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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 

x Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended September 30, 2014

or

 

¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the transition period from              to             

 

LOGO

96 South George Street, Suite 520

York, Pennsylvania 17401

(Address of principal executive offices)

(717) 225-4711

(Registrant’s telephone number, including area code)

 

Commission

file number

 

Exact name of registrant as
specified in its charter

 

IRS Employer

Identification No.

 

State or other jurisdiction of
incorporation or organization

1-03560

  P. H. Glatfelter Company   23-0628360   Pennsylvania

N/A

(Former name or former address, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at the past 90 days.     Yes  þ    No  ¨.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes  þ    No  ¨.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   þ    Accelerated filer   ¨
Non-accelerated filer   ¨  (Do not check if a smaller reporting company).    Small reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)     Yes  ¨    No  þ.

Common Stock outstanding on October 31, 2014 totaled 42,942,534 shares.

 

 

 


Table of Contents

P. H. GLATFELTER COMPANY AND

SUBSIDIARIES

REPORT ON FORM 10-Q

For the QUARTERLY PERIOD ENDED

September 30, 2014

Table of Contents

 

            Page  

PART I – FINANCIAL INFORMATION

  

Item 1

    

Financial Statements

  
    

Condensed Consolidated Statements of Income for the three months and nine months ended September 30, 2014 and 2013 (unaudited)

     2   
    

Condensed Consolidated Statements of Comprehensive Income for the three months and nine months ended September 30, 2014 and 2013 (unaudited)

     3   
    

Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013 (unaudited)

     4   
    

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013 (unaudited)

     5   
    

Notes to Condensed Consolidated Financial Statements (unaudited)

     6   

Item 2

    

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     29   

Item 3

    

Quantitative and Qualitative Disclosures About Market Risks

     40   

Item 4

    

Controls and Procedures

     40   

PART II – OTHER INFORMATION

  

Item 6

    

Exhibits

     41   

SIGNATURES

     41   


Table of Contents

PART I

Item 1 – Financial Statements

P. H. GLATFELTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

 

     Three months ended
September 30
    Nine months ended
September 30
 

In thousands, except per share

   2014     2013     2014     2013  

Net sales

   $ 465,092      $ 456,648      $ 1,366,154      $ 1,287,804   

Energy and related sales, net

     860        1,196        6,912        2,721   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     465,952        457,844        1,373,066        1,290,525   

Costs of products sold

     385,439        391,805        1,196,076        1,126,271   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     80,513        66,039        176,990        164,254   

Selling, general and administrative expenses

     37,886        34,480        103,751        102,495   

Gains on dispositions of plant, equipment and timberlands, net

     (1,590     (282     (3,881     (374
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     44,217        31,841        77,120        62,133   

Non-operating income (expense)

        

Interest expense

     (4,671     (4,788     (14,245     (13,143

Interest income

     30        92        143        240   

Other, net

     (167     (34     105        388   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non-operating expense

     (4,808     (4,730     (13,997     (12,515
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     39,409        27,111        63,123        49,618   

Income tax provision (benefit)

     9,037        (7,008     13,434        (1,063
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 30,372      $ 34,119      $ 49,689      $ 50,681   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share

        

Basic

   $ 0.71      $ 0.79      $ 1.15      $ 1.18   

Diluted

     0.69        0.77        1.13        1.15   

Cash dividends declared per common share

   $ 0.11      $ 0.10      $ 0.33      $ 0.30   

Weighted average shares outstanding

        

Basic

     43,049        43,251        43,233        43,118   

Diluted

     43,841        44,328        44,111        44,213   

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

- 2 -

GLATFELTER

9.30.14 Form 10-Q


Table of Contents

P. H. GLATFELTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

 

     Three months ended
September 30
    Nine months ended
September 30
 

In thousands

   2014     2013     2014     2013  

Net income

   $ 30,372      $ 34,119      $ 49,689      $ 50,681   

Foreign currency translation adjustments

     (33,450     14,263        (33,255     6,033   

Net change in:

        

Deferred gains (losses) on cash flow hedges, net of taxes of $(593), $62, $(974) and $28, respectively

     1,475        (154     2,476        (108

Unrecognized retirement obligations, net of taxes of $(1,463), $(2,293), $(4,391) and $(6,869), respectively

     2,398        3,794        7,193        11,394   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss)

     (29,577     17,903        (23,586     17,319   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 795      $ 52,022      $ 26,103      $ 68,000   
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

- 3 -

GLATFELTER

9.30.14 Form 10-Q


Table of Contents

P. H. GLATFELTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

 

     September 30     December 31  

In thousands

   2014     2013  
Assets     

Cash and cash equivalents

   $ 53,655      $ 122,882   

Accounts receivable, net

     195,316        167,830   

Inventories

     248,055        236,310   

Prepaid expenses and other current assets

     56,657        59,560   
  

 

 

   

 

 

 

Total current assets

     553,683        586,582   

Plant, equipment and timberlands, net

     691,640        723,340   

Goodwill

     87,772        95,948   

Intangible assets

     80,533        96,081   

Other assets

     183,116        176,459   
  

 

 

   

 

 

 

Total assets

   $ 1,596,744      $ 1,678,410   
  

 

 

   

 

 

 
Liabilities and Shareholders’ Equity     

Current portion of long-term debt

   $ 3,810      $ —     

Accounts payable

     128,568        161,242   

Dividends payable

     4,761        4,363   

Environmental liabilities

     125        125   

Other current liabilities

     114,676        122,637   
  

 

 

   

 

 

 

Total current liabilities

     251,940        288,367   

Long-term debt

     406,360        442,325   

Deferred income taxes

     130,677        141,020   

Other long-term liabilities

     119,587        122,222   
  

 

 

   

 

 

 

Total liabilities

     908,564        993,934   

Commitments and contingencies

     —          —     

Shareholders’ equity

    

Common stock

     544        544   

Capital in excess of par value

     54,085        53,940   

Retained earnings

     904,733        869,329   

Accumulated other comprehensive loss

     (98,943     (75,357
  

 

 

   

 

 

 
     860,419        848,456   

Less cost of common stock in treasury

     (172,239     (163,980
  

 

 

   

 

 

 

Total shareholders’ equity

     688,180        684,476   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 1,596,744      $ 1,678,410   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

- 4 -

GLATFELTER

9.30.14 Form 10-Q


Table of Contents

P. H. GLATFELTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

     Nine months ended
September 30
 

In thousands

   2014     2013  

Operating activities

    

Net income

   $ 49,689      $ 50,681   

Adjustments to reconcile to net cash provided by operations:

    

Depreciation, depletion and amortization

     53,547        50,028   

Amortization of debt issue costs and original issue discount

     985        977   

Pension expense, net of unfunded benefits paid

     4,575        9,646   

Charge for impairment of intangible asset

     3,262        —     

Deferred income tax benefit

     (4,434     (10,876

Gains on dispositions of plant, equipment and timberlands, net

     (3,881     (374

Share-based compensation

     5,811        5,523   

Change in operating assets and liabilities

    

Accounts receivable

     (35,528     (23,496

Inventories

     (19,982     7,225   

Prepaid and other current assets

     (2,367     4,659   

Accounts payable

     (25,576     5,065   

Accruals and other current liabilities

     (6,214     2,218   

Other

     1,493        (5,583
  

 

 

   

 

 

 

Net cash provided by operating activities

     21,380        95,693   

Investing activities

    

Expenditures for purchases of plant, equipment and timberlands

     (47,036     (86,089

Proceeds from disposals of plant, equipment and timberlands, net

     4,051        379   

Acquisition, net of cash acquired

     —          (210,911

Other

     (600     (325
  

 

 

   

 

 

 

Net cash used by investing activities

     (43,585     (296,946

Financing activities

    

Net borrowings under (repayments of) revolving credit facility

     (30,720     126,139   

Payments of borrowing costs

     —          (419

Proceeds from term loans

     12,592        56,091   

Repurchases of common stock

     (12,180     —     

Payments of dividends

     (13,935     (12,603

Payments related to share-based compensation awards and other

     (1,764     (2,332
  

 

 

   

 

 

 

Net cash (used) provided by financing activities

     (46,007     166,876   

Effect of exchange rate changes on cash

     (1,015     333   
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (69,227     (34,044

Cash and cash equivalents at the beginning of period

     122,882        97,679   
  

 

 

   

 

 

 

Cash and cash equivalents at the end of period

   $ 53,655      $ 63,635   
  

 

 

   

 

 

 

Supplemental cash flow information

    

Cash paid for:

    

Interest, net of amounts capitalized

   $ 9,959      $ 9,388   

Income taxes, net

     19,928        10,834   

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

- 5 -

GLATFELTER

9.30.14 Form 10-Q


Table of Contents

P. H. GLATFELTER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

1. ORGANIZATION

P. H. Glatfelter Company and subsidiaries (“Glatfelter”) is a manufacturer of specialty papers and fiber-based engineered materials. Headquartered in York, Pennsylvania, our manufacturing facilities are located in Spring Grove, Pennsylvania; Chillicothe and Freemont, Ohio; Gatineau, Quebec, Canada; Lydney, England; Caerphilly, Wales; Gernsbach, Falkenhagen and Heidenau, Germany; Scaër, France; and the Philippines. Our products are marketed worldwide, either through wholesale paper merchants, brokers and agents, or directly to customers.

