From 10-Q
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 June 30, 2012
or
¨ |
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to
96 South George Street, Suite 520
York, Pennsylvania 17401
(Address of principal executive offices)
(717) 225-4711
(Registrants 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 x 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 x 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 |
|
¨ |
|
Accelerated filer |
|
x |
|
|
|
|
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 x.
Common Stock outstanding on July 23, 2012 totaled 42,660,371 shares.
P. H. GLATFELTER COMPANY AND
SUBSIDIARIES
REPORT ON FORM 10-Q
For the QUARTERLY PERIOD ENDED
JUNE 30, 2012
Table of Contents
PART I
Item
1 Financial Statements
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30 |
|
|
Six months ended June 30 |
|
In thousands, except per share |
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
|
|
|
|
Net sales |
|
$ |
384,693 |
|
|
$ |
397,985 |
|
|
$ |
782,045 |
|
|
$ |
794,756 |
|
Energy and related sales net |
|
|
1,630 |
|
|
|
2,060 |
|
|
|
3,491 |
|
|
|
5,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
386,323 |
|
|
|
400,045 |
|
|
|
785,536 |
|
|
|
799,803 |
|
Costs of products sold |
|
|
345,445 |
|
|
|
362,545 |
|
|
|
683,688 |
|
|
|
702,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
40,878 |
|
|
|
37,500 |
|
|
|
101,848 |
|
|
|
97,667 |
|
|
|
|
|
|
Selling, general and administrative expenses |
|
|
30,113 |
|
|
|
31,320 |
|
|
|
60,080 |
|
|
|
63,090 |
|
Gains on dispositions of plant, equipment and timberlands, net |
|
|
(6,961 |
) |
|
|
(29 |
) |
|
|
(6,998 |
) |
|
|
(3,204 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
17,726 |
|
|
|
6,209 |
|
|
|
48,766 |
|
|
|
37,781 |
|
Non-operating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(4,159 |
) |
|
|
(6,461 |
) |
|
|
(8,428 |
) |
|
|
(12,921 |
) |
Interest income |
|
|
103 |
|
|
|
150 |
|
|
|
226 |
|
|
|
357 |
|
Other net |
|
|
103 |
|
|
|
(275 |
) |
|
|
299 |
|
|
|
(268 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
(3,953 |
) |
|
|
(6,586 |
) |
|
|
(7,903 |
) |
|
|
(12,832 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
13,773 |
|
|
|
(377 |
) |
|
|
40,863 |
|
|
|
24,949 |
|
Income tax provision (benefit) |
|
|
341 |
|
|
|
(2,878 |
) |
|
|
8,553 |
|
|
|
5,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
13,432 |
|
|
$ |
2,501 |
|
|
$ |
32,310 |
|
|
$ |
19,927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.31 |
|
|
$ |
0.05 |
|
|
$ |
0.75 |
|
|
$ |
0.43 |
|
Diluted |
|
|
0.31 |
|
|
|
0.05 |
|
|
|
0.74 |
|
|
|
0.43 |
|
|
|
|
|
|
Cash dividends declared per common share |
|
$ |
0.09 |
|
|
$ |
0.09 |
|
|
$ |
0.18 |
|
|
$ |
0.18 |
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
42,854 |
|
|
|
46,080 |
|
|
|
42,802 |
|
|
|
46,075 |
|
Diluted |
|
|
43,558 |
|
|
|
46,633 |
|
|
|
43,529 |
|
|
|
46,502 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
- 2 -
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30 |
|
|
Six months ended June 30 |
|
In thousands |
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
|
|
|
|
Net income |
|
$ |
13,432 |
|
|
$ |
2,501 |
|
|
$ |
32,310 |
|
|
$ |
19,927 |
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
(14,049 |
) |
|
|
3,791 |
|
|
|
(4,575 |
) |
|
|
18,268 |
|
Deferred losses on cash flow hedges, net of taxes of $183, $6, $(137), and $6, respectively |
|
|
479 |
|
|
|
16 |
|
|
|
(341 |
) |
|
|
16 |
|
Amortization of unrecognized retirement obligations, net of taxes of $1,753, $1,368, $3,644, and $3,026,
respectively |
|
|
2,951 |
|
|
|
2,167 |
|
|
|
5,948 |
|
|
|
4,675 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
(10,619 |
) |
|
|
5,974 |
|
|
|
1,032 |
|
|
|
22,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
2,813 |
|
|
$ |
8,475 |
|
|
$ |
33,342 |
|
|
$ |
42,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 3 -
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
|
|
|
|
|
|
|
|
|
In thousands |
|
June 30 2012 |
|
|
December 31 2011 |
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
23,437 |
|
|
$ |
38,277 |
|
Accounts receivable net |
|
|
146,819 |
|
|
|
135,412 |
|
Inventories |
|
|
227,128 |
|
|
|
206,707 |
|
Prepaid expenses and other current assets |
|
|
47,735 |
|
|
|
42,017 |
|
|
|
|
|
|
|
|
|
|
Total current assets |
|
|
445,119 |
|
|
|
422,413 |
|
|
|
|
Plant, equipment and timberlands net |
|
|
595,055 |
|
|
|
601,950 |
|
|
|
|
Other assets |
|
|
114,610 |
|
|
|
112,562 |
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,154,784 |
|
|
$ |
1,136,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity |
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
118,052 |
|
|
$ |
109,490 |
|
Dividends payable |
|
|
3,894 |
|
|
|
3,902 |
|
Environmental liabilities |
|
|
250 |
|
|
|
250 |
|
Other current liabilities |
|
|
106,443 |
|
|
|
97,598 |
|
|
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
228,639 |
|
|
|
211,240 |
|
|
|
|
Long-term debt |
|
|
218,000 |
|
|
|
227,000 |
|
|
|
|
Deferred income taxes |
|
|
54,328 |
|
|
|
69,791 |
|
|
|
|
Other long-term liabilities |
|
|
137,776 |
|
|
|
138,490 |
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
638,743 |
|
|
|
646,521 |
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
|
|
|
|
|
|
Common stock |
|
|
544 |
|
|
|
544 |
|
Capital in excess of par value |
|
|
51,826 |
|
|
|
51,477 |
|
Retained earnings |
|
|
800,349 |
|
|
|
775,825 |
|
Accumulated other comprehensive loss |
|
|
(165,709 |
) |
|
|
(166,741 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
687,010 |
|
|
|
661,105 |
|
Less cost of common stock in treasury |
|
|
(170,969 |
) |
|
|
(170,701 |
) |
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
516,041 |
|
|
|
490,404 |
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
1,154,784 |
|
|
$ |
1,136,925 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
- 4 -
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30 |
|
In thousands |
|
2012 |
|
|
2011 |
|
|
|
|
Operating activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
32,310 |
|
|
$ |
19,927 |
|
Adjustments to reconcile to net cash provided by operations: |
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
|
34,053 |
|
|
|
34,257 |
|
Amortization of debt issue costs and original issue discount |
|
|
608 |
|
|
|
1,331 |
|
Pension expense, net of unfunded benefits paid |
|
|
5,141 |
|
|
|
3,733 |
|
Deferred income tax provision (benefit) |
|
|
(26,040 |
) |
|
|
9,916 |
|
Gains on dispositions of plant, equipment and timberlands, net |
|
|
(6,998 |
) |
|
|
(3,204 |
) |
Share-based compensation |
|
|
3,336 |
|
|
|
2,860 |
|
Cellulosic biofuel and alternative fuel mixture credits |
|
|
|
|
|
|
17,833 |
|
Change in operating assets and liabilities |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(12,779 |
) |
|
|
(18,426 |
) |
Inventories |
|
|
(21,166 |
) |
|
|
(16,647 |
) |
Prepaid and other current assets |
|
|
2,458 |
|
|
|
(8,685 |
) |
Accounts payable |
|
|
9,825 |
|
|
|
18,263 |
|
Environmental matters |
|
|
(26 |
) |
|
|
|
|
Accruals and other current liabilities |
|
|
6,948 |
|
|
|
(4,928 |
) |
Other |
|
|
862 |
|
|
|
(7,917 |
) |
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
28,532 |
|
|
|
48,313 |
|
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
Expenditures for purchases of plant, equipment and timberlands |
|
|
(30,587 |
) |
|
|
(27,877 |
) |
Proceeds from disposals of plant, equipment and timberlands, net |
|
|
7,189 |
|
|
|
