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Specialty paper and engineered product supplier Glatfelter reported its financial results for the quarter and nine months ended September 30, 2010.

Consolidated net sales for the third quarter of 2010 were $379.1 million, a 21.4% increase compared with $312.4 million for the third quarter of 2009, reflecting the top-line contributions of the new Advanced Airlaid Materials business unit and stronger market conditions for the Company’s Composite Fibers and Specialty Papers products. Net sales grew 6% excluding the impact of acquisitions and foreign currency changes.

On a GAAP basis, the Company reported net income of $39.4 million for the third quarter of 2010, compared with net income of $46.0 million in the 2009 third quarter.Adjusted earnings for the third quarter were $16.7 million, which excludes items of an unusual and non-recurring nature, compared with $13.1 million in the 2009 third quarter.

In the quarter-over-quarter comparison, Specialty Papers’ net sales increased $5.7 million due to a $12.4 million benefit from higher average selling prices partially offset by lower volumes.

Operating income increased $2.1 million, or 10.2 percent, compared with the 2009 third quarter.Operating income in the 2010 third quarter benefited from higher selling prices but was adversely impacted by $5.8 million of higher raw material costs and a related $0.7 million charge under the LIFO inventory valuation method.In addition, Specialty Papers experienced $5.6 million of net excess operational costs primarily related to a press roll failure and associated production interruption at its Chillicothe, Ohio facility.

Composite Fibers’ net sales improved due to strengthening demand in all of its product lines as volumes shipped increased 13.2%.Net sales increased 3.0% despite an $8.5 million adverse impact from the translation of foreign currencies and a $0.9 million impact from lower average selling prices.On a constant currency basis, net sales increased 11.5%.

Composite Fibers’ operating income increased $3.9 million, or 67.2%, in the quarter-to-quarter comparison.Improved market conditions and business development initiatives increased shipping volumes and eliminated the need for market-driven down time which together benefited operating profit by $2.5 million.In addition, improved operating efficiency gains of $3.6 million as a result of continuous improvement initiatives more than offset the net negative impact of higher fiber prices.

Advanced Airlaid Materials (Note: Because this business unit was created upon completion of the previously announced acquisition of Concert Industries on February 12, 2010, the results below are shown with a sequential comparison rather than a year-over-year basis.)

Third-quarter 2010 operating income of $1.2 million from the Advanced Airlaid Materials business unit was lower than the 2010 second quarter and less than the Company’s expectations. Compared to the 2010 second quarter, higher selling prices benefited results by $1.3 million; however, continued upward movement in the price of fluff pulp together with higher costs of other key raw materials and changes to currency exchange rates adversely impacted operating income by $1.2 million.Operating results were also adversely impacted by downtime and operating inefficiencies.

“We are pleased to report another quarter of strong bottom-line growth with a 24% increase in adjusted earnings per share and generation of $33 million of free cash flow,” said George Glatfelter II, chairman and chief executive officer. “Driving our performance in the third quarter was the record $9.7 million earned by our Composite Fibers business, which is a reflection of improved market conditions, the quality of this unit’s products, and the effectiveness of the continued operating improvements we have employed in this business.In addition, our Specialty Papers business delivered improved year-over-year results in the third quarter of 2010 despite an unplanned production interruption and higher pulp prices.”

Mr. Glatfelter noted that the continued solid performance of these business units more than offset the lower than expected earnings from the Company’s Advanced Airlaid Materials business unit, which faced some challenges as a result of rising input costs and operational difficulties during the quarter.“The integration of this newly acquired business is ongoing.While the progress our team is making with the integration is not yet reflected in the business unit’s results, we remain very confident in the business’ long-term prospects,” Mr. Glatfelter said.

For the first nine months of 2010, the Company reported net income of $39.2 million, compared with net income of $77.4 million in the same period of 2009.

Consolidated net sales for the first nine months of 2010 were $1,079.2 million, a 22.2% increase compared with $882.9 million for the same period of 2009, reflecting the addition of Advanced Airlaid Materials to the Company together with much stronger business activity in the Company’s Specialty Papers and Composite Fibers business units.