 

2. ACCOUNTING POLICIES

Basis of Presentation The unaudited condensed consolidated financial statements (“financial statements”) include the accounts of Glatfelter and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.

We prepared these financial statements in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles” or “GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission pertaining to interim financial statements. In our opinion, the financial statements reflect all normal, recurring adjustments needed to present fairly our results for the interim periods. When preparing these financial statements, we have assumed that you have read the audited consolidated financial statements included in our 2013 Annual Report on Form 10-K.

Accounting Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingencies as of the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Management believes the estimates and assumptions used in the preparation of these financial statements are reasonable, based upon currently available facts and known circumstances, but recognizes that actual results may differ from those estimates and assumptions.

Recently Issued Accounting Pronouncements In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09 - Revenue from Contracts with Customers which clarifies the principles for recognizing revenue and develops a common revenue standard for GAAP and International Financial Reporting Standards. The new standard is required to be adopted for fiscal years beginning after December 15, 2016 and early adoption is not permitted. We are in the process of evaluating the impact this standard may have, if any, on our reported results of operations or financial position.

 

3. ACQUISITION

On April 30, 2013, we completed the acquisition of all outstanding shares of Dresden Papier GmbH (“Dresden”) from Fortress Paper Ltd. for $211 million, net of cash acquired. Dresden, based in Heidenau, Germany, is the leading global supplier of nonwoven wallpaper base materials, and is a major supplier to most of the world’s largest wallpaper manufacturers. Dresden’s revenue for the full year 2013 was $158.6 million and it employed approximately 146 people at its state-of-the-art, 72,800 short-ton-capacity manufacturing facility. We financed the acquisition through a combination of cash on hand and borrowings under our Revolving Credit Facility.

The acquisition of Dresden added another industry-leading nonwovens product line to our Composite Fibers business, and broadens our relationship with leading producers of consumer and industrial products. The Dresden acquisition also provided additional operational leverage and growth opportunities for Glatfelter globally, particularly in large markets such as Russia and China, and other developing markets in Eastern Europe and Asia.

Dresden now operates as part of our Composite Fibers business unit which manufactures fiber-based products for growing global niche markets including filtration papers for tea and single serve coffee applications, metallized papers, and technical specialties.

The share purchase agreement provides for, among other terms, indemnification provisions for claims that may arise, including among others, uncertain tax positions and other third party claims. The allocation of the purchase price to assets acquired and liabilities assumed is as follows:

 

 

- 6 -

GLATFELTER

9.30.14 Form 10-Q


Table of Contents

In thousands

  As
originally
presented
    Cumulative
adjustments
    Adjusted  

Assets

     

Cash and cash equivalents

  $ 12,227      $ —        $ 12,227   

Accounts receivable

    23,870        —          23,870   

Inventory

    13,864        —          13,864   

Prepaid and other current assets

    6,674        1,386        8,060   

Plant, equipment and timberlands

    60,951        —          60,951   

Intangible assets

    87,596        —          87,596   

Goodwill

    76,256        (1,386     74,870   
 

 

 

   

 

 

   

 

 

 

Total assets

    281,438        —          281,438   

Liabilities

     

Accounts payable

    20,360        (107     20,253   

Deferred tax liabilities

    36,120        —          36,120   

Other long term liabilities

    1,820        107        1,927   
 

 

 

   

 

 

   

 

 

 

Total liabilities

    58,300        —          58,300   
 

 

 

   

 

 

   

 

 

 

Total

    223,138        —          223,138   

less cash acquired

    (12,227     —          (12,227
 

 

 

   

 

 

   

 

 

 

Total purchase price

  $ 210,911      $ —        $ 210,911   
 

 

 

   

 

 

   

 

 

 

The adjustments set forth above primarily relate to the recognition of additional indemnification receivable from the seller associated with certain tax matters. Such adjustments were recorded in the third quarter of 2013 and did not impact previously reported results of operations, earnings per share, or cash flows.

For purposes of allocating the total purchase price, assets acquired and liabilities assumed are recorded at their estimated fair market value. The allocation set forth above is based on management’s estimate of the fair value using valuation techniques such as discounted cash flow models, appraisals and similar methodologies. The amount allocated to intangible assets represents the estimated value of customer relationships, technological know-how and trade name.

Acquired property, plant and equipment are being depreciated on a straight-line basis with estimated remaining lives ranging from 5 years to 30 years. Intangible assets are being amortized on a straight-line basis over an average estimated remaining life of 17 years reflecting the expected future value.

In connection with the Dresden acquisition we recorded $74.9 million of goodwill and $87.6 million of intangible assets. The goodwill arising from the acquisition largely relates to strategic benefits, product and market diversification, assembled workforce, and similar factors. For tax purposes, none of the goodwill is deductible. Intangible assets consisted of $9.8 million of non-amortizing tradename, and the remainder consists of technology and customer relationships.

Our results of operations include the results of Dresden prospectively since the acquisition was completed on April 30, 2013. All such results reported herein are included as part of the Composite Fibers business unit. Revenue of Dresden included in our consolidated results of operations for the third quarter and first nine months of 2014 totaled $38.8 million and $118.4 million, respectively, and operating income for the same periods of 2014 totaled $6.5 million and $23.6 million, respectively.

The table below summarizes pro forma financial information as if the acquisition and related financing transaction occurred as of January 1, 2013:

This unaudited pro forma financial information above is not necessarily indicative of what the operating results would have been had the acquisition been completed at the beginning of the respective period nor is it indicative of future results.

 

In thousands, except per share

   Nine months ended
September 30, 2013
 

Pro forma

  

Net sales

   $ 1,344,623   

Net income

     63,709   

Diluted earnings per share

     1.44   
 

 

- 7 -

GLATFELTER

9.30.14 Form 10-Q


Table of Contents
4. GAINS ON DISPOSITIONS OF PLANT, EQUIPMENT AND TIMBERLANDS, NET

During the first nine months of 2014 and 2013, we completed sales of assets as summarized in the following table:

 

Dollars in thousands

   Acres      Proceeds      Gain  

2014

        

Timberlands

     2,030       $ 4,041       $ 3,876   

Other

     n/a         10         5   
     

 

 

    

 

 

 

Total

      $ 4,051       $ 3,881   
     

 

 

    

 

 

 

2013

        

Timberlands

     172       $ 287       $ 282   

Other

     n/a         92         92   
     

 

 

    

 

 

 

Total

      $ 379       $ 374   
     

 

 

    

 

 

 

 

5. EARNINGS PER SHARE

The following table sets forth the details of basic and diluted earnings per share (“EPS”):

 

     Three months ended
September 30
 

In thousands, except per share

   2014      2013  

Net income

   $ 30,372       $ 34,119   
  

 

 

    

 

 

 

Weighted average common shares outstanding used in basic EPS

     43,049         43,251   

Common shares issuable upon exercise of dilutive stock options and PSAs / RSUs

     792         1,077   
  

 

 

    

 

 

 

Weighted average common shares outstanding and common share equivalents used in diluted EPS

     43,841         44,328   
  

 

 

    

 

 

 

Earnings per share

     

Basic

   $ 0.71       $ 0.79   

Diluted

     0.69         0.77   
     Nine months ended
September 30
 

In thousands, except per share

   2014      2013  

Net income

   $ 49,689       $ 50,681   
  

 

 

    

 

 

 

Weighted average common shares outstanding used in basic EPS

     43,233         43,118   

Common shares issuable upon exercise of dilutive stock options and PSAs / RSUs

     878         1,095   
  

 

 

    

 

 

 

Weighted average common shares outstanding and common share equivalents used in diluted EPS

     44,111         44,213   
  

 

 

    

 

 

 

Earnings per share

     

Basic

   $ 1.15       $ 1.18   

Diluted

     1.13         1.15   

The following table sets forth potential common shares outstanding for stock options and restricted stock units that were not included in the computation of diluted EPS for the period indicated, because their effect would be anti-dilutive:

 

     September 30  
     2014      2013  

Three months ended

     282         —     

Nine months ended

     282         —     
 

 

- 8 -

GLATFELTER

9.30.14 Form 10-Q


Table of Contents
6. ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table sets forth details of the changes in accumulated other comprehensive income (losses) for the three months and nine months ended September 30, 2014 and 2013.