3,440 |
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(23,398 |
) |
|
|
(24,437 |
) |
|
|
|
Financing activities |
|
|
|
|
|
|
|
|
Net repayments of revolving credit facility |
|
|
(9,000 |
) |
|
|
|
|
Net repayments of other short term debt |
|
|
|
|
|
|
(798 |
) |
Repurchase of common stock |
|
|
(3,565 |
) |
|
|
(4,369 |
) |
Payments of dividends |
|
|
(7,800 |
) |
|
|
(8,396 |
) |
Proceeds from stock options exercised and other |
|
|
629 |
|
|
|
117 |
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities |
|
|
(19,736 |
) |
|
|
(13,446 |
) |
|
|
|
Effect of exchange rate changes on cash |
|
|
(238 |
) |
|
|
2,078 |
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(14,840 |
) |
|
|
12,508 |
|
Cash and cash equivalents at the beginning of period |
|
|
38,277 |
|
|
|
95,788 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of period |
|
$ |
23,437 |
|
|
$ |
108,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information |
|
|
|
|
|
|
|
|
Cash paid (received) for |
|
|
|
|
|
|
|
|
Interest, net of amounts capitalized |
|
$ |
7,625 |
|
|
$ |
11,551 |
|
Income taxes |
|
|
22,214 |
|
|
|
(10,906 |
) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
- 5 -
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
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; Gloucestershire (Lydney), England; Caerphilly,
Wales; Gernsbach and Falkenhagen, Germany; Scaër, France; and the Philippines. Our products are marketed worldwide, either through wholesale merchants, brokers and agents or directly to customers.
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). 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 2011 Annual Report on Form 10-K (2011 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 June 2011, the
Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2011-05, Presentation of Comprehensive Income. This ASU is designed to improve the comparability and
transparency of other comprehensive income components. The guidance provides an option to present total comprehensive income, the components of net income and the components of other comprehensive income in a single continuous statement or two
separate but consecutive statements. This ASU eliminates the option to present other comprehensive income components as part of the statement of changes in shareholders equity. The provisions of this ASU are required to be applied
retrospectively. We have adopted this standard by presenting a separate consecutive statement of comprehensive income beginning in the first quarter of 2012.
In September 2011, the FASB updated ASC 350, Intangibles Goodwill and Other to provide an entity the option, when evaluating goodwill and other assets for possible impairment, to first
assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after completing this
assessment, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. This update became effective for us beginning
January 1, 2012.
In May 2011, the FASB issued ASU 2011-04, Fair Value Measurement (Topic 820):
Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS, which provides common requirements for measuring fair value and disclosing information about fair value measurements in accordance
with U.S. GAAP and International Financial Reporting Standards. We adopted this standard in the first quarter of 2012 and it did not have a material impact on us.
- 6 -
3. |
GAINS (LOSSES) ON DISPOSITIONS OF PLANT, EQUIPMENT AND TIMBERLANDS |
Sales of timberlands and other assets in the first six months of 2012 and 2011 are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands |
|
Acres |
|
|
Proceeds |
|
|
Gain |
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
Timberlands |
|
|
3,345 |
|
|
$ |
6,584 |
|
|
$ |
6,415 |
|
Other |
|
|
|
|
|
|
605 |
|
|
|
583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
7,189 |
|
|
$ |
6,998 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
Timberlands |
|
|
717 |
|
|
$ |
3,373 |
|
|
$ |
3,158 |
|
Other |
|
|
|
|
|
|
67 |
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
3,440 |
|
|
$ |
3,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The 2012 timberland sales were all completed in the second quarter and the 2011 timberland sales were all completed in the first
quarter. We received cash proceeds for all sales summarized above.
The following table sets forth the details of basic and diluted earnings per share (EPS):
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30 |
|
In thousands, except per share |
|
2012 |
|
|
2011 |
|
Net income |
|
$ |
13,432 |
|
|
$ |
2,501 |
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding used in basic EPS |
|
|
42,854 |
|
|
|
46,080 |
|
Common shares issuable upon exercise of dilutive stock options and PSAs / RSUs |
|
|
704 |
|
|
|
553 |
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding and common share equivalents used in diluted EPS |
|
|
43,558 |
|
|
|
46,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.31 |
|
|
$ |
0.05 |
|
Diluted |
|
|
0.31 |
|
|
|
0.05 |
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30 |
|
In thousands, except per share |
|
2012 |
|
|
2011 |
|
Net income |
|
$ |
32,310 |
|
|
$ |
19,927 |
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding used in basic EPS |
|
|
42,802 |
|
|
|
46,075 |
|
Common shares issuable upon exercise of dilutive stock options and PSAs / RSUs |
|
|
727 |
|
|
|
427 |
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding and common share equivalents used in diluted EPS |
|
|
43,529 |
|
|
|
46,502 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.75 |
|
|
$ |
0.43 |
|
Diluted |
|
|
0.74 |
|
|
|
0.43 |
|
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:
|
|
|
|
|
|
|
|
|
|
|
2012 |
|
|
2011 |
|
Three months ended June 30 |
|
|
558,870 |
|
|
|
613,900 |
|
Six months ended June 30 |
|
|
558,870 |
|
|
|
1,321,397 |
|
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 June 30, 2012 and December 31, 2011, we had $30.5 million and $29.7 million, respectively, of gross
unrecognized tax benefits. As of June 30, 2012, if such benefits were to be recognized, approximately $30.5 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.
- 7 -
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 |
|
2008 - 2011 |
|
N/A |
State |
|
2005 - 2011 |
|
2004, 2006, 2008, 2009 |
Canada (1) |
|
2007 - 2011 |
|
2007 - 2010 |
Germany (1) |
|
2007 - 2011 |
|
N/A |
France |
|
2009 - 2011 |
|
N/A |
United Kingdom |
|
2008 - 2011 |
|
N/A |
Philippines |
|
2010 - 2011 |
|
2009 - 2010 |
(1) |
includes provincial or similar local jurisdictions, as applicable |
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 expiration 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 $6.0 million. Substantially all of this range relates to tax positions taken in the U.S. and in the U.K.
We recognize interest and penalties related to uncertain tax positions as income tax expense. During the first half of the year, we
recognized interest expense of $0.4 million. For the second quarter of 2012, we recognized interest expense of $0.2 million. For the first half of 2011 and the second quarter of 2011, we recognized a net reduction of interest expense of $2.0 million
and $2.3 million, respectively. As of June 30, 2012, accrued interest payable was $2.1 million, and as of December 31, 2011, accrued interest payable was $1.7 million. We did not record any penalties associated with uncertain tax positions
during the second quarters of 2012 or 2011.
