base using the tool by the end of this year.

And we are on track to accomplish that goal.

Feedback from our customers continues to be quite positive, about how the tool is improving their performance, and how it lowers their cost of doing business.

The next challenge is to incorporate the information out of our SAP system, into our web technology to provide even more robust, valuable information to our customers, and eventually to partner with our customers to link our information systems together to make transactions transparent.

A few other items of note.

A drought situation in the

states continues to impact our operations.

This part of the country has recently received a significant amount of rainfall, which has certainly helped in the short-term.

But we need significant additional precipitation this fall, winter, and next spring in order for our water reservoir to refill.

During the quarter, we estimate that we incurred lost margin of approximately $100,000 which was well below our original estimate of about $600,000 to $700,000 that we estimated last quarter.

We obviously have been able to mitigate the impact through various contingencies that we implemented over the last three months.

We expect a similar $100,000 financial impact in the fourth quarter.

The financial impact could grow as we move through next year, if we do not get sufficient rainfall, and would then need to curtail other operations.

We'll certainly keep you informed of this situation as it develops.

Moving on to the status of our labor contracts we are pleased to report that the

unionized workforce voted in favor of management's proposal last week.

That had originally expired in August 1st and the union continued to work under the terms of the old agreement with absolutely no negative impact on productivity.

The new contract is for five years and wages and benefits are in line with other settlements within the paper industry.

Our labor contract for our unionized work force and spring grave expires in January of next year.

We have begun discussions with the union leadership with that facility with good progress to date.

In conclusion I'd summarize the status of our markets as holding up relatively well especially as contrasted with a broader un-coated and coated

paper markets.

This is evidenced by volumes in all three of our business units being higher for the first nine months of this year than last year.

We are obviously growing our business in the specialized mitts markets as a result of successfully implementing our specialized business model.

Our operations are running well.

Our cost reduction program is generating significant savings.

We are implementing a price increase in our largest volume business and the

system is up and running at all locations and is within budgeted costs.

We are pleased with the progress we are making in transforming this business and executing to a business model that is clearly distinctive in the paper industry.

Now let me turn to our financial results for the third quarter.

I trust that you all received a press release that we sent out this morning.

Now let me just hit a couple of the highlights for the numbers for the quarter.

Our revenues for the quarter were $136 million and our net income was at $13.3 million or 30 cents.

As we noted in the press release the financial results include an extraordinary one time credit or gain of $2.3 million or five cents per share which is related to selling an

item with the sellers of Schoeller & Hoesch which goes back to 1998.

We have previously established a reserve and we had expensed our legal fees associated with this issue.

As a result of this issue being resolved in our favor we no longer need to reserve.

Our legal fees were paid for which we previously expensed and we received in the

hence we have this one time gain.

So without that credit our earnings would have bee $11 million or 25 cents per share.

Just a few pennies short of Wall Streets expectations.

From a comparative standpoint our reported earnings for the third quarter of last year were $4.5 million of 11 cents per share.

Included in that number was the write down of partially write down of the

assets that took place in the third quarter of $6 million or 14 cents per share as well as some operating earnings for the

division which took place in the month of July and nearly part of the month of August.

Exclusive of those two extraordinary items our earnings for the third quarter of last year would have been $10.3 million or 24 cents per share.

That would compare

basis for this years quarter of $11 million or 25 cents per share, a slight improvement in our over all net income.

For the nine months, our revenues are at $405.5 million, our net income at $32 million or 73 cents per share, again if we exclude the one time game that we just talk about, the net income will be $29.7 million or 68 cents per share.

On a comparative stand point the first nine months of last year on a reported basis showed a negative net income of $2.6 million or six cents per share, again that was driven by the loss on a disposal of

and if we exclude that and also exclude the

results for the first nine months of last year, in order to put these numbers on apples and apples comparison, our net income would have been $3 - $4 million or 80 cents per share.

Again that would compare to 29.7 or 68 cents for the first nine months of this year.

Just a quick reference to the balance sheet for the quarter.

We ended the quarter with total debt of $223 million, our cash was at $20 million and our shareholders equity at $376 million.