 

in thousands

   Currency
translation
adjustments
    Unrealized
gain (loss)
on

cash flow
hedges
    Change in
pensions
    Change in other
postretirement
defined benefit
plans
    Total  

Balance at July 1, 2014

   $ 15,336      $ 60      $ (84,822   $ 60      $ (69,366

Other comprehensive income before reclassifications (net of tax)

     (33,450     1,379        —          —          (32,071

Amounts reclassified from accumulated other comprehensive income (net of tax)

     —          96        2,363        35        2,494   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net current period other comprehensive income (loss)

     (33,450     1,475        2,363        35        (29,577
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2014

   $ (18,114   $ 1,535      $ (82,459   $ 95      $ (98,943
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at July 1, 2013

   $ (7,914   $ (379   $ (152,056   $ (4,201   $ (164,550

Other comprehensive income before reclassifications (net of tax)

     14,263        (434     —          —          13,829   

Amounts reclassified from accumulated other comprehensive income (net of tax)

     —          280        3,746        48        4,074   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net current period other comprehensive income (loss)

     14,263        (154     3,746        48        17,903   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2013

   $ 6,349      $ (533   $ (148,310   $ (4,153   $ (146,647
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
          
          

Balance at January 1, 2014

   $ 15,141      $ (941   $ (89,547   $ (10   $ (75,357

Other comprehensive income before reclassifications (net of tax)

     (33,255     1,594        —          —          (31,661

Amounts reclassified from accumulated other comprehensive income (net of tax)

     —          882        7,088        105        8,075   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net current period other comprehensive income (loss)

     (33,255     2,476        7,088        105        (23,586
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2014

   $ (18,114   $ 1,535      $ (82,459   $ 95      $ (98,943
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at January 1, 2013

   $ 316      $ (425   $ (159,560   $ (4,297   $ (163,966

Other comprehensive income before reclassifications (net of tax)

     6,033        (575     —          —          5,458   

Amounts reclassified from accumulated other comprehensive income (net of tax)

     —          467        11,250        144        11,861   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net current period other comprehensive income (loss)

     6,033        (108     11,250        144        17,319   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2013

   $ 6,349      $ (533   $ (148,310   $ (4,153   $ (146,647
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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9.30.14 Form 10-Q


Table of Contents

Reclassifications out of accumulated other comprehensive income were as follows:

 

     Three months ended
September 30
    Nine months ended
September 30
     

In thousands

   2014     2013     2014     2013      
Description                            Line Item in Statements of Income

Cash flow hedges (Note 14)

          

(Gains) losses on cash flow hedges

   $ 137      $ 384      $ 1,227      $ 641      Costs of products sold

Tax (benefit) expense

     (41     (104     (345     (174   Income tax provision
  

 

 

   

 

 

   

 

 

   

 

 

   

Net of tax

     96        280        882        467     

Retirement plan obligations (Note 9)

          

Amortization of deferred benefit pension plan items

          

Prior service costs

     621        572        1,864        1,838      Costs of products sold
     206        201        618        483      Selling, general and administrative

Actuarial losses

     2,215        3,792        6,644        12,203      Costs of products sold
     762        1,445        2,287        3,508      Selling, general and administrative
  

 

 

   

 

 

   

 

 

   

 

 

   
     3,804        6,010        11,413        18,032     
     (1,441     (2,264     (4,325     (6,782   Income tax provision
  

 

 

   

 

 

   

 

 

   

 

 

   

Net of tax

     2,363        3,746        7,088        11,250     

Amortization of deferred benefit other plan items

          

Prior service costs

     (59     (100     (178     (301   Costs of products sold
     (13     (25     (38     (74   Selling, general and administrative

Actuarial losses

     106        155        319        465      Costs of products sold
     23        47        68        141      Selling, general and administrative
  

 

 

   

 

 

   

 

 

   

 

 

   
     57        77        171        231     
     (22     (29     (66     (87   Income tax provision
  

 

 

   

 

 

   

 

 

   

 

 

   

Net of tax

     35        48        105        144     
  

 

 

   

 

 

   

 

 

   

 

 

   

Total reclassifications, net of tax

   $ 2,494      $ 4,074      $ 8,075      $ 11,861     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

7. INCOME TAXES

Income taxes are recognized for the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our consolidated financial statements or tax returns. The effects of income taxes are measured based on enacted tax laws and rates.

As of September 30, 2014 and December 31, 2013, we had $13.7 million and $14.9 million of gross unrecognized tax benefits. As of September 30, 2014, if such benefits were to be recognized, approximately $13.7 million would be recorded as a component of income tax expense, thereby affecting our effective tax rate.

We, or one of our subsidiaries, file income tax returns with the United States Internal Revenue Service, as well as various state and foreign authorities.

 

The following table summarizes, by major jurisdiction, tax years that remain subject to examination:

 

     Open Tax Years  

Jurisdiction

   Examinations not
yet initiated
     Examination
in progress
 

United States

     

Federal

     2013         2011 - 2012   

State

     2009 - 2013         2011 - 2012   

Canada (1)

     2010 - 2013         2009   

Germany (1)

     2012 - 2013         2007 - 2011   

France

     2010, 2013         2011 - 2012   

United Kingdom

     2010 - 2013         N/A   

Philippines

     2012 - 2013         2011   

 

(1) – includes provincial or similar local jurisdictions, as applicable
 

 

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Table of Contents

The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities, which often result in proposed assessments. Management performs a comprehensive review of its global tax positions on a quarterly basis and accrues amounts for uncertain tax positions. Based on these reviews and the result of discussions and resolutions of matters with certain tax authorities and the closure of tax years subject to tax audit, reserves are adjusted as necessary. However, future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are determined or resolved or as such statutes are closed. Due to potential for resolution of federal, state and foreign examinations, and the lapse of various statutes of limitation, it is reasonably possible our gross unrecognized tax benefits balance may decrease within the next twelve months by a range of zero to $3.5 million. Substantially all of this range relates to tax positions taken in the U.S. and Germany.

We recognize interest and penalties related to uncertain tax positions as income tax expense. The following table summarizes information related to interest and penalties on uncertain tax positions:

 

     Nine months ended
September 30
 

In millions

   2014      2013  

Interest expense

   $ 0.1       $ (0.1

Penalties

     —           —     
     September 30
2014
     December 31
2013
 

Accrued interest payable

   $ 0.7       $ 0.6   

 

8. STOCK-BASED COMPENSATION

The P. H. Glatfelter Amended and Restated Long Term Incentive Plan (the “LTIP”) provides for the issuance of Glatfelter common stock to eligible participants in the form of restricted stock units, restricted stock awards, non-qualified stock options, performance shares, incentive stock options and performance units.

Pursuant to terms of the LTIP, we have issued to eligible participants restricted stock units, performance share awards and stock only stock appreciation rights.

Restricted Stock Units (“RSU”) and Performance Share Awards (“PSAs”) Awards of RSUs and PSAs are made under our LTIP. The RSUs vest on the passage of time, generally on a graded scale over a three, four, and five-year period, or in certain instances the RSUs were issued with five year cliff vesting. PSAs are issued annually to members of management and each respective grant cliff vests each December 31 of the third year following the grant, assuming the achievement of predetermined, three-year cumulative performance targets. The performance measures include a minimum, target and maximum performance level providing the grantees an opportunity to receive more or less shares than targeted depending on actual financial performance. For both RSUs and PSAs, the grant date fair value of the awards, which is equal to the closing price per common share on the date of the award, is used to determine the amount of expense to be recognized over the applicable service period. Settlement of RSUs and PSAs will be made in shares of our common stock currently held in treasury.

The following table summarizes RSU and PSA activity during periods indicated:

 

Units

   2014     2013  

Balance at January 1,

     1,001,814        847,679   

Granted

     173,206        210,856   

Forfeited

     (45,355     (40,991

Shares delivered

     (239,394     (113,230
  

 

 

   

 

 

 

Balance at September 30,

     890,271        904,314   
  

 

 

   

 

 

 

The amount granted in 2014 and 2013 includes PSAs of 95,691 and 181,670, respectively, exclusive of reinvested dividends.

The following table sets forth aggregate RSU and PSA compensation expense for the periods indicated:

 

     September 30  

In thousands

   2014      2013  

Three months ended

   $ 854       $ 892   

Nine months ended

     1,874         2,216   

Stock Only Stock Appreciation Rights (“SOSARs”) Under terms of the SOSAR, a recipient receives the right to a payment in the form of shares of common stock equal to the difference, if any, in the fair market value of one share of common stock at the time of exercising the SOSAR and the exercise price. The SOSARs vest ratably over a three year period and have a term of ten years.

 

 

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Table of Contents

 

The following table sets forth information related to outstanding SOSARS.

 

     2014      2013  

SOSARS

   Shares     Wtd Avg
Exercise
Price
     Shares     Wtd Avg
Exercise
Price
 

Outstanding at January 1,

     1,977,133      $ 13.91         2,121,454      $ 12.93   

Granted

     281,881        29.22         361,923        18.36   

Exercised

     (26,245     15.67         (435,562     12.63   

Canceled / forfeited

     (29,842     19.36         (73,901     16.25   
  

 

 

      

 

 

   

Outstanding at September 30,

     2,202,927      $ 15.77         1,973,914      $ 13.87   
  

 

 

      

 

 

   

SOSAR Grants

                         

Weighted average grant date fair value per share

   $ 9.81         $ 5.64     

Aggregate grant date fair value (in thousands)

   $ 2,764         $ 2,042     

Black-Scholes assumptions

         

Dividend yield

     1.48        2.18  

Risk free rate of return

     1.74        0.99  

Volatility

     37.59        39.62  

Expected life

     6 yrs           6 yrs     

The following table sets forth SOSAR compensation expense for the periods indicated:

 

     September 30  

In thousands

   2014      2013  

Three months ended

   $ 577       $ 398   

Nine months ended

     1,585         1,198   
9. RETIREMENT PLANS AND OTHER POST-RETIREMENT BENEFITS

The following tables provide information with respect to the net periodic costs of our pension and post retirement medical benefit plans.