In March 2010, we were approved by the Internal Revenue Service to be
registered as a producer of cellulosic biofuel under the Internal Revenue Code. The cellulosic biofuel credit was equal to $1.01 per gallon of black liquor produced in operations during 2009. In the second quarter of 2012, we made the decision to
convert a portion of the previously utilized refundable alternative fuel mixture credit, which was equal to $0.50 per gallon, to the
non-refundable cellulosic biofuel credit and intend to amend our 2009 federal income tax return to claim the credit for a portion of the black liquor gallons produced in 2009. The conversion to
the cellulosic biofuel credit resulted in a net benefit for income taxes in the second quarter of 2012 of $4.4 million. The amount of cellulosic biofuel credits recognized is based on numerous assumptions and estimates about future taxable income.
Although we believe our assumptions are reasonable, actual results may differ from these assumptions and estimates and such differences may have a significant impact on the amount of credits recognized. In addition, while we do not intend to convert
additional credits, if facts and circumstances change, we could further amend our 2009 tax return and claim additional credits.
6. |
STOCK-BASED COMPENSATION |
The P. H. Glatfelter Amended and Restated Long Term Incentive Plan (the LTIP) provides for the
issuance of up to 5,500,000 shares 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.
Since the approval of the LTIP, we have issued to eligible participants restricted stock units, performance share awards and stock only stock appreciation rights (SOSARs).
Restricted Stock Units (RSUs) and Performance Share Awards (PSAs) Awards of RSUs and PSAs are made under
our LTIP. The RSUs vest based solely on the passage of time, generally on a graded scale over a three, four, and five-year period. PSAs were first issued in March 2011 and cliff vest three years from the grant date 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 target depending on actual financial
performance. For both RSUs and PSAs, the grant date fair value of the awards 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.
The following table summarizes RSU and PSA activity during the first six months of the indicated periods:
|
|
|
|
|
|
|
|
|
Units |
|
2012 |
|
|
2011 |
|
Beginning balance |
|
|
788,088 |
|
|
|
579,801 |
|
Granted |
|
|
206,278 |
|
|
|
244,754 |
|
Forfeited |
|
|
(22,167 |
) |
|
|
(12,539 |
) |
Shares delivered |
|
|
(94,830 |
) |
|
|
(14,490 |
) |
|
|
|
|
|
|
|
|
|
Ending balance |
|
|
877,369 |
|
|
|
797,526 |
|
|
|
|
|
|
|
|
|
|
- 8 -
The amount granted in 2012 and 2011 includes PSAs of 161,083 units and 96,410 units, respectively,
exclusive of reinvested dividends. The following table sets forth aggregate RSU and PSA compensation expense for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
June 30 |
|
In thousands |
|
2012 |
|
|
2011 |
|
|
|
|
Three months ended |
|
$ |
703 |
|
|
$ |
541 |
|
Six months ended |
|
|
1,279 |
|
|
|
1,007 |
|
Stock Only Stock Appreciation Rights (SOSARs) Under terms of the SOSAR, the recipients receive 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 strike price. The SOSARs vest ratably over a three year period and have
a term of ten years.
The following table sets forth information related to SOSARS for the first six months of the indicated
period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2012 |
|
|
2011 |
|
SOSARS |
|
Shares |
|
|
Wtd Avg Exercise Price |
|
|
Shares |
|
|
Wtd Avg Exercise Price |
|
Outstanding at Jan. 1, |
|
|
2,298,288 |
|
|
$ |
12.35 |
|
|
|
2,061,877 |
|
|
$ |
12.28 |
|
Granted |
|
|
356,570 |
|
|
|
15.55 |
|
|
|
345,290 |
|
|
|
12.56 |
|
Exercised |
|
|
(65,637 |
) |
|
|
10.57 |
|
|
|
|
|
|
|
|
|
Canceled / forfeited |
|
|
(10,000 |
) |
|
|
14.96 |
|
|
|
(102,970 |
) |
|
|
12.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at Jun. 30, |
|
|
2,579,221 |
|
|
$ |
12.82 |
|
|
|
2,304,197 |
|
|
$ |
12.31 |
|
|
|
|
|
|
SOSAR Grants |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average grant date fair value per share |
|
$ |
4.93 |
|
|
|
|
|
|
$ |
4.09 |
|
|
|
|
|
Aggregate grant date fair value (in thousands) |
|
$ |
1,757 |
|
|
|
|
|
|
$ |
1,412 |
|
|
|
|
|
Black-Scholes assumptions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend yield |
|
|
2.32 |
% |
|
|
|
|
|
|
2.87 |
% |
|
|
|
|
Risk free rate of return |
|
|
1.02 |
% |
|
|
|
|
|
|
2.55 |
% |
|
|
|
|
Volatility |
|
|
41.49 |
% |
|
|
|
|
|
|
41.91 |
% |
|
|
|
|
Expected life |
|
|
6 yrs |
|
|
|
|
|
|
|
6 yrs |
|
|
|
|
|
The following table sets forth SOSAR compensation expense for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
June 30 |
|
In thousands |
|
2012 |
|
|
2011 |
|
|
|
|
Three months ended |
|
$ |
372 |
|
|
$ |
411 |
|
Six months ended |
|
|
726 |
|
|
|
880 |
|
7. |
RETIREMENT PLANS AND OTHER POST-RETIREMENT BENEFITS |
The following table provides information with respect to the net periodic costs of our pension and post retirement medical benefit
plans.