So our net debt to capital ratio at the end of the quarter is at 35.1 percent.

In general I'd say that we're pleased with the financial results, especially when we consider the broader economic conditions and the conditions especially within the paper industry.

Let me close with a few other comments, first of all we want to make you aware of a recent event, from late last week.

RFS

which is one of the purchasers of

in August of last year, filed for bankruptcy under protection of Chapter 11.

There are about $2 million of liabilities that RFS

has either re-sin from us or agreed to

us for that we have occurred in our balance sheet.

Under the sales agreement, the other buyers of

have agreed to indemnify us for damages related to these liabilities.

Since RFS

and the other buyers are obligated to either pay these amounts directly or

us for our payment of these liabilities.

We have recorded an offsetting receivable for the same dollar amount and hence there's no income impact.

We're uncertain as to what additional claims if any maybe a sort of against us for other liabilities that were assumed by the buyers or related to our former operation in the paper mill.

At this time, no reserves have been recorded related to the receivable due from the buyers.

We currently believe that we would be able to recognize this receivable either through the bankruptcy proceedings or through

from other indemnifying parties to the acquisition who have not filed for protection under Chapter 11.

We also received a letter from legal council, the buyers of the

division asserting claims from indemnification without any estimates or value related to the sale agreement.

We are currently investigating these claims and have not yet determined the validity or value of these claims.

As such we cannot ascertain at this time what effect if any of these claims will have on our financial condition or results of operations.

This is obviously an issue that we are just working to now, so we do not know what if any other liabilities will be present to us or when this whole issue will be resolved.

We will certainly keep you informed as we learn more about it.

Just make a comment about that you likely noticed in July about the downgrade from standard and pores of our credit rating from triple B plus to triple B. I think most of you are aware we've always had a split rating and

have been rating us at BAA2 and that's impeded the triple B plus for some time.

So we clearly recognize some risk in the ratings, we were certainly disappointed but not surprised that the downgrade took place, the overall cost of this as a result of our banking arrangements will be an increase in cost of about $200,000 per year.

And that takes me to the final comment I want to make about cash flows because that obviously has been the focus for standard and pores during this time and continues to be very much a focus for us.

I think it's important for everybody to know that we have significant capital expenditures for the balance of this year and for next year, which are really associated with the environmental project in Spring Grove which is about $35 million and the rebuild of a paper machine in Germany for $30 million which will allow us to grow our long fiber and overlay business.

Both of these projects are critical for totally different reasons and we're obviously going to continue to fund them.

However, we're also committed and focused on maintaining the strength of our balance sheet.

In this type of a business environment focusing on cash flow is absolutely keen.

We want you to know that as part of our planning process for 2003 a number of initiatives will be undertaken to reduce costs, conserve capital spending and reduce working capital in order to maintain this strong balance sheet.

Thank you very much and now I'd like to turn it over to George Glatfelter for his comments.

Thanks Bob and welcome to all participants on the conference call today particularly those of you who are new to Glatfelter, I thank you for your interest in the company and I thank all of you for your participation today.

Those of you who have been on this call in the past know that I generally like to comment on what I see outside - today I can tell you it is great paper making weather.

So as far as Bob is concerned and his discussion about the drought, well for the past number of days here it couldn't get much wetter and that's good news for us.

Bob has done his usual exemplary job of reviewing the third quarter performance of the company.

I'd like to add a little color to that and bring some closure to his remarks.

The fact is we're all wearing a number of different hats these days, and I guess I would only add my view that the business operations across the span of the company have been very, very good during the third quarter.

I boil it down to three things.

First of all as Bob has indicated in light of the current business environment we're focusing upon the things that we can directly control.

Secondly we are continuing to receive benefits in terms of productivity and efficiency gains through the drive cost reduction program that Bob referred to earlier and then finally early in the application of the ERP information technology platform instituted in our North American operations earlier this year and spanned across the corporation as recently as October.

As an operationally based guy I've got to tell you I'm very pleased with the performance of this business in the third quarter.

I see no reason why it can't be continued provided that we're able to manage the order volume.