 

     Three months ended
September 30
 

In thousands

   2014     2013  

Pension Benefits

    

Service cost

   $ 2,602      $ 2,897   

Interest cost

     6,216        5,504   

Expected return on plan assets

     (10,969     (10,857

Amortization of prior service cost

     827        773   

Amortization of unrecognized loss

     2,977        5,237   
  

 

 

   

 

 

 

Net periodic benefit cost

   $ 1,653      $ 3,554   
  

 

 

   

 

 

 

Other Benefits

    

Service cost

   $ 614      $ 789   

Interest cost

     597        545   

Amortization of prior service cost

     (72     (125

Amortization of unrecognized loss

     129        202   
  

 

 

   

 

 

 

Net periodic benefit cost

   $ 1,268      $ 1,411   
  

 

 

   

 

 

 
    

Nine months ended

September 30

 

In thousands

   2014     2013  

Pension Benefits

    

Service cost

   $ 7,810      $ 8,693   

Interest cost

     18,696        16,504   

Expected return on plan assets

     (32,907     (32,570

Amortization of prior service cost

     2,482        2,321   

Amortization of unrecognized loss

     8,931        15,711   
  

 

 

   

 

 

 

Net periodic benefit cost

   $ 5,012      $ 10,659   
  

 

 

   

 

 

 

Other Benefits

    

Service cost

   $ 1,844      $ 2,367   

Interest cost

     1,793        1,635   

Amortization of prior service cost

     (216     (375

Amortization of unrecognized loss

     387        606   
  

 

 

   

 

 

 

Net periodic benefit cost

   $ 3,808      $ 4,233   
  

 

 

   

 

 

 
 

 

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Table of Contents
10. ASSET IMPAIRMENT CHARGE

During the third quarter of 2014, in connection with our annual test of potential impairment of indefinite lived intangible assets, we recorded a $3.3 million non-cash asset impairment charge related to a trade name intangible asset acquired in connection with the 2013 Dresden acquisition. The charge was due to a change in the estimated fair value of the trade name, primarily driven by a substantial increase in discount rates related to Dresden’s business in Russia and Ukraine and this region’s political instability. The charge is recorded in the accompanying condensed consolidated statements of income under the caption “selling, general and administrative expenses.”

 

11. INVENTORIES

Inventories, net of reserves, were as follows:

 

     September 30      December 31  

In thousands

   2014      2013  

Raw materials

   $ 59,410       $ 59,440   

In-process and finished

     118,620         109,578   

Supplies

     70,025         67,292   
  

 

 

    

 

 

 

Total

   $ 248,055       $ 236,310   
  

 

 

    

 

 

 

 

12. LONG-TERM DEBT

Long-term debt is summarized as follows:

 

     September 30     December 31  

In thousands

   2014     2013  

Revolving credit facility, due Nov. 2016

   $ 93,810      $ 133,540   

5.375% Notes, due Oct. 2020

     250,000        250,000   

2.40% Term Loan, due Jun. 2022

     12,592        —     

2.05% Term Loan, due Mar. 2023

     53,768        58,785   
  

 

 

   

 

 

 

Total long-term debt

     410,170        442,325   

Less current portion

     (3,810     —     
  

 

 

   

 

 

 

Long-term debt, net of current portion

   $ 406,360      $ 442,325   
  

 

 

   

 

 

 

On November 21, 2011, we entered into an amendment to our revolving credit agreement with a consortium of banks (the “Revolving Credit Facility”) which increased the amount available for borrowing to $350 million, extended the maturity of the facility to November 21, 2016, and instituted a lower interest rate pricing grid.

For all U.S. dollar denominated borrowings under the Revolving Credit Facility, the borrowing rate is, at our option, (a) the bank’s base rate which is equal to the greater of i) the prime rate; ii) the federal funds rate plus

50 basis points plus an applicable spread ranging from 25 basis points to 125 basis points based on our corporate credit ratings determined by Standard & Poor’s Rating Services and Moody’s Investor Service, Inc. (the “Corporate Credit Rating”); or iii) the daily Euro-rate plus 100 basis points; or (b) the daily Euro-rate plus an applicable margin ranging from 125 basis points to 225 basis points based on the Corporate Credit Rating. For non-US dollar denominated borrowings, interest is based on (b) above.

The Revolving Credit Facility contains a number of customary covenants for financings of this type that, among other things, restrict our ability to dispose of or create liens on assets, incur additional indebtedness, repay other indebtedness, limits certain intercompany financing arrangements, make acquisitions and engage in mergers or consolidations. We are also required to comply with specified financial tests and ratios including: i) maximum net debt to earnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio (the “leverage ratio”); ii) a consolidated EBITDA to interest expense ratio; and iii) beginning December 31, 2015, a minimum liquidity ratio. The most restrictive of our covenants is a maximum leverage ratio of 3.5x. As of September 30, 2014, the leverage ratio, as calculated in accordance with the definition in our credit agreement, was 2.3x, within the limits set forth in our credit agreement. A breach of these requirements would give rise to certain remedies under the Revolving Credit Facility, among which are the termination of the agreement and accelerated repayment of the outstanding borrowings plus accrued and unpaid interest under the credit facility.

On October 3, 2012, we completed a private placement offering of $250.0 million aggregate principal amount of 5.375% Senior Notes due 2020 (the “5.375% Notes”). The 5.375% Notes are fully and unconditionally guaranteed, jointly and severally, by PHG Tea Leaves, Inc., Mollanvick, Inc., and Glatfelter Holdings, LLC (the “Guarantors”).

Interest on the 5.375% Notes is payable semiannually in arrears on April 15 and October 15, commencing on April 15, 2013.

The 5.375% Notes are redeemable, in whole or in part, at anytime on or after October 15, 2016 at the redemption prices specified in the applicable Indenture. Prior to October 15, 2016, we may redeem some or all of the Notes at a “make-whole” premium as specified in the Indenture. These Notes and the guarantees of the notes are senior obligations of the Company and the Guarantors, respectively, rank equally in right of payment with future senior indebtedness of the Company and the Guarantors and will mature on October 15, 2020.

 

 

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The 5.375% Notes contain various covenants customary to indebtedness of this nature including limitations on i) the amount of indebtedness that may be incurred; ii) certain restricted payments including common stock dividends; iii) distributions from certain subsidiaries; iv) sales of assets; v) transactions amongst subsidiaries; and vi) incurrence of liens on assets. In addition, the 5.375% Notes contain cross default provisions that could result in all such notes becoming due and payable in the event of a failure to repay debt outstanding under the Revolving Credit Agreement at maturity or a default under the Revolving Credit Agreement that accelerates the debt outstanding thereunder. As of September 30, 2014, we met all of the requirements of our debt covenants.

Glatfelter Gernsbach GmbH & Co. KG (“Gernsbach”), a wholly-owned subsidiary of ours, entered into two separate agreements with IKB Deutsche Industriebank AG, Düsseldorf (“IKB”). Pursuant to the first agreement, dated April 11, 2013, Gernsbach borrowed approximately €42.7 million (or $57.6 million) aggregate principal amount (the “2013 IKB Loan”). The 2013 IKB Loan is repayable in 32 quarterly installments beginning on June 30, 2015 and ending on March 31, 2023 and bears interest at a rate of 2.05% per annum.

Pursuant to the second agreement with IKB dated September 4, 2014, Gernsbach borrowed €10.0 million (or $12.6 million) aggregate principal amount (the “2014 IKB Loan”). The 2014 IKB Loan is repayable in 27 quarterly installments beginning on September 30, 2015 and ending on June 30, 2022 and bears interest at a rate of 2.40% per annum. Interest on the IKB Loan or portion thereof is payable quarterly in each year of the term of the loan with interest accruing from the date the loan or portion thereof is drawn.

The IKB loans provide for representations, warranties and covenants customary for financings of these types. The financial covenants contained in each of the IBK loans, which relate to the minimum ratio of consolidated EBITDA to consolidated interest expense and the maximum ratio of consolidated total net debt to consolidated adjusted EBITDA, will be calculated by reference to our Amended and Restated Credit Agreement, dated November 21, 2011.

P. H. Glatfelter Company guarantees all debt obligations of its subsidiaries, including each of the IKB loans. All such obligations are recorded in these condensed consolidated financial statements.

As of September 30, 2014 and December 31, 2013, we had $5.2 million of letters of credit issued to us by certain financial institutions. The letters of credit, which reduce amounts available under our revolving credit

facility, primarily provide financial assurances for the benefit of certain state workers compensation insurance agencies in conjunction with our self-insurance program. We bear the credit risk on this amount to the extent that we do not comply with the provisions of certain agreements. No amounts are outstanding under the letters of credit.

 

13. ASSET RETIREMENT OBLIGATION

During 2008, we recorded $11.5 million, net present value, of asset retirement obligations related to the legal requirement to close several lagoons at the Spring Grove, PA facility. Historically, lagoons were used to dispose of residual waste material. Closure of the lagoons is expected to be completed in 2016 and will be accomplished by filling the lagoons, installing a non-permeable liner which will be covered with soil to construct the required cap over the lagoons. The retirement obligation was accrued with a corresponding increase in the carrying value of the property, equipment and timberlands caption on the consolidated balance sheet. The amount capitalized is being amortized as a charge to operations on the straight-line basis in relation to the expected closure period. Following is a summary of activity recorded during the first nine months of 2014 and 2013:

 

In thousands

   2014     2013  

Balance at January 1,

   $ 5,032      $ 8,882   

Accretion

     115        234   

Payments

     (767     (2,719

Gain

     (128     (1,255
  

 

 

   

 

 

 

Balance at September 30,

   $ 4,252      $ 5,142   
  

 

 

   

 

 

 

The following table summarizes the line items in the accompanying condensed consolidated balance sheets where the asset retirement obligations are recorded:

 

     September 30      December 31  

In thousands

   2014      2013  

Other current liabilities

   $ 2,905       $ 915   

Other long-term liabilities

     1,347         4,117   
  

 

 

    

 

 

 

Total

   $ 4,252       $ 5,032   
  

 

 

    

 

 

 
 

 

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14. FAIR VALUE OF FINANCIAL INSTRUMENTS

The amounts reported on the condensed consolidated balance sheets for cash and cash equivalents and accounts receivable approximate fair value. The following table sets forth carrying value and fair value of long-term debt:

 

     September 30, 2014      December 31, 2013  

In thousands

   Carrying
Value
     Fair
Value
     Carrying
Value
     Fair
Value
 

Fixed-rate bonds

   $ 250,000       $ 257,033       $ 250,000       $ 254,533   

2.40% Term loan

   $ 12,592       $ 12,910         —           —     

2.05% Term loan

     53,768         54,025         58,785         57,952   

Variable rate debt

     93,810         93,810         133,540         133,540   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 410,170       $ 417,778       $ 442,325       $ 446,025   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of September 30, 2014, and December 31, 2013, we had $250.0 million of 5.375% fixed rate bonds. These bonds are publicly registered, but thinly traded. Accordingly, the values set forth above for the bonds, as well as our other debt instruments, are based on observable inputs and other relevant market data (Level 2). The fair value of financial derivatives is set forth below in Note 15.