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30 |
|
In thousands |
|
2012 |
|
|
2011 |
|
Pension Benefits |
|
|
|
|
|
|
|
|
Service cost |
|
$ |
2,625 |
|
|
$ |
2,338 |
|
Interest cost |
|
|
5,762 |
|
|
|
6,033 |
|
Expected return on plan assets |
|
|
(10,547 |
) |
|
|
(10,449 |
) |
Amortization of prior service cost |
|
|
614 |
|
|
|
637 |
|
Amortization of unrecognized loss |
|
|
4,187 |
|
|
|
3,082 |
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
2,641 |
|
|
$ |
1,641 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Benefits |
|
|
|
|
|
|
|
|
Service cost |
|
$ |
708 |
|
|
$ |
693 |
|
Interest cost |
|
|
607 |
|
|
|
691 |
|
Expected return on plan assets |
|
|
(113 |
) |
|
|
(130 |
) |
Amortization of prior service cost |
|
|
(235 |
) |
|
|
(306 |
) |
Amortization of unrecognized loss |
|
|
152 |
|
|
|
183 |
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
1,119 |
|
|
$ |
1,131 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30 |
|
In thousands |
|
2012 |
|
|
2011 |
|
Pension Benefits |
|
|
|
|
|
|
|
|
Service cost |
|
$ |
5,556 |
|
|
$ |
4,943 |
|
Interest cost |
|
|
11,534 |
|
|
|
12,097 |
|
Expected return on plan assets |
|
|
(21,110 |
) |
|
|
(20,914 |
) |
Amortization of prior service cost |
|
|
1,227 |
|
|
|
1,283 |
|
Amortization of unrecognized loss |
|
|
8,510 |
|
|
|
6,626 |
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
5,717 |
|
|
$ |
4,035 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Benefits |
|
|
|
|
|
|
|
|
Service cost |
|
$ |
1,418 |
|
|
$ |
1,453 |
|
Interest cost |
|
|
1,216 |
|
|
|
1,408 |
|
Expected return on plan assets |
|
|
(226 |
) |
|
|
(260 |
) |
Amortization of prior service cost |
|
|
(469 |
) |
|
|
(611 |
) |
Amortization of unrecognized loss |
|
|
331 |
|
|
|
441 |
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
2,270 |
|
|
$ |
2,431 |
|
|
|
|
|
|
|
|
|
|
- 9 -
Inventories, net of reserves, were as follows:
|
|
|
|
|
|
|
|
|
In thousands |
|
Jun. 30, 2012 |
|
|
Dec. 31, 2011 |
|
Raw materials |
|
$ |
65,624 |
|
|
$ |
57,547 |
|
In-process and finished |
|
|
103,622 |
|
|
|
93,096 |
|
Supplies |
|
|
57,882 |
|
|
|
56,064 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
227,128 |
|
|
$ |
206,707 |
|
|
|
|
|
|
|
|
|
|
Long-term debt is summarized as follows:
|
|
|
|
|
|
|
|
|
In thousands |
|
Jun. 30, 2012 |
|
|
Dec. 31, 2011 |
|
Revolving credit facility, due Nov. 2016 |
|
$ |
18,000 |
|
|
$ |
27,000 |
|
7 1/8% Notes, due May 2016 |
|
|
200,000 |
|
|
|
200,000 |
|
|
|
|
|
|
|
|
|
|
Total long-term debt |
|
|
218,000 |
|
|
|
227,000 |
|
Less current portion |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion |
|
$ |
218,000 |
|
|
$ |
227,000 |
|
|
|
|
|
|
|
|
|
|
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
banks 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 & Poors Rating Services and Moodys 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; ii) a consolidated EBITDA to
interest expense ratio; and iii) beginning December 31, 2015, a minimum liquidity ratio. 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 April 28, 2006 we completed an offering of $200.0 million aggregate principal amount of our
7 1/8% Senior Notes due May 2016 (7 1/8% Notes). Net proceeds from this offering totaled approximately $196.4 million, after deducting the commissions and
other fees and expenses relating to the offering.
Interest on the 7 1/8% Notes is payable semiannually in arrears on May 1 and November 1.
The 7 1/8% 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 June 30, 2012, we met all of the requirements of our
debt covenants.
As of June 30, 2012 and December 31, 2011, we had $4.6 million, respectively, of letters
of credit issued to us by certain financial institutions. Such letters of credit reduce amounts available under our revolving credit facility. The letters of credit 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.
- 10 -
10. |
ASSET RETIREMENT OBLIGATION |
During 2008, we recorded $11.5 million representing the estimated fair value of asset retirement obligations related
to the legal requirement to close several lagoons at the Spring Grove, PA facility. Historically, the lagoons were used to dispose of residual waste material. Closure of the lagoons will be accomplished by installing a non-permeable liner which will
be covered with soil to construct the required cap over the lagoons. The amount referred to above, in addition to upward revisions to the original estimate, 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 over the expected closure period. Following is a summary of activity recorded during the first
six months of 2012 and 2011:
|
|
|
|
|
|
|
|
|
In thousands |
|
2012 |
|
|
2011 |
|
Balance at Jan. 1, |
|
$ |
9,679 |
|
|
$ |
9,717 |
|
Accretion |
|
|
244 |
|
|
|
265 |
|
Payments |
|
|
(463 |
) |
|
|
(518 |
) |
|
|
|
|
|
|
|
|
|
Balance at Jun. 30, |
|
$ |
9,460 |
|
|
$ |
9,464 |
|
|
|
|
|
|
|
|
|
|
At June 30, 2012, $3.6 million of the total liability is recorded in the accompanying consolidated balance
sheet, under the caption Other current liabilities and $5.9 million is recorded under the caption Other long-term liabilities.
11. |
FAIR VALUE OF FINANCIAL INSTRUMENTS |
The amounts reported on the condensed consolidated balance sheets for cash and cash equivalents, accounts receivable
and short-term debt approximate fair value. The following table sets forth carrying value and fair value of long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jun. 30, 2012 |
|
|
Dec. 31, 2011 |
|
In thousands |
|
Carrying Value |
|
|
Fair Value |
|
|
Carrying Value |
|
|
Fair Value |
|
Fixed-rate bonds |
|
$ |
200,000 |
|
|
$ |
205,005 |
|
|
$ |
200,000 |
|
|
$ |
204,000 |
|
Variable rate debt |
|
|
18,000 |
|
|
|
18,000 |
|
|
|
27,000 |
|
|
|
27,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
218,000 |
|
|
$ |
223,005 |
|
|
$ |
227,000 |
|
|
$ |
231,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2012, and December 31, 2011, we had $200.0 million of 7 1/8% fixed rate debt. These bonds are publicly registered, but thinly traded. Accordingly, the values set forth above are based on debt instruments with similar characteristics (Level 2). The fair
value of financial derivatives is set forth below in Note 12.
12. |
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 EUR-USD exchange rate or USD-CAD 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 and certain other identified manufacturing cost 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
consolidated balance sheet and is subsequently reclassified into cost 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 consolidated statement 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 |
|
Jun. 30, 2012 |
|
|
Dec. 31, 2011 |
|
Derivative |
|
Buy Notional |
|
Sell / Buy |
|
|
|
|
|
|
|
|
Euro / U.S. dollar |
|
|
28,279 |
|
|
|
22,730 |
|
U.S. dollar / Canadian dollar |
|
|
10,973 |
|
|
|
11,019 |
|
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
- 11 -
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 statement of operations under the caption Other net.
|
|
|
|
|
|
|
|
|
in thousands |
|
Jun. 30, 2012 |
|
|
Dec. 31, 2012 |
|
Derivative |
|
Sell Notional |
|
Sell / Buy |
|
|
|
|
|
|
|
|
Euro / U.S. dollar |
|
|
19,000 |
|
|
|
25,500 |
|
Euro / British Pound |
|
|
3,000 |
|
|
|
|
|
U.S. dollar / Canadian dollar |
|
|
1,500 |
|
|
|
|
|
Philippine peso / U.S. dollar |
|
|
|
|
|
|
150,000 |
|
These contracts have maturities of one month from the date originally entered into.
Fair Value Measurements The following table summarizes the fair values of derivative instruments as of the periods
indicated and the line items in the accompanying consolidated balance sheet where the instruments are recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands |
|
Jun. 30, 2012 |
|
|
Dec.
31, 2011 |
|
|
Jun. 30, 2012 |
|
|
Dec.
31, 2011 |
|
Balance sheet caption |
|
Prepaid and Other Current Assets |
|
|
Other Current Liabilities |
|
Designated as hedging: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign currency exchange contracts |
|
$ |
949 |
|
|
$ |
1,520 |
|
|
$ |
37 |
|
|
|
|
|
Not designated as hedging: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign currency exchange contracts |
|
$ |
9 |
|
|
$ |
338 |
|
|
$ |
328 |
|
|
$ |
15 |
|
The amounts set forth in the table above represent the net asset or liability with each counterparty giving effect to
rights of offset.