Since Bob has already covered the operational and financial waterfront I'd like to take this opportunity to address a few questions that I expect are probably on the minds of at least some of our participants today.

The first question I'd like to deal with is the status for our search for a Chief Financial Officer.

I imagine most of those on this call realize that late in the second quarter we initiated the search for a new CFO.

In order to fill the gap created by the departure of the previous CFO Bob P Newcomer just to fill the CFO responsibilities on a

basis.

Others in the organization have stepped up to back

operational responsibilities while he focussed upon the financial side of the business.

As you know Bob's previous role as the CFO Glatfleter afforded him the ability to pick the financial reigns of the business.

As a result the financial leadership of the company was largely unaffected by this transition and I have got to tell you that having someone's of Bob's capabilities was not only very comforting in terms of shepherding the financials of the company but it has enabled me to conduct a very thoughtful and thorough shirt search for a new a CFO.

A search is beginning at this point to round the final turn.

We were fortunate intimately to begin with a long list of highly qualified candidates who offered a pretty diverse mix of experiences and skill sets.

We have narrowed that list at this point down to a select number of finalist.

I would like to share with you the primary criteria in my view for the successful candidate.

Among them are included first of all proven financial and business leadership.

Secondly we are looking for some one with a strong operational style.

Some one who has hands on capabilities.

We are searching for some one who has experience in demonstrated capabilities in strong team building and collaborative skills across the span of the business and then finally were looking for some one who has the highest standards of both personal and professional ethics and integrity.

As most of you know I have strong

towards bringing some one in to this organization from out side of this industry.

This view by know means discounts the quality and accomplishments of my industry colleagues rather reflects my view that a different management prospective is better

to drive value with in the specialized business model that defines Glatfelter today.

As we continue the broader mission of relining the organization to face the new realities of the business it is possible that other solutions for this position could emerge it also may be considered in any event I expected the decision will be finalized by the end of the year and that the successful candidate will be in place some time early in the first quarter.

A second question with regards to the restructuring effort currently under way with in the business.

In September company management presented a plan to our board that defined the strategy for the business on an ongoing on a going forward basis.

This strategy preserves the specialized business model developed back in 2000 and retains our vision of becoming the global supplier of choice in specialized papers and engineered products.

It also broadly defines the info structure and the cost model needed to compete effectively in the future.

It's clear that some

of restructuring will be required in order to support the plan.

At this point it is premature to discuss specific tactics although I can tell you that the restructuring will take place early in the year 2003.

With respect to future business growth through acquisition I believe that Bob earlier reflected accurately.

That our primary focus today is directed to cash generation maintaining a dividend and strengthening our balance sheet.

We remain committed to a focused growth strategy.

But management clearly recognized that these areas reflect our highest priorities.

I think it's important to understand that we are well prepared to grow.

We've clearly defined the specific markets of opportunity on a global basis, and understand their characteristics.

We know the players in these markets, and we understand the degree of fit with our business.

At the same time it's important to understand that management also recognizes that especially in this business environment, we must address the near-term business priorities effectively in order to earn the right to grow.

Finally with regard to the

.

As many of you know we own about 114,000 acres of woodland, located primarily in the area of the

in the

.

We're moving forward in the development of a plan to extract the cash value contained within our woodland base.

The objective of our project is to maximize cash generation for this asset, while maintaining maximum possible control over the long-term cost of

to the manufacturing facility in Pennsylvania.

We have entered into discussions with several interested parties, and have in fact initiated sales of selected

in the areas of the

.

The income generated from these sales at this point is not of a material nature.

We intend to continue to explore

sales in a manner consistent with the objectives previously mentioned.

And to investigate the transfer of larger blocks of woodland with no current

value.

As you might imagine, these negotiations are at various stages of maturity.

It is possible that some may be concluded during the year 2002.

Again, I want to emphasize that this is a thoughtful process.

We're moving forward carefully, and we're not going to make decisions that favor short-term benefit over longer-term value.

I suppose in closing, I'd like to restate some of the views that I presented publicly back in February of this year.