 

15. FINANCIAL DERIVATIVES AND HEDGING ACTIVITIES

As part of our overall risk management practices, we enter into financial derivatives primarily designed to either i) hedge foreign currency risks associated with forecasted transactions – “cash flow hedges”; or ii) mitigate the impact that changes in currency exchange rates have on intercompany financing transactions and foreign currency denominated receivables and payables – “foreign currency hedges.”

Derivatives Designated as Hedging Instruments—Cash Flow Hedges We use currency forward contracts as cash flow hedges to manage our exposure to fluctuations in the currency exchange rates on certain forecasted production costs expected to be incurred over a maximum of twelve months. Currency forward contracts involve fixing the exchange for delivery of a specified amount of foreign currency on a specified date.

We designate certain currency forward contracts as cash flow hedges of forecasted raw material purchases or certain production costs with exposure to changes in foreign currency exchange rates. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges of foreign exchange risk is deferred as a component of

accumulated other comprehensive income in the accompanying condensed consolidated balance sheets and is subsequently reclassified into costs of products sold in the period that inventory produced using the hedged transaction affects earnings. The ineffective portion of the change in fair value of the derivative is recognized directly to earnings and reflected in the accompanying condensed consolidated statements of income as non-operating income (expense) under the caption “Other-net.”

We had the following outstanding derivatives that were used to hedge foreign exchange risks associated with forecasted transactions and designated as hedging instruments:

 

In thousands    September 30
2014
     December 31
2013
 

Derivative

   Buy Notional  

Sell / Buy

     

Euro / U.S. dollar

     22,631         27,105   

U.S. dollar / Canadian dollar

     8,124         13,077   

Euro / Philippine peso

     439,675         —     

British Pound / Philippine peso

     243,310         —     

Euro / British Pound

     3,358         —     

These contracts have maturities of twelve months or less.

Derivatives Not Designated as Hedging Instruments - Foreign Currency Hedges We also enter into forward foreign exchange contracts to mitigate the impact changes in currency exchange rates have on balance sheet monetary assets and liabilities. None of these contracts are designated as hedges for financial accounting purposes and, accordingly, changes in value of the foreign exchange forward contracts and in the offsetting underlying on-balance-sheet transactions are reflected in the accompanying condensed consolidated statements of income under the caption “Other – net.”

The following sets forth derivatives used to mitigate the impact changes in currency exchange rates have on balance sheet monetary assets and liabilities:

 

In thousands    September 30
2014
    December 31
2013
 

Derivative

   Sell (Buy) Notional  

Sell / Buy

    

U.S. dollar / British Pound

     11,000        6,000   

Euro / British Pound

     (9,000     (8,000

Euro / British Pound

     2,000        5,000   

Canadian dollar / U.S. dollar

     2,000        2,000   

U.S. dollar / Euro

     —          2,000   

Euro / U.S. dollar

     —          9,000   

These contracts have maturities of one month from the date originally entered into.

 

 

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Table of Contents

Fair Value Measurements The following table summarizes the fair values of derivative instruments for the period indicated and the line items in the accompanying condensed consolidated balance sheets where the instruments are recorded:

 

In thousands    September 30
2014
     December 31
2013
     September 30
2014
     December 31
2013
 

Balance sheet
caption

   Prepaid Expenses and Other
Current Assets
     Other
Current Liabilities
 

Designated as hedging:

           

Forward foreign currency exchange contracts

   $ 2,106       $ —         $ 166       $ 1,163   

Not designated as hedging:

           

Forward foreign currency exchange contracts

   $ 10       $ 36       $ 73       $ 46   

The amounts set forth in the table above represent the net asset or liability giving effect to rights of offset with each counterparty. The effect of netting the amounts presented above did not have a material effect on our consolidated financial position.

The following table summarizes the amount of income or (loss) from derivative instruments recognized in our results of operations for the periods indicated and the line items in the accompanying condensed consolidated statements of income where the results are recorded:

 

     Three months ended
September 30
    Nine months ended
September 30
 

In thousands

   2014     2013     2014     2013  

Designated as hedging:

        

Forward foreign currency exchange contracts:

        

Effective portion – cost of products sold

   $ (137   $ (384   $ (1,227   $ (641

Ineffective portion – other – net

     81        49        181        74   

Not designated as hedging:

        

Forward foreign currency exchange contracts:

        

Other – net

   $ 595      $ (348   $ 1,792      $ (794

The impact of activity not designated as hedging was substantially all offset by the remeasurement of the underlying on-balance sheet item.

The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

The fair values of the foreign exchange forward contracts are considered to be Level 2. Foreign currency forward contracts are valued using foreign currency forward and interest rate curves. The fair value of each contract is determined by comparing the contract rate to the forward rate and discounting to present value. Contracts in a gain position are recorded in the condensed consolidated balance sheets under the caption “Prepaid expenses and other current assets” and the value of contracts in a loss position is recorded under the caption “Other current liabilities.”

 

 

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A rollforward of fair value amounts recorded as a component of accumulated other comprehensive income is as follows:

 

In thousands

   2014     2013  

Balance at January 1,

   $ (1,296   $ (599

Deferred (losses) gains on cash flow hedges

     2,223        (778

Reclassified to earnings

     1,227        641   
  

 

 

   

 

 

 

Balance at September 30,

   $ 2,154      $ (736
  

 

 

   

 

 

 

We expect substantially all of the amounts recorded as a component of accumulated other comprehensive income will be realized in results of operations within the next twelve months and the amount ultimately recognized will vary depending on actual market rates.

Credit risk related to derivative activity arises in the event the counterparty fails to meet its obligations to us. This exposure is generally limited to the amounts, if any, by which the counterparty’s obligations exceed our obligation to them. Our policy is to enter into contracts only with financial institutions which meet certain minimum credit ratings.

 

16. SHARE REPURCHASES

The following table summarizes share repurchases made pursuant to a $50 million share repurchase program which expires in May 2016:

 

     shares      (thousands)  

Authorized amount

     n/a       $ 50,000   

Repurchases

     755,310         (16,627
     

 

 

 

Remaining authorization

      $ 33,373   
     

 

 

 

The amounts set forth above include 464,190 shares at a cost of $12.2 million of repurchases completed in 2014.

 

17. COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS

Fox River – Neenah, Wisconsin

Background. We have significant uncertainties associated with environmental claims arising out of the presence of polychlorinated biphenyls (“PCBs”) in sediments in the lower Fox River, on which our former Neenah facility was located, and in the Bay of Green Bay Wisconsin (collectively, the “Site”). Since the early 1990s, the United States, the State of Wisconsin and two Indian tribes (collectively, the “Governments”) have pursued a cleanup of a 39-mile stretch of river from Little Lake Butte des Morts into Green Bay and natural resource damages (“NRDs”).

After giving effect to settlements reached with the Governments, the remaining potentially responsible parties (“PRPs”) consist of us, Georgia-Pacific Consumer Products, L.P. (formerly known as Fort James Operating Company), and NCR Corporation (“NCR”).

The United States Environmental Protection Agency (“EPA”) has divided the Site into five “operable units”, including the most upstream and portion of the site on which our facility was located (“OU1”) and four downstream reaches of the river and bay (“OU2-5”).

The Site has been subject to certain studies and the parties conducted certain demonstration projects and completed certain interim cleanups. The permanent cleanup, known as a “remedial action” under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA” or “Superfund”), consists of sediment dredging, installation of engineered caps, and placement of sand covers in various areas in the bed of the river.

We and WTM I Company implemented the remedial action in OU1 under a consent decree with the Governments; Menasha Corporation made a financial contribution to that work. That project began in 2004 and the work is complete other than on-going monitoring and maintenance.

For the downstream portion of the Site, referred to as OU2-5, work has proceeded primarily under a Unilateral Administrative Order (“UAO”) issued in November 2007 by the EPA to us and seven other respondents. The remedial actions have been funded, to date, primarily by NCR and its indemnitors, including Appvion, Inc. (formerly known as Appleton Papers Inc.). Work is scheduled to continue in OU2-5 through 2017, with monitoring and maintenance to follow.