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 consolidated income statement where the results are recorded:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30 |
|
|
Six months ended
June 30 |
|
In thousands |
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
Designated as hedging: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign currency exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective portion cost of products sold |
|
$ |
545 |
|
|
|
|
|
|
$ |
1,117 |
|
|
|
|
|
Ineffective portion other net |
|
|
86 |
|
|
|
(1 |
) |
|
|
226 |
|
|
|
(1 |
) |
Not designated as hedging: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward foreign currency exchange contracts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other net |
|
$ |
1,464 |
|
|
($ |
1,496 |
) |
|
$ |
394 |
|
|
($ |
5,842 |
) |
The impact on our results of operations of marking-to-market 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 consolidated balance sheet under the caption Prepaid and other current assets and the value of contracts in a loss position is recorded under the caption Other current
liabilities.
A rollforward of fair value amounts recorded as a component of accumulated other comprehensive income is
as follows:
|
|
|
|
|
|
|
|
|
In thousands |
|
2012 |
|
|
2011 |
|
Balance at January 1 |
|
$ |
1,649 |
|
|
$ |
0 |
|
Deferred gains on cash flow hedges |
|
|
639 |
|
|
|
22 |
|
Reclassified to earnings |
|
|
(1,117 |
) |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
Balance at June 30 |
|
$ |
1,171 |
|
|
$ |
22 |
|
|
|
|
|
|
|
|
|
|
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 will vary depending on market rates.
Credit
risk related to derivative activity arises in the event a counterparty fails to meet its obligations to us. This exposure is generally limited to the amounts, if any, by which the counterpartys obligations exceed our obligation to them. Our
policy is to enter into contracts only with financial institutions which meet certain minimum credit ratings.
- 12 -
In May 2012, our Board of Directors authorized a new share repurchase program for up to $25.0 million of our
outstanding common stock, exclusive of commissions. The following table summarizes share repurchases under this program:
|
|
|
|
|
|
|
|
|
shares |
|
(thousands) |
|
Authorized amount |
|
n/a |
|
$ |
25,000 |
|
Repurchases |
|
172,157 |
|
|
(2,605 |
) |
|
|
|
|
|
|
|
Remaining authorization |
|
|
|
$ |
22,395 |
|
|
|
|
|
|
|
|
In April 2011, our Board of Directors authorized a share repurchase program for up to $50.0 million of our
outstanding common stock, exclusive of commissions, all of which was used, including 82,533 shares at a cost of $1.2 million repurchased under this program in the first quarter of 2012.
14. |
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 and in the Bay of Green Bay Wisconsin (Site). As part of our 1979 acquisition of the Bergstrom Paper Company, we acquired a facility located at
the Site (the Neenah Facility). The Neenah Facility used wastepaper as a source of fiber. Discharges to the lower Fox River from the Neenah Facility that may have contained PCBs from wastepaper may have occurred from 1954 to the late
1970s. We believe that any PCBs that the Neenah Facility may have discharged into the lower Fox River resulted from the presence of PCBs in NCR®-brand carbonless copy paper in the wastepaper that was recycled at the Neenah Facility. We closed the Neenah Facility in June 2006.
The United States, the State of Wisconsin and various state and federal governmental agencies (collectively, the
Governments), as well as other entities (including local Native American tribes), have found PCBs in sediments in the bed of the Fox River, apparently from a number of sources at municipal and industrial facilities along the upstream and
downstream portions of the Site. The Governments have identified manufacturing and recycling of NCR®-brand
carbonless copy paper as the principal source of that contamination.
The United States Environmental Protection Agency (EPA) has divided the lower
Fox River and the Bay of Green Bay site into five operable units (the OUs), including the most upstream (OU1) and four downstream reaches of the river and bay (OU2-5). OU1 extends from primarily Lake
Winnebago to the dam at Appleton, and is comprised of Little Lake Butte des Morts. The Neenah Facility discharged its wastewater into OU1.
Our liabilities, if any, for this contamination primarily arise under the federal Comprehensive Environmental, Response, Compensation and Liability Act (CERCLA or Superfund),
pursuant to which the Governments have sought to recover response actions or response costs, which are the costs of studying and cleaning up contamination. Other agencies and natural resource trustee agencies (collectively,
the Trustees) have sought to recover natural resource damages (NRDs), including natural resource damage assessment costs.
We are one of eight entities that have been formally notified that they are potentially responsible parties (PRPs) under CERCLA for response costs or NRDs. Others, including the United States
and the State of Wisconsin, may also be liable for some or all of the costs of NRD at this Site.
The Governments have
sought to recover response actions, response costs, and NRDs from us through three principal enforcement actions.
OU1
CD. On October 1, 2003, the United States and the State of Wisconsin commenced an action captioned United States v. P .H. Glatfelter Co. against us and WTM I Company (WTM I). in the United States District Court for the
Eastern District of Wisconsin and simultaneously lodged a consent decree (OU1 CD) that the court entered on April 12, 2004. Under that OU1 CD, and an amendment dated August 2008, we and WTM I, with a limited fixed contribution from
Menasha Corp. and funds provided by the United States from an agreement with others, have implemented the remedy for OU1. We have also resolved claims for all Governmental response costs in OU1 after July 2003 and made a payment on NRDs. That remedy
is complete. We have continuing operation and maintenance obligations that we expect to fund from contributions we and WTM I have already made to an escrow account for OU1 under the OU1 CD.
OU2-5 UAO. In November 2007, the United States Environmental Protection Agency (EPA) issued an administrative order
for remedial action (UAO) to Appleton Papers Inc. (API), CBC Coating, Inc. (formerly known as Riverside Paper Corporation),
- 13 -
Georgia-Pacific Consumer Products, L.P. (formerly known as Fort James Operating Company), Menasha Corporation, NCR Corporation, Glatfelter, U.S. Paper Mills Corp., and WTM I directing those
respondents to implement the remedy in OU2-5. Shortly following issuance of the UAO, API and NCR commenced litigation against us and others, as described below. Accordingly, we have no vehicle for complying with the UAOs overall requirements
other than answering a judgment in the litigation, and we have so informed EPA, but, to minimize disruptions, have paid certain de minimis amounts to EPA for oversight costs under the UAO.
Government Action. On October 14, 2010, the United States and the State of Wisconsin filed an action in the United States
District Court for the Eastern District of Wisconsin captioned United States v. NCR Corp. (the Government Action) against 12 parties, including us. The Government Action seeks to recover from each of the defendants, jointly and
severally, all of the governments past costs of response, which are approximately $17 million to date, a declaration as to liability for all of the governments future costs of response, and compensation for natural resource damages, as
well as a declaration as to liability for compliance with the UAO for OU2-5. The United States twice sought a preliminary injunction in 2011 to obtain full-scale remediation from NCR or API, and those motions were denied. NCR implemented
less than a full season of work in 2011. On March 19, 2012, the United States again moved for a preliminary injunction to require NCR and API to conduct full-scale remediation defined as dredging of 660,000 cubic yards of
sediment in 2012. On April 10, 2012, the court granted summary judgment to API, holding that API was not a successor to the Appleton Coated Papers Division of NCR Corporation. On April 27, 2012, the court granted the preliminary
injunction that the United States had requested, but against NCR only. NCR has appealed that preliminary injunction to the United States Court of Appeals for the Seventh Circuit. That appeal was argued on June 4, 2012, and we expect a decision
at any time. The preliminary injunction has not been stayed pending appeal, so work continues in OU2-5. Active litigation of the United States claim for a declaratory judgment or permanent injunctive relief against all recipients of the UAO
for OU2-5, including us, is on an accelerated schedule, and the district court has scheduled it for a trial beginning December 3, 2012. Among other issues, disposition of that claim will require litigation of challenges to the United
States selection of the remedy for this Site and will also require disposition of various parties asserted defenses that liability for some or all of this Site is not joint and several and may be apportioned. Should the government obtain
the order against us that it is now seeking on the claim to be tried, the court would issue a mandatory injunction requiring us, jointly and severally with any other defendants against which the government were to prevail, to complete the remedy for
OU2-5. However, the government is not seeking at that trial any change to the rulings in the Whiting Litigation under which NCR bears full responsibility for any obligations we share jointly with NCR.