At that point I made the comment that I thought 2002 would be an absolute bear of a year, and I believe that most would agree that that's been the case.

In light of that the directions for Glatfelter are crystal clear.

We've got to continue to effectively execute the specialized business model and focus upon the things that we can directly control.

The fact that we've experienced growth in sales volume in each of our business units, in this environment in this environment indicates that we've done just that, and I don't know of many other companies in this industry that can make that claim.

The successful completion of the corporatewide

project on time, on budget, and with no business interruption effectively demonstrates the exceptional capability of Glatfelter people in Europe, as well as here in the U.S.

And finally Bob mentioned the labor negotiation process.

I'd like to highlight that.

Because I think the successful completion of the labor contract in our

facility, coupled with the encouraging process - excuse me, progress in labor negotiations in Pennsylvania indicate the power of our new interest based bargaining approach.

And frankly, and I think importantly, highlights the mutual value of a collaborative approach to labor-management relationships.

Looking forward the remainder of 2002, in my view will undoubtedly offer continuing challenges in the areas of order volume and pricing power.

And I've got to tell you at this point I see little to indicate that the first half of 2003 will be much different.

We expect this challenge and we're prepared to deal with them in the manner that I shared with you earlier.

Our approach will be as focused clearly as execute effectively and leverage the strengths of the organizations.

And for those of you who followed my thought in the past I think you can appreciate that we know how to do that pretty well.

So I thank you again for your participation today.

I hope you found the information that we shared with you to be instructive and helpful and at this point I would turn it back to

who will open the floor for questions.

.

Thank you George.

if you can begin the Q&A session that would be terrific.

Thank you.

At this time we are ready to begin the question and answer session.

If you would like to ask a question please press star one.

You'll be announced prior to asking your question.

If you withdraw your question press star two.

Once again to ask a question please press star one.

Our first question comes from

of CSSE.

Mr. Connolly your line is open.

Thank you.

A couple of things.

Bob I wonder if you can put the performance of book paper pricing in the context for the fourth quarter you know it doesn't sound like demand's all that great.

Pulp is getting weaker what's your expectation looking at you book of business and operating rates on holding on to the price gains that you've gotten so far.

I'd say

that you know I think the fourth quarter I think is probably relatively safe.

That'd be my God at this stage of the game.

I think what is the biggest concern out there is the Pulp market.

Now the pulp market really tanks really goes down significantly.

I think that there will be some push back in terms of any price increases that anybody has tried to get here in those un-coded coded paper.

So I you know I think the fourth quarter is probably ok but I I'm more concerned you know as we get on into next year for pulp market

you know tank on us.

Demand is you demand is a concern.

You don't always demand on the book market slows as we get towards the end of the year and it hasn't been real strong as I characterize it during the third quarter.

So I think that I guess I kind of de-coupled the till.

I look at a concern from a demand standpoint but not necessarily a pricing stand point in short term when I look at pricing as more of a concern out of mix another quarter or so.

When you in the last couple of quarters you've talked about your book of business looking stronger than the industries overall.

Can you give us a sense of your view of market share not only in that business but you know across your portfolio.

Yes market share is that we obviously keep track of have been relatively constant during this year as compared to last year.

So you know I think our position has stayed the same I'm talking now about book paper.

Right.

Our position has stayed about the same.

It continues to stay the same in envelope papers and in terms you know engineer products are a little bit more difficult to characterize because of the diverse nature.

But I think if you look overall at given the fact that our volumes have increased and engineered papers significantly along

papers significantly and in printing and converting modestly you know I'd say our market shares have been relatively constant and not picked up especially in the areas that we want to focus on engineered product along

.

Ok two last questions.

You talked about

and its being ok but on even.

Can you give us a sense of you know what aspect of

and it might be doing better than others and then the last question is with respect to pensions.

Obviously this is a time of year that everybody's starting to look at those numbers can you give us a sense of what you might be expecting or when you will be able to tell us what you're expecting?

Sure let me talk about the laminates first of all it's a laminates are a mixed bag as I think you're aware there's two primary applications flooring and furniture.

Furniture's relatively constant.