Although we have not contributed funds towards remedial actions other than in OU1, as more fully discussed below, significant uncertainties exist pertaining to the ultimate allocation of OU2-5 remediation costs as well as the shorter term funding of the remedial actions for OU2-5.

Cost estimates. Estimates of the Site remediation change over time as we, or others, gain additional data and experience at the Site. In addition, disagreement exists over the likely costs for some of this work. On October 14, 2014, the Governments represented to the United States District Court in Green Bay that $1.1 billion provided an “upper end estimate of total past and future response costs” including a $100 million “uncertainty premium for future response costs.” Based upon estimates made by the Governments and independent estimates commissioned by various potentially responsible parties, we have no reason to disagree with the Governments’ assertion. Much of that amount has already been incurred, including approximately $100 million for OU1 and what we believe to be approximately $500 million for OU2-5.

 

 

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The Governments previously indicated their expectation to have work in OU2-5 completed at a rate estimated to cost at least $70 million in 2015 and 2016 and at lower rates thereafter. We understand the cost for the 2015 dredging season may total nearly $90 million.

As the result of a partial settlement, Georgia-Pacific has no obligation to pay for work upstream of a line near Georgia-Pacific’s Green Bay West Mill located in OU4. We believe substantially all in-water work upstream of this line has been completed as of the end of the 2014 dredging season.

NRDs. The Governments’ NRD assessment documents originally claimed we are jointly and severally responsible for NRDs with a value between $176 million and $333 million. The Governments claimed this range should be inflated to current dollars and then certain unreimbursed past assessment costs should be added, so the range of their claim was $287 million to $423 million in 2009.

However, on October 14, 2014, the Governments represented to the district court that if certain settlements providing $45.9 million toward compensation of NRDs were approved the total NRD recovery would amount to $105 million. The Governments would consider those recoveries adequate and they would withdraw their claims against us and NCR for additional compensation of NRDs. Some of the settling parties, including all of the settling parties contributing the $45.9 million, have waived their rights to seek contribution from us of the settlement amounts. We previously paid a portion of the other $59 million in earlier settlements.

Allocation Litigation. In January 2008, NCR and Appvion brought an action in the federal district court in Green Bay to allocate among all of the parties responsible for this Site all of the costs incurred by the Governments, all of the costs incurred by the parties, and all of the NRDs owed to the Natural Resource Trustees. We have previously referred to this case as the “Whiting Litigation.” After several summary judgment rulings and a trial, the trial court entered judgment in the Whiting Litigation, allocating to NCR 100 percent of the costs (a) of the OU2-5 cleanup, (b) NRDs, (c) past and future costs incurred by the Governments in OU2-5, and (d) past and future costs incurred by any of the other parties net of an appropriate equitable adjustment for insurance recoveries. As to Glatfelter, NCR was judged liable to us for $4.28 million and any future costs or damages we may incur. NCR was held not responsible for costs incurred in OU1.

All parties appealed the Whiting Litigation judgment to the United States Court of Appeals for the Seventh Circuit. On September 25, 2014, that court affirmed, holding that if knowledge and fault were the only equitable factors governing allocation of costs and NRDs at the Site, NCR would owe 100% of all costs and damages in OU2-5, but would not have a share of costs in OU1, which is upstream of the outfall of the facilities for which NCR is responsible. However, the court of appeals vacated the judgment and remanded the case for the district court’s further consideration of whether any other equitable factors might cause the district court to alter its allocation. We contend the district court should, after further consideration, reinstate the 100%, or some similar very high, allocation to NCR of all the costs, and we should bear no share or a very small share.

However, in the interim NCR may take a contrary position and seek contributions from others for future work until all allocation issues are resolved. In order to ensure compliance with the UAO and to ensure work continues in OU2-5, in the absence of an agreement amongst us, NCR and Georgia-Pacific, it is possible the Governments may attempt to force the funding while a final allocation in the Whiting Litigation is pursued. We cannot predict the outcome of any such actions or any possible resulting litigation. Therefore, in the interim it is conceivable we may be required to contribute resources to fund a portion of the annual cost of remedial actions in OU2-5. Although we are unable to determine with any degree of certainty the amount we may fund, such amounts could be significant. Any amounts we pay or any other party pays in the interim are likely to be subject to reallocation when the Whiting Litigation is resolved. We do not know the timing of further proceedings in the Whiting Litigation, nor can we predict when it will be finally resolved.

Appvion and NCR have had a cost-sharing agreement since at least 1998. The court of appeals held if Appvion incurred any recoverable costs because the Governments had named Appvion as a potentially responsible party rather than as a consequence of Appvion’s obligations to NCR, then Appvion may have a right to recover those costs under CERCLA. We contend Appvion has no such costs, and if it did, we would have a right to contribution of any recovery against NCR and others.

Enforcement Litigation. In October 2010, the United States and the State of Wisconsin brought an action (“Government Action”) in the federal district court in Green Bay against us and 13 other defendants seeking (a) to recover all of their unreimbursed past costs, (b) a declaration of joint and several liability for all of their future costs, (c) NRDs, and (d) a declaration of liability of all of the respondents on the UAO to perform the remedy

 

 

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in OU2-5 as required by the UAO and a mandatory permanent injunction to the same effect. The last of these claims was tried in 2012, and in May 2013, the district court enjoined us, NCR, WTM I, and Menasha Corp. to perform the work under the UAO. As the result of partial settlements, U.S. Paper Mills Corp. and Georgia-Pacific Consumer Products L.P. agreed to joint and several liability for some of the work. Appvion was held not liable for this Site under CERCLA.

All other potentially responsible parties, including the United States and the State of Wisconsin, have either settled with the Governments or entered into a consent decree that awaits approval from the United States and then the district court. As a result, the remaining defendants consist of us, NCR, and Georgia-Pacific.

We appealed the injunction to the United States Court of Appeals for the Seventh Circuit, as did NCR, WTM I, and Menasha. On September 25, 2014, the court of appeals decided our and NCR’s appeals; the others’ appeals were not decided because they have entered into a settlement that awaits approval. The court of appeals vacated the injunction as to us and NCR. However, it affirmed the district court’s ruling that we are liable for response actions in OU2-5 and for complying with the UAO.

Except as described above with respect to the claim for NRDs, we do not know the Governments’ intentions concerning further litigation of the Government Action, nor do we know the schedule for any further proceedings. We cannot now predict when it will be resolved.

Reserves for the Site. As of September 30, 2014, our reserve for the Site totaled $16.3 million, including our remediation and ongoing monitoring obligations in OU1, our share of remediation of the rest of the Site, NRDs and all pending, threatened or asserted and unasserted claims against us relating to PCB contamination at the Site. Of our total reserve for the Fox River, $0.1 million is recorded in the accompanying condensed consolidated balance sheets under the caption “Environmental liabilities” and the remainder is recorded under the caption “Other long term liabilities.” In the event we are required to fund remediation activities in OU2-5, such developments would affect the classification of the current portion of our reserve.

As described above, the appellate court vacated and remanded for reconsideration the district court’s ruling in the Whiting Litigation that NCR would bear 100% of costs for the downstream portion of the Site. We continue to believe we will not be allocated a significant share of liability in any final equitable allocation of the response costs for OU2-5 or for NRDs. The accompanying condensed consolidated financial statements do not include reserves for any future defense costs, which could be significant, related to our involvement at the Site.

In setting our reserve for the Site, we have assessed our legal defenses, including our successful defenses to the allegations made in the Whiting Litigation and the original determination in the Whiting Litigation that NCR owes us “full contribution” for response costs and for NRDs that we may become obligated to pay except in OU1. We assume we will not bear the entire cost of remediation or damages to the exclusion of other known parties at the Site, who are also jointly and severally liable. The existence and ability of other parties to participate has also been taken into account in setting our reserve, and setting our reserve is generally based on our evaluation of recent publicly available financial information on certain of the responsible parties and any known insurance, indemnity or cost sharing agreements between responsible parties and third parties. In addition, we have considered the magnitude, nature, location and circumstances associated with the various discharges of PCBs to the river and the relationship of those discharges to identified contamination. We will continue to evaluate our exposure and the level of our reserves, including, but not limited to, our potential share of the costs and NRDs, if any, associated with the Site.

Other Information. The Governments have published studies estimating the amount of PCBs discharged by each identified potentially responsible party to the lower Fox River and Green Bay. These reports estimate our Neenah mill’s share of the mass of PCBs discharged to be as high as 27 percent. The district court has found the discharge mass estimates used in these studies not to be accurate. We believe the Neenah mill’s absolute and relative contribution of PCB mass is significantly lower than the estimates set forth in these studies. The trial court in the Government Action has found that the Neenah mill discharged an unknown amount of PCBs.

Based upon the rulings in the Whiting Litigation and the Government Action, neither of which endorsed an equitable allocation in proportion to the mass of PCBs discharged, we continue to believe an allocation in proportion to mass of PCBs discharged would not constitute an equitable allocation of the potential liability for the contamination at the Fox River. We contend other factors, such as a party’s role in causing costs, the location of discharge, and the location of contamination must be considered in order for the allocation to be equitable.

 

 

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Range of Reasonably Possible Outcomes. Our analysis of the range of reasonably possible outcomes is derived from all available information, including but not limited to decisions of the courts, official documents such as records of decision, discussions with the United States and other parties, as well as legal counsel and engineering consultants. Based on our analysis of the current records of decision and cost estimates for work to be performed at the Site, and substantially dependent on the resolution of the allocation arguments discussed above, we believe it is reasonably possible that our costs associated with the Fox River matter could exceed the aggregate amounts accrued for the Fox River matter by amounts ranging from insignificant to $185 million.