Whiting Litigation. On January 7, 2008, NCR and API commenced litigation in
the United States District Court for the Eastern District of Wisconsin captioned Appleton Papers Inc. v. George A. Whiting Paper Co., seeking to reallocate costs and damages allegedly incurred or paid or to be incurred or paid by NCR or API
(the Whiting Litigation). The case involves allocation claims among the two plaintiffs and 28 defendants including us. We and other defendants counterclaimed against NCR and API. Some of the claims have since been resolved as described
below.
Claims against governments. The Whiting Litigation involves claims by certain parties against federal
agencies who are responsible parties for this site. In the Government Action many defendants, including us, asserted counterclaims against the United States and the State of Wisconsin.
Settlements. Certain parties have resolved their liability to the United States affording them contribution protection.
These settlements are embodied in consent decrees. Notably, we entered into the OU1 CD. Also, in a case captioned United States v. George A. Whiting Paper Co., the district court entered two consent decrees under which 13
de minimis defendants in the Whiting Litigation settled with the United States and Wisconsin. The Court of Appeals for the Seventh Circuit denied an appeal of these settlements by NCR and API on May 4, 2011. Further,
Georgia-Pacific Consumer Products LP, has entered into a consent decree resolving its liability for NRDs and a separate consent decree in the Government Action that resolves all of its liabilities except for the downstream portion of the OU4 remedy.
Finally, the United States has lodged a consent decree that would resolve the liability of itself and two municipalities. The United States moved for entry of that consent decree, but later withdrew that motion due to a ruling by the court adverse
to the government in a related case captioned Menasha Corp. v. United States Department of Justice, seeking disclosure of certain documents under the Freedom of Information Act. We oppose entry of that consent decree, which the
district court must approve. The United States or the State of Wisconsin may enter into settlements with us or with other parties that would affect our ultimate obligations because settling parties may become unavailable to pay any share other than
their settlement amount, depending upon the terms of the settlement and the courts order entering any consent decree.
Cleanup Decisions. The extent of our exposure depends, in large part, on the decisions made by EPA and the Wisconsin Department of Natural Resources
- 14 -
(WDNR) as to how the Site will be cleaned up and the costs and timing of those response actions. The nature of the response actions has been highly controversial. Between 2002 and
2008, the EPA issued records of decision (RODs) regarding required remedial actions for the OUs. Some of those RODs have been amended. We contend that the remedy for OU2-5 is arbitrary and capricious. We and others have begun to litigate
that issue in the Government Action. If we were to be successful in modifying any existing selected remedy, our exposure could be reduced materially.
NRD Assessment. We are engaged in disputes as to (i) whether various documents prepared by the Trustees taken together constitute a sufficient NRD assessment under applicable regulations; and
(ii) on a number of legal grounds, whether the Trustees may recover from us on the specific NRD claims they have made.
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. 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 that total past and future costs and NRDs at this site may exceed $1 billion and that $1.5 billion is a reasonable outside estimate.
NRDs. Of that amount, the Trustees assessment documents claimed that we are jointly and severally responsible for NRDs
with a value between $176 million and $333 million. They now claim that this range should be inflated to 2009 dollars and then certain unreimbursed past assessment costs should be added, so that the range of their claim would be
$287 million to $423 million. We deny liability for most of these NRDs and believe that even if anyone is liable, that we are not jointly and severally liable for the full amount. Moreover, we believe that the Trustees may not legally
pursue this claim at this late date, as the limitations period for NRD claims is three years from discovery.
Allocation and Divisibility. We contend that we are not jointly and severally liable for costs or damages arising from the presence of PCBs downstream of OU1. In addition, we contend that NCR or
other sources of NCR®-brand carbonless copy paper that our Neenah Mill recycled bear most, if not all, of the
responsibility for costs and damages arising from the presence of PCBs in OU1 and downstream.
On December 16, 2009,
the court granted motions for summary judgment in our favor in the Whiting Litigation holding that neither NCR nor API may seek contribution
from us or other recyclers under CERCLA. The Court made no ruling as to any other allocation, the liability of NCR or API to us for costs we have incurred, or our liability to the Governments or
Trustees. NCR and API have stated their intention to appeal, but an appeal is not yet timely because the court has not entered a final judgment.
We also filed counterclaims against NCR and API to recover the costs we have incurred and may later incur and the damages we have paid and may later pay in connection with the Site. Other defendants have
similar claims. On February 28, 2011, the district court granted our summary judgment motions on those counterclaims in part and denied them in part. The court granted a declaration that NCR and API are liable to us (and to others) in
contribution for 100% of any costs of response (that is, clean up) that we may be required to pay for work in OU2-5 in the future. On September 30, 2011, the court clarified its ruling with respect to NRDs and natural resource damage assessment
costs, holding that NCR and API owe full contribution to us (and others) for NRDs or natural resource damage assessment costs that we have paid or may be required to pay in the future. The court required further proceedings to decide whether or to
what extent NCR and API owe contribution to us and others for costs that we and others incurred in the past and costs that we and others incurred in connection with OU1. In addition, NCR and API contended that some of the costs we claim are not
recoverable and that our insurance coverage settlements ought to be set off against any recovery in whole or in part. Those issues were tried to the court in February 2012. On July 3, 2012, the court issued findings of fact and conclusions of
law awarding us approximately $4.25 million in claimed past costs associated with the work of the Fox River Group, subject to an unresolved insurance coverage settlement off-set. The court also found that the sale of production scrap
known as broke from NCRs predecessor Appleton Coated Paper Company to recyclers did not constitute arranging for disposal of the PCBs coated on that broke and therefore did not render NCR liable on that basis for costs
we had incurred in OU1, a decision with which we disagree. Further motions are now pending to determine whether NCR or API may be responsible for our costs in OU1 on any other theory. An appeal of the courts February 28,
2011, September 30, 2011, and July 3, 2012, decisions is not yet ripe for any party.
Reserves for the
Site. As of June 30, 2012, our reserve for our claimed liability at the Site, including our remediation and ongoing monitoring obligations at OU1, our claimed liability for the remediation of the rest of the Site, our claimed liability for
NRDs associated with PCB contamination at the Site and all pending, threatened or asserted and unasserted claims against us relating to PCB contamination at the Site totaled $16.5 million. Of our
- 15 -
total reserve for the Fox River, $0.3 million is recorded in the accompanying consolidated balance sheets under the caption Environmental liabilities and the remainder is recorded
under the caption Other long term liabilities.
Although we believe that amounts already funded by us and WTM I
to implement the OU1 remedy are adequate and no payments have been required since January 2009, there can be no assurance that these amounts will in fact suffice. WTM I has filed a bankruptcy petition in the Bankruptcy Court in Richmond;
accordingly, there can be no assurance that WTM I will be able to fulfill its obligation to pay half of any additional costs, if required.