The flooring one is the one that's kind of up and down it depends on whether - there are many different markets within the flooring industry and you know without getting into a lot of detail

want to now.

We can do this

if we like.

We can take you through kind of a

on those different markets and which ones are strong and weak.

But it's a mixed bag.

But as I think I indicated you know our growth has been significant 34 percent and the over laid business this year and we were up I can't remember but double digits last year as well.

So our growth had been very strong and of course this is mostly virtually all in the European and Asian markets.

With respect to pension the I think you're aware

that the pension credit that we have this year is fixed for the bounce of this year it will not change as a result of what's going on in the stock market.

That will change for next year when we make our new assumptions relative you know the assumptions that we have to make with the

with the FAS as well as what actually happens for the entire year with respect to the stock market you know unless there's a tremendous recovery in the stock market

think anybody expects between now and then and the end of the year there's no question that our pension income

of pension income is going to be down next year.

But I really don't know and I really don't want to speculate as to what that's going to be until we get closer to the end of the year and see how the stock markets going to behave in terms of timing of all that I'm just not certain as to when we're going to be able to communicate that.

But I would expect it's probably after the first of the year sometime we'll have a much better sense of that.

OK thanks very much

.

Mr.

of Deutsche Bank you may ask your question.

Morning

morning George.

I wondered if we could talk about a few different issues you went through a lot of the things that I was curious about.

But I wondered if we could talk first of all in the third quarter about you know what about you know what impact fiber cost had in earnings waste paper and pulp costs?

Ok

I don't think we have specific numbers relative to that my and we can get back to you in this obviously but my gut would tell me it probably wasn't much of an impact I don't think it had any significant - I don't think there was much of a change and overall fiber costs third quarter versus second I don't much of a change in overall fiber costs third quarter versus second.

All right and what's that with the pulp market under pressure right now would you expect that your costs will be down there in the fourth quarter

or will it take a while for that to roll through inventory?

No I think it will be no I think it will be down in the fourth quarter versus the third.

OK.

I mean we have I think I mentioned that we've - transaction prices - the stated prices are the same but you know we are buying pulp at lower cost today than we did tow months ago.

Yeah well there is a lot of guys selling pulp at lower prices than two months ago.

The second thing I wondered about George kind of hinted at some further restructuring moves to be announced sounds like probably the first quarter of '03 and I just wonder you could give us you know some hint about what that might involve could that see some shut down of some smaller machines at Spring Grove or anything like that.

I can take a stab at that but as you might expect I'm reluctant to go too far down that road.

Right.

And I think with Labor Negotiations and everything, I think that's fair enough, I was just wondering if we could get you know some hence about what might be in the offering or what you might be thinking about.

I will tell you this, that we are - we have conducted a stand to stern diagnostic of the cross structure of this business, where value is created, where it's not and so the approach is very comprehensive and will involved all aspects of the business.

We have communicated that much to our employees and I think that it's driven by two fundamental realities.

One of course is the reality in the environment that we have and the one that we see going forward.

The other is the reality that you know we no longer believe that we can become a billion dollar business by 2004 as originally projected and we have to really rebalance the infra-structure organizational and costs to reflect a significantly smaller business platform.

So that's, that's as clear as I'd like to be or feel that I can be I guess at this point of time Mark.

OK, all right.

Another question just in terms of the CapX Rob, I think you mentioned 35 in environmental CapX at Spring Grove and 30 over at

is that 65 kind of the number for the year next year, for kind of CapX for all of Glatfelter?

No, it's higher - well it's higher then that, do you have?

No.

I was hoping that maybe we had that number Mark but I don't have it off the top of my head.

We as you might imagine, we're working through the planning process right now having finalized it but we can give you an idea of that.

The number is going to be higher then that but I just don't know off hand, the number for this year is about $56 million is what we're looking for in Capital.

To remind you that you know a fair amount of the 35 for the

and 30 for the re-bill is being spent this year as well.

Right.

So that's not all next year.

But the number for '03 is going to be somewhere north of 65?

Yes.

OK.

Maybe just to flush that out a little bit Mark, we have a capital bubble facing us in 19 or excuse me in 2003 as Bob as indicated earlier.