We expect remediation costs to be incurred primarily over the next two to three years, although we are unable to determine with any degree of certainty whether we will be required to share in the funding of the downstream remediation. We believe the likelihood of an outcome in the upper end of the monetary range is significantly less than other possible outcomes within the range and the possibility of an outcome in excess of the upper end of the monetary range is remote.

However, we cannot predict the outcome of any actions related to interim funding. To the extent we are required to provide any such interim funding, we contend that NCR or another party would be required to reimburse us once the final allocation is determined.

Summary. Our current assessment is we will be able to manage this environmental matter without a long-term, material adverse impact on the Company. This matter could, however, at any particular time or for any particular year or years, have a material adverse effect on our consolidated financial position, liquidity and/or results of operations or could result in a default under our debt covenants. Moreover, there can be no assurance our reserves will be adequate to provide for future obligations related to this matter, or our share of costs and/or damages will not exceed our available resources, or those obligations will not have a long-term, material adverse effect on our consolidated financial position, liquidity or results of operations. Should a court grant the United States or the State of Wisconsin relief requiring us individually either to perform directly or to contribute significant amounts towards remedial action downstream of Little Lake Butte des Morts those developments could have a material adverse effect on our consolidated financial position, liquidity and results of operations and might result in a default under our loan covenants.

 

 

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18. SEGMENT INFORMATION

The following tables set forth financial and other information by business unit for the period indicated:

 

Three months ended September 30

Dollars in millions

   Composite Fibers      Advanced Airlaid
Materials
     Specialty Papers      Other and
Unallocated
    Total  
     2014      2013      2014      2013      2014      2013      2014     2013     2014     2013  

Net sales

   $ 154.5       $ 161.5       $ 74.4       $ 69.5       $ 236.2       $ 225.7       $ —        $ —        $ 465.1      $ 456.6   

Energy and related sales, net

     —           —           —           —           0.9         1.2         —          —          0.9        1.2   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     154.5         161.5         74.4         69.5         237.1         226.9         —          —          466.0        457.8   

Cost of products sold

     123.7         129.5         64.7         63.7         195.2         196.4         1.8        2.3        385.4        391.8   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss)

     30.8         31.9         9.7         5.8         41.9         30.5         (1.8     (2.3     80.5        66.0   

SG&A

     12.6         13.0         2.2         1.9         14.1         12.5         9.0        7.1        37.9        34.5   

Gains on dispositions of plant, equipment and timberlands, net

     —           —           —           —           —           —           (1.6     (0.3     (1.6     (0.3
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total operating income (loss)

     18.1         18.9         7.5         3.9         27.8         18.1         (9.2     (9.1     44.2        31.8   

Non-operating expense

     —           —           —           —           —           —           (4.8     (4.7     (4.8     (4.7
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

   $ 18.1       $ 18.9       $ 7.5       $ 3.9       $ 27.8       $ 18.1       $ (14.0   $ (13.8   $ 39.4      $ 27.1   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Supplementary Data

                          

Net tons sold (thousands)

     40.1         40.3         26.3         24.8         208.4         203.6         —          —          274.7        268.7   

Depreciation, depletion and amortization

   $ 7.4       $ 7.1       $ 2.3       $ 2.2       $ 6.5       $ 8.3       $ 0.5      $ 0.4      $ 16.7      $ 18.0   

Capital expenditures

     5.4         12.8         1.3         0.8         9.7         11.1         0.5        0.7        16.9        25.3   

Nine months ended September 30

Dollars in millions

   Composite Fibers      Advanced Airlaid
Materials
     Specialty Papers      Other and
Unallocated
    Total  
     2014      2013      2014      2013      2014      2013      2014     2013     2014     2013  

Net sales

   $ 470.1       $ 415.9       $ 216.2       $ 202.2       $ 679.9       $ 669.8       $ —        $ —        $ 1,366.2      $ 1,287.8   

Energy and related sales, net

     —           —           —           —           6.9         2.7         —          —          6.9        2.7   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     470.1         415.9         216.2         202.2         686.8         672.5         —          —          1,373.1        1,290.5   

Cost of products sold

     376.7         334.5         189.9         182.0         624.3         599.7         5.2        10.0        1,196.1        1,126.3   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss)

     93.4         81.3         26.3         20.1         62.5         72.8         (5.2     (10.0     177.0        164.3   

SG&A

     38.8         34.4         6.8         6.4         39.5         40.3         18.7        21.3        103.8        102.5   

Gains on dispositions of plant, equipment and timberlands, net

     —           —           —           —           —           —           (3.9     (0.4     (3.9     (0.4
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total operating income (loss)

     54.6         46.9         19.5         13.7         23.0         32.5         (20.0     (31.0     77.1        62.1   

Non-operating expense

     —           —           —           —           —           —           (14.0     (12.5     (14.0     (12.5
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

   $ 54.6       $ 46.9       $ 19.5       $ 13.7       $ 23.0       $ 32.5       $ (34.0   $ (43.5   $ 63.1      $ 49.6   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Supplementary Data

                          

Net tons sold (thousands)

     119.5         97.9         76.0         72.4         601.3         601.6         —          —          796.8        771.9   

Depreciation, depletion and amortization

   $ 22.7       $ 17.7       $ 6.9       $ 6.6       $ 22.6       $ 24.9       $ 1.3      $ 0.8      $ 53.5      $ 50.0   

Capital expenditures

     16.7         49.0         4.1         4.8         24.5         27.9         1.7        4.4        47.0        86.1   

The sum of individual amounts set forth above may not agree to the consolidated financial statements included herein due to rounding.

On April 30, 2013, we completed the acquisition of Dresden for $211 million. Dresden’s results are included prospectively from the acquisition date as part of the Composite Fibers business unit. For additional information related to this acquisition, refer to Note 3 – Acquisition.

 

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19. CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

Our 5.375% Notes issued by P. H. Glatfelter Company (the “Parent”) are fully and unconditionally guaranteed, on a joint and several basis, by certain of our 100%-owned domestic subsidiaries, PHG Tea Leaves, Inc., Mollanvick, Inc., and Glatfelter Holdings, LLC. The guarantees are subject to certain customary release provisions including i) the designation of such subsidiary as an unrestricted or excluded subsidiary; (ii) in connection with any sale or disposition of the capital stock of the subsidiary guarantor; and (iii) upon our exercise of our legal defeasance option or our covenant defeasance option, all of which are more fully described in the Indenture dated as of October 3, 2012 among us, the Guarantors and US Bank National Association, as Trustee, relating to the 5.375% Notes. The following presents our condensed consolidating statements of income, including comprehensive income for the three months and nine months ended September 30, 2014 and 2013, our condensed consolidating balance sheets as of September 30, 2014 and December 31, 2013 and condensed consolidating cash flows for the nine months ended September 30, 2014 and 2013. These financial statements reflect the parent, the guarantor subsidiaries (on a combined basis), the non-guarantor subsidiaries (on a combined basis) and elimination entries necessary to combine such entities on a consolidated basis. Effective December 31, 2013, Glatfelter Pulpwood Company, previously a guarantor, was merged with and into the parent. Accordingly, all condensed consolidating financial statements have been restated to give effect to this merger as of the earliest period presented. In addition, the amounts of intercompany investing and financing activities and the related interest expense and interest income previously presented net for the nine months ended September 30, 2013 have been presented on a gross basis to conform to the current year’s presentation.

Condensed Consolidating Statements of Income and Comprehensive Income for the

three months ended September 30, 2014

 

In thousands

   Parent
Company
    Guarantors     Non
Guarantors
    Adjustments/
Eliminations
    Consolidated  

Net sales

   $ 236,182      $ 7      $ 228,910      $ (7   $ 465,092   

Energy and related sales, net

     860        —          —          —          860   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     237,042        7        228,910        (7     465,952   

Costs of products sold

     196,888        7        188,551        (7     385,439   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     40,154        —          40,359        —          80,513   

Selling, general and administrative expenses

     19,352        306        18,228        —          37,886   

Gains on dispositions of plant, equipment and timberlands, net

     (1,590     —          —          —          (1,590
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     22,392        (306     22,131        —          44,217   

Other non-operating income (expense)

          

Interest expense

     (4,790     —          (90,098     90,217        (4,671

Interest income

     152        89,951        145        (90,218     30   

Other, net

     14,491        90,952        202        (105,812     (167
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other non-operating income (expense)

     9,853        180,903        (89,751     (105,813     (4,808
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     32,245        180,597        (67,620     (105,813     39,409   

Income tax provision

     1,873        470        6,694        —          9,037   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     30,372        180,127        (74,314     (105,813     30,372   

Other comprehensive income (loss)

     (29,577     (25,844     16,924        8,920        (29,577
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ 795      $ 154,283      $ (57,390     96,893      $ 795   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

- 22 -

GLATFELTER

9.30.14 Form 10-Q


Table of Contents

Condensed Consolidating Statements of Income and Comprehensive Income for the

three months ended September 30, 2013

 

In thousands

   Parent
Company
    Guarantors     Non
Guarantors
    Adjustments/
Eliminations
    Consolidated  

Net sales

   $ 225,690      $ 3      $ 230,958      $ (3   $ 456,648   

Energy and related sales, net

     1,196        —          —          —          1,196   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     226,886        3        230,958        (3     457,844   