We believe that we have strong defenses to liability for further remediation downstream of OU1, including the existence of ample data that indicate that PCBs did not leave OU1 in concentrations that could
have caused or contributed to the need for additional cleanup downstream. Others, including the EPA and other PRPs, disagree with us and, as a result, the EPA has issued a UAO to us and to others to perform the additional remedial work, and filed
the Government Action seeking, in part, the same relief. NCR and API commenced the Whiting Litigation and joined us and others as defendants, but, to this point, have not prevailed.
Even if we are not successful in establishing that we have no further remediation liability, we do not believe that we would be
allocated a significant percentage share of liability in any equitable allocation of the remediation costs and natural resource damages. The accompanying consolidated financial statements do not include reserves for defense costs for the Whiting
Litigation, the Government Action, or any future defense costs related to our involvement at the Site, which could be significant.
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 assumed that we will not bear the entire
cost of remediation or damages to the exclusion of other known PRPs at the Site, who are also potentially jointly and severally liable. The existence and ability of other PRPs to participate has also been taken into account in setting our reserve,
and is generally based on our evaluation of recent publicly available financial information on certain of the PRPs and any known insurance, indemnity or cost sharing agreements between PRPs and third parties. In addition, our assessment is based
upon 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.
The amount and timing of future expenditures for environmental compliance, cleanup,
remediation and personal injury, NRDs and property damage liabilities cannot be ascertained with any certainty due to, among other things, the unknown extent and nature of any contamination, the response actions that may ultimately be required, the
availability of remediation equipment, and landfill space, and the number and financial resources of any other PRPs.
Other Information. The Governments have published studies estimating the amount of PCBs discharged by each identified PRPs
facility to the lower Fox River and Green Bay. These reports estimate the Neenah Facilitys share of the mass of PCBs discharged to be as high as 27%. We do not believe the discharge mass estimates used in these studies are accurate because
(a) the studies themselves disclose that they are not accurate and (b) the PCB mass estimates contained in the studies are based on assumptions that are unsupported by existing data on the Site. We believe that the Neenah Facilitys
absolute and relative contribution of PCB mass is significantly lower than the estimates set forth in these studies.
In any
event, based upon the courts December 16, 2009, and February 28, 2011, rulings in the Whiting Litigation, statements in the courts disposition of the United States 2011 and 2012 motions for a preliminary injunction in the
Government Action, as well as certain other procedural orders, we continue to believe that 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 that other factors, such as the location of contamination, the location of discharge, and a partys role in causing discharge, must be considered in order for the allocation to be equitable.
We previously entered into interim cost-sharing agreements with six of the other PRPs, which provided for those PRPs to share certain
costs relating to scientific studies of PCBs discharged at the Site (Interim Cost Sharing Agreements). These Interim Cost Sharing Agreements do not establish the final allocation of remediation costs incurred at the Site. Based upon our
evaluation of the Courts December 16, 2009, February 28, 2011, and July 3, 2012, rulings in the Whiting Litigation as well as the volume, nature and location of the various discharges of PCBs at the Site and the
relationship of those discharges to identified contamination, we believe our allocable share of liability at the Site is less than our share of costs under the Interim Cost Sharing Agreements.
- 16 -
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 official documents such as RODs, discussions with the United States and other PRPs, as well as legal counsel and engineering consultants. Based on our analysis
of the current RODs and cost estimates for work to be performed at the Site, we believe that it is reasonably possible that our costs associated with the Fox River matter may exceed our cost estimates and the aggregate amounts accrued for the Fox
River matter by amounts that are insignificant or that could range up to $265 million over an undeterminable period that could range beyond 10 years. We believe that the likelihood of an outcome in the upper end of the monetary range is
significantly less than other possible outcomes within the range and that the possibility of an outcome in excess of the upper end of the monetary range is remote. The two summary judgments in our favor in the Whiting Litigation, if sustained on
appeal, suggest that outcomes in the upper end of the monetary range have become somewhat less likely, while the result of the February 2012 trial and increases in cost estimates for some of the work may make an outcome in the upper end of the range
more likely.
Summary. Our current assessment is that 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 that our reserves will be adequate to provide for future obligations related to this matter, that our share of costs
and/or damages will not exceed our available resources, or that such 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 which requires us either to perform directly or to contribute significant amounts towards remedial action downstream of OU1 or to natural resource damages, 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.
- 17 -
The following table sets forth financial and other information by business unit for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30
In millions |
|
Specialty Papers |
|
|
Composite Fibers |
|
|
Advanced
Airlaid Materials |
|
|
Other and Unallocated |
|
|
Total |
|
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
Net sales |
|
$ |
214.1 |
|
|
$ |
216.7 |
|
|
$ |
108.6 |
|
|
$ |
116.4 |
|
|
$ |
62.0 |
|
|
$ |
64.9 |
|
|
|
|
|
|
|
|
|
|
$ |
384.7 |
|
|
$ |
398.0 |
|
Energy and related sales, net |
|
|
1.6 |
|
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.6 |
|
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
215.7 |
|
|
|
218.8 |
|
|
|
108.6 |
|
|
|
116.4 |
|
|
|
62.0 |
|
|
|
64.9 |
|
|
|
|
|
|
|
|
|
|
|
386.3 |
|
|
|
400.0 |
|
Cost of products sold |
|
|
197.5 |
|
|
|
206.5 |
|
|
|
90.7 |
|
|
|
97.6 |
|
|
|
55.0 |
|
|
|
58.3 |
|
|
|
2.2 |
|
|
|
0.1 |
|
|
|
345.4 |
|
|
|
362.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
18.3 |
|
|
|
12.2 |
|
|
|
17.9 |
|
|
|
18.8 |
|
|
|
6.9 |
|
|
|
6.6 |
|
|
|
(2.2 |
) |
|
|
(0.1 |
) |
|
|
40.9 |
|
|
|
37.5 |
|