But our intentions beyond that are to operate this business at our below levels of appreciation to get back into the span of operation and we are committed to that.

OK.

And then George one other issue that you didn't kind of update, that is on some minds is just that the Fox River situation and if there's anything new to report up there?

I guess the only thing that's new to report relative to the Fox is that it is becoming increasingly more of a dynamic situation with activities that are under way with different members or different participants of the Fox River Group or a different constitutes that have issues relative to the Fox.

There's nothing definitive at this point to my knowledge, that reflects a material difference in the way we view our situation or in the structure frankly of the whole issue.

I think that there probably is in the near to immediate term by that I mean months rather then years, a record of decision that will be rendered by the appropriate, the appropriate environmental agencies, EPA in this case that will pretty much provide a clearer level of definition to the Fox issue, but at this point nothing of any significance as transpired since the last time we talked.

OK.

And then finally I'm just curious with all of the churn that's going on down stream from your mills and the paper merchanting and distribution business.

The partial sale of unisource seems to be some uncertainty over it

about

.

Had there been some other changes - Has that had any impact on you?

I don't - Mark I don't hink it's had any material impact you know we obviously instituted a change to some degree in our channel strategy a couple of years ago with my gladfelter.com and we have as I think has been indicated increased the span of that capability across virtually the entire range of the business at this point and time.

But we're not seeing any any significant any other significant changes in terms of merchant relationships or the channel strategy.

You know our objective is to search for value and where we have merchants who are providing that value are able to forge very very strong and productive relationships where that value doesn't seem to be developing and we clearly have an opportunity through technology to change that strategy and I think our history has shown that we're not afraid to do that for the right reasons.

OK.

Very good.

Thanks George.

Sure thing Mark.

Mark?

Yes.

Just get back to

out to get this number incapital next year.

You got next year.

About 60 million in total.

60 million.

OK.

So it's - the reason it's let's than 65 is because some of it's being spent this year and there's a little bit of trickle into '04 as well.

OK.

And do you happen to have the depreciation number for next year?

45. 48 somewhere in that range.

OK.

Very good thank you.

Group.

You may ask your question.

Well my questions have already been answered so ... and no further questions.

Thanks Bob.

OK.

of Guardian Life you may ask your question.

Yeah just as a follow up on the capex question, as you guys look out today over the next 12 to 15 months, what kind of, do you feel you need to raise some debt to fund this capex at this point.

No Ray you know we obviously when we went out and refinanced the revolver and we did just a couple of months ago we obviously we were making projections as to what we thought cash flows were going to be and obviously build in a significant cushion there too to the extent that operations - cash flow from operations didn't get any better so no we don't anticipate any need to change the capital structure.

Well I guess that's not really the question, what I'm really asking is will net, how much will net debt go up over the next 15 months.

Oh OK again I don't have those numbers handy.

Will they go up.

I can't respond to that because as I say we're just going through the budgeting process now, I have some projections and

I can get back to you roughly on what you know kind of at a high level how we see things over the next year or so but I just don't have it available right now.

Yeah that would be really helpful.

OK.

And you had mentioned something about a litigation in it's hard to estimate what kind of costs are coming out of that but can you just elaborate the companies position there and what your best guess is there.

Litigation with respect to the

situation I'm assuming you're referring to.

Yeah I thought wasn't there something new in the call I had an interruption here and I thought I heard something that was new.

No I don't think so, I think we mentioned you know all the issues that are outstanding.

The new one from last week is this bankruptcy from our

and the fact that we have accrued $2 million of a liability on our balance sheet because of some outstanding liabilities and have accrued an offset and receivable because we believe we will be able to get that receivable even through.

The bankruptcy proceedings were through the contractual obligations that we had when we sold the facility to other parties to that original sale.

So that is really all that we know at that particular issue at this time.

That is not to say that there won't be additional liabilities coming forth that we are not aware of.

We just don't know that at this time, but with respect to a law suit on that, we didn't talk, there isn't anything outstanding with respect to another law suit.

OK.

All right thank you.

Thanks.

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