Costs of products sold

     199,596        3        192,209        (3     391,805   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     27,290        —          38,749        —          66,039   

Selling, general and administrative expenses

     16,203        190        18,087        —          34,480   

(Gains) loss on dispositions of plant, equipment and timberlands, net

     (285     —          3        —          (282
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     11,372        (190     20,659        —          31,841   

Other non-operating income (expense)

          

Interest expense

     (4,721     —          (2,537     2,470        (4,788

Interest income

     183        2,376        3        (2,470     92   

Other, net

     18,341        103        (587     (17,891     (34
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other non-operating income (expense)

     13,803        2,479        (3,121     (17,891     (4,730
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     25,175        2,289        17,538        (17,891     27,111   

Income tax provision (benefit)

     (8,944     (891     2,827        —          (7,008
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     34,119        3,180        14,711        (17,891     34,119   

Other comprehensive income (loss)

     17,903        6,400        (219     (6,181     17,903   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 52,022      $ 9,580      $ 14,492      $ (24,072   $ 52,022   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

- 23 -

GLATFELTER

9.30.14 Form 10-Q


Table of Contents

Condensed Consolidating Statements of Income and Comprehensive Income for the nine

months ended September 30, 2014

 

In thousands

   Parent
Company
    Guarantors     Non
Guarantors
    Adjustments/
Eliminations
    Consolidated  

Net sales

   $ 679,877      $ 28      $ 686,277      $ (28   $ 1,366,154   

Energy and related sales – net

     6,912        —          —          —          6,912   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     686,789        28        686,277        (28     1,373,066   

Costs of products sold

     629,360        28        566,716        (28     1,196,076   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     57,429        —          119,561        —          176,990   

Selling, general and administrative expenses

     53,699        462        49,590        —          103,751   

Gains on dispositions of plant, equipment and timberlands, net

     (2,565     (1,316     —          —          (3,881
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     6,295        854        69,971        —          77,120   

Other non-operating income (expense)

          

Interest expense

     (14,284     —          (95,643     95,682        (14,245

Interest income

     468        95,165        193        (95,683     143   

Other, net

     54,789        90,973        1,673        (147,330     105   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other non-operating income (expense)

     40,973        186,138        (93,777     (147,331     (13,997
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     47,268        186,992        (23,806     (147,331     63,123   

Income tax provision (benefit)

     (2,421     2,098        13,757        —          13,434   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     49,689        184,894        (37,563     (147,331     49,689   

Other comprehensive income (loss)

     (23,586     (26,392     18,907        7,485        (23,586
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ 26,103      $ 158,502      $ (18,656   $ (139,846   $ 26,103   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

- 24 -

GLATFELTER

9.30.14 Form 10-Q


Table of Contents

Condensed Consolidating Statements of Income and Comprehensive Income for the nine

months ended September 30, 2013

 

In thousands

   Parent
Company
    Guarantors     Non
Guarantors
    Adjustments/
Eliminations
    Consolidated  

Net sales

   $ 669,792      $ 15      $ 618,012      $ (15   $ 1,287,804   

Energy and related sales, net

     2,721        —          —          —          2,721   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     672,513        15        618,012        (15     1,290,525   

Costs of products sold

     609,524        15        516,747        (15     1,126,271   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     62,989        —          101,265        —          164,254   

Selling, general and administrative expenses

     54,256        293        47,946        —          102,495   

Gains on dispositions of plant, equipment and timberlands, net

     (374     —          —          —          (374
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     9,107        (293     53,319        —          62,133   

Other non-operating income (expense)

          

Interest expense

     (14,141     —          (5,008     6,006        (13,143

Interest income

     443        5,791        12        (6,006     240   

Other, net

     42,437        94        868        (43,011     388   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other non-operating income (expense)

     28,739        5,885        (4,128     (43,011     (12,515
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     37,846        5,592        49,191        (43,011     49,618   

Income tax provision (benefit)

     (12,835     419        11,353        —          (1,063
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     50,681        5,173        37,838        (43,011     50,681   

Other comprehensive income

     17,319        3,171        (5,078     1,907        17,319   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 68,000      $ 8,344      $ 32,760      $ (41,104   $ 68,000   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

- 25 -

GLATFELTER

9.30.14 Form 10-Q


Table of Contents

Condensed Consolidating Balance Sheet as of

September 30, 2014

 

In thousands

   Parent
Company
     Guarantors     Non
Guarantors
    Adjustments/
Eliminations
    Consolidated  
Assets            

Cash and cash equivalents

   $ 20,308       $ 93      $ 33,254      $ —        $ 53,655   

Other current assets

     238,216         420,388        313,091        (471,667     500,028   

Plant, equipment and timberlands, net

     250,066         998        440,576        —          691,640   

Other assets

     1,007,426         304,088        191,166        (1,151,259     351,421   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 1,516,016       $ 725,567      $ 978,087      $ (1,622,926   $ 1,596,744   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
Liabilities and Shareholders’ Equity            

Current liabilities

   $ 400,103       $ 5,026      $ 323,128      $ (476,317   $ 251,940   

Long-term debt

     250,000         —          749,491        (593,131     406,360   

Deferred income taxes

     73,961         (628     70,076        (12,732     130,677   

Other long-term liabilities

     103,772         —          11,792        4,023        119,587   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities

     827,836         4,398        1,154,487        (1,078,157     908,564   

Shareholders’ equity

     688,180         721,169        (176,400     (544,769     688,180   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 1,516,016       $ 725,567      $ 978,087      $ (1,622,926   $ 1,596,744   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Condensed Consolidating Balance Sheet as of

December 31, 2013

 

In thousands

   Parent
Company
     Guarantors     Non
Guarantors
     Adjustments/
Eliminations
    Consolidated  
Assets             

Cash and cash equivalents

   $ 56,216       $ 501      $ 66,165       $ —        $ 122,882   

Other current assets

     208,814         327,152        253,779         (326,045     463,700   

Plant, equipment and timberlands, net

     247,243         1,054        475,043         —          723,340   

Other assets

     973,748         236,411        214,301         (1,055,972     368,488   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total assets

   $ 1,486,021       $ 565,118      $ 1,009,288       $ (1,382,017   $ 1,678,410   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 
Liabilities and Shareholders’ Equity             

Current liabilities

   $ 375,535       $ 2,855      $ 247,855       $ (337,878   $ 288,367   

Long-term debt

     250,000         —          513,120         (320,795     442,325   

Deferred income taxes

     70,989         (283     78,633         (8,319     141,020   

Other long-term liabilities

     105,021         —          13,792         3,409        122,222   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities

     801,545         2,572        853,400         (663,583     993,934   

Shareholders’ equity

     684,476         562,546        155,888         (718,434     684,476   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 1,486,021       $ 565,118      $ 1,009,288       $ (1,382,017   $ 1,678,410   
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

- 26 -

GLATFELTER

9.30.14 Form 10-Q


Table of Contents

Condensed Consolidating Statement of Cash Flows for the nine

months ended September 30, 2014

 

In thousands

   Parent
Company
    Guarantors     Non
Guarantors
    Adjustments/
Eliminations
    Consolidated  

Net cash provided (used) by

          

Operating activities

   $ 712      $ 3,368      $ 17,300      $ —        $ 21,380   

Investing activities

          

Expenditures for purchases of plant, equipment and timberlands

     (26,368     —          (20,668     —          (47,036

Proceeds from disposal plant, equipment and timberlands, net

     2,687        1,355        9        —          4,051   

Repayments from intercompany loans

     —          10,409        —          (10,409     —     

Advances of intercompany loans

     —          (15,540     —          15,540        —     

Other

     (600     —          —          —          (600
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investing activities

     (24,281     (3,776     (20,659     5,131        (43,585

Financing activities

          

Net repayments of indebtedness

     —          —          (18,128     —          (18,128

Payment of dividends to shareholders

     (13,935     —          —          —          (13,935

Repurchases of common stock

     (12,180     —          —          —          (12,180

Repayments of intercompany loans

     —          —          (10,409     10,409        —     

Borrowings of intercompany loans

     15,540        —          —          (15,540     —     

Payments related to share-based comp- ensation awards and other

     (1,764     —          —          —          (1,764
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total financing activities

     (12,339     —          (28,537     (5,131     (46,007

Effect of exchange rate on cash

     —          —          (1,015     —          (1,015
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net decrease in cash

     (35,908     (408     (32,911     —          (69,227

Cash at the beginning of period

     56,216        501        66,165        —          122,882   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash at the end of period

   $ 20,308      $ 93      $ 33,254      $ —        $ 53,655   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

- 27 -

GLATFELTER

9.30.14 Form 10-Q


Table of Contents

Condensed Consolidating Statement of Cash Flows for the nine

months ended September 30, 2013

 

In thousands

   Parent
Company
    Guarantors     Non
Guarantors
    Adjustments/
Eliminations
    Consolidated  

Net cash provided (used) by

          

Operating activities

   $ 30,380      $ 10,857      $ 54,247      $ 209      $ 95,693   

Investing activities

          

Expenditures for purchases of plant, equipment and timberlands

     (32,075     —          (53,805     (209     (86,089

Proceeds from disposal plant, equipment and timberlands, net

     379        —          —          —          379   

Repayments from intercompany loans

     —          15,100        —          (15,100     —     

Advances of intercompany loans

     —          (30,066     —