SG&A |
|
|
14.0 |
|
|
|
12.3 |
|
|
|
10.0 |
|
|
|
9.6 |
|
|
|
2.3 |
|
|
|
2.8 |
|
|
|
3.8 |
|
|
|
6.6 |
|
|
|
30.1 |
|
|
|
31.3 |
|
Gains on dispositions of plant, equipment and timberlands, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7.0 |
) |
|
|
|
|
|
|
(7.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss) |
|
|
4.2 |
|
|
|
(0.1 |
) |
|
|
7.9 |
|
|
|
9.2 |
|
|
|
4.6 |
|
|
|
3.8 |
|
|
|
1.0 |
|
|
|
(6.7 |
) |
|
|
17.7 |
|
|
|
6.2 |
|
Other non-operating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.0 |
) |
|
|
(6.6 |
) |
|
|
(4.0 |
) |
|
|
(6.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
4.2 |
|
|
$ |
(0.1 |
) |
|
$ |
7.9 |
|
|
$ |
9.2 |
|
|
$ |
4.6 |
|
|
$ |
3.8 |
|
|
$ |
(3.0 |
) |
|
$ |
(13.3 |
) |
|
$ |
13.8 |
|
|
$ |
(0.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net tons sold |
|
|
186.8 |
|
|
|
191.8 |
|
|
|
23.0 |
|
|
|
22.9 |
|
|
|
22.7 |
|
|
|
22.3 |
|
|
|
|
|
|
|
|
|
|
|
232.5 |
|
|
|
237.0 |
|
Depreciation, depletion and amortization |
|
$ |
9.0 |
|
|
$ |
8.9 |
|
|
$ |
5.8 |
|
|
$ |
6.4 |
|
|
$ |
2.2 |
|
|
$ |
2.1 |
|
|
|
|
|
|
|
|
|
|
$ |
17.0 |
|
|
$ |
17.4 |
|
Capital expenditures |
|
|
9.1 |
|
|
|
9.4 |
|
|
|
6.3 |
|
|
|
6.6 |
|
|
|
0.9 |
|
|
|
3.7 |
|
|
|
0.1 |
|
|
|
|
|
|
|
16.4 |
|
|
|
19.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30
In millions |
|
Specialty Papers |
|
|
Composite Fibers |
|
|
Advanced Airlaid Materials |
|
|
Other and Unallocated |
|
|
Total |
|
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
Net sales |
|
$ |
437.9 |
|
|
$ |
437.2 |
|
|
$ |
220.6 |
|
|
$ |
231.6 |
|
|
$ |
123.6 |
|
|
$ |
126.0 |
|
|
|
|
|
|
|
|
|
|
$ |
782.0 |
|
|
$ |
794.8 |
|
Energy and related sales, net |
|
|
3.5 |
|
|
|
5.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.5 |
|
|
|
5.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
441.4 |
|
|
|
442.2 |
|
|
|
220.6 |
|
|
|
231.6 |
|
|
|
123.6 |
|
|
|
126.0 |
|
|
|
|
|
|
|
|
|
|
|
785.5 |
|
|
|
799.8 |
|
Cost of products sold |
|
|
386.1 |
|
|
|
393.9 |
|
|
|
182.3 |
|
|
|
190.6 |
|
|
|
110.1 |
|
|
|
115.0 |
|
|
|
5.2 |
|
|
|
2.6 |
|
|
|
683.7 |
|
|
|
702.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
55.3 |
|
|
|
48.3 |
|
|
|
38.3 |
|
|
|
41.0 |
|
|
|
13.4 |
|
|
|
11.0 |
|
|
|
(5.2 |
) |
|
|
(2.6 |
) |
|
|
101.8 |
|
|
|
97.7 |
|
SG&A |
|
|
27.4 |
|
|
|
26.2 |
|
|
|
19.5 |
|
|
|
19.4 |
|
|
|
5.0 |
|
|
|
5.5 |
|
|
|
8.3 |
|
|
|
12.0 |
|
|
|
60.1 |
|
|
|
63.1 |
|
Gains on dispositions of plant, equipment and timberlands, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7.0 |
) |
|
|
(3.2 |
) |
|
|
(7.0 |
) |
|
|
(3.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss) |
|
|
27.9 |
|
|
|
22.1 |
|
|
|
18.8 |
|
|
|
21.6 |
|
|
|
8.4 |
|
|
|
5.5 |
|
|
|
(6.5 |
) |
|
|
(11.5 |
) |
|
|
48.8 |
|
|
|
37.8 |
|
Other non-operating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7.9 |
) |
|
|
(12.8 |
) |
|
|
(7.9 |
) |
|
|
(12.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
27.9 |
|
|
$ |
22.1 |
|
|
$ |
18.8 |
|
|
$ |
21.6 |
|
|
$ |
8.4 |
|
|
$ |
5.5 |
|
|
$ |
(14.4 |
) |
|
$ |
(24.3 |
) |
|
$ |
40.9 |
|
|
$ |
24.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net tons sold |
|
|
382.6 |
|
|
|
390.5 |
|
|
|
45.7 |
|
|
|
45.8 |
|
|
|
45.1 |
|
|
|
43.8 |
|
|
|
|
|
|
|
|
|
|
|
473.3 |
|
|
|
480.2 |
|
Depreciation, depletion and amortization |
|
$ |
17.9 |
|
|
$ |
17.5 |
|
|
$ |
11.8 |
|
|
$ |
12.5 |
|
|
$ |
4.3 |
|
|
$ |
4.3 |
|
|
|
|
|
|
|
|
|
|
$ |
34.1 |
|
|
$ |
34.3 |
|
Capital expenditures |
|
|
13.7 |
|
|
|
13.3 |
|
|
|
15.3 |
|
|
|
10.5 |
|
|
|
1.4 |
|
|
|
4.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
30.6 |
|
|
|
27.9 |
|
The clerical accuracy of the amounts set forth above may be affected by, or the amounts may not agree to the
consolidated financial statements included herein due to, rounding.
Results of individual business units are presented based on our management accounting practices and
management structure. There is no comprehensive, authoritative body of guidance for management accounting equivalent to accounting principles generally accepted in the United States of America; therefore, the financial results of individual business
units are not necessarily comparable with similar information for any other company. The management accounting process uses assumptions and allocations to measure performance of the business units. Methodologies are refined from time to time as
management accounting practices are enhanced and businesses change. The costs incurred by support areas not directly aligned with the business unit are allocated primarily based on an estimated utilization of support area services.
Management evaluates results of operations of the business units before pension income or expense,
alternative fuel mixture and cellulosic biofuel credits, charges related to the Fox River environmental reserves, acquisition and integration related costs, restructuring related charges, unusual items, certain corporate level costs, and the effects
of asset dispositions. Management believes that this is a more meaningful representation of the operating performance of its core businesses, the profitability of business units and the extent of cash flow generated from these core operations. Such
amounts are presented under the caption Other and Unallocated. This presentation is aligned with the management and operating structure of our company. It is also on this basis that our performance is evaluated internally and by the
Companys Board of Directors.
16. |
GUARANTOR FINANCIAL STATEMENTS |
Our
7 1/8% Notes have been fully and unconditionally guaranteed, on a joint and several basis, by certain of our 100%-owned domestic subsidiaries: PHG Tea Leaves, Inc., Mollanvick, Inc., The Glatfelter Pulp Wood
Company, and Glatfelter Holdings, LLC.
The following presents our condensed consolidating statements of income and
cash flow, and our condensed consolidating balance sheets. These financial statements reflect P. H. Glatfelter Company (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.
Condensed Consolidating Statement of Income
for the
three months ended June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousand |
|
Parent Company |
|
|
Guarantors |
|
|
Non Guarantors |
|
|
Adjustments/ Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
Net sales |
|
$ |
214,113 |
|
|
$ |
12,002 |
|
|
$ |
170,580 |
|
|
$ |
(12,002 |
) |
|
$ |
384,693 |
|
Energy and related sales net |
|
|
1,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
215,743 |
|
|
|
12,002 |
|
|
|
170,580 |
|
|
|
(12,002 |
) |
|
|
386,323 |
|
Costs of products sold |
|
|
200,549 |
|
|
|
11,103 |
|
|
|
145,827 |
|
|
|
(12,034 |
) |
|
|
345,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
15,194 |
|
|
|
899 |
|
|
|
24,753 |
|
|
|
32 |
|
|
|
40,878 |
|
Selling, general and administrative expenses |
|
|
17,691 |
|
|
|
602 |
|
|
|
11,820 |
|
|
|
|
|
|
|
30,113 |
|
Gains on dispositions of plant, equipment and timberlands, net |
|
|
(497 |
) |
|
|
(6,451 |
) |
|
|
(13 |
) |
|
|
|
|
|
|
(6,961 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
(2,000 |
) |
|
|
6,748 |
|
|
|
12,946 |
|
|
|
32 |
|
|
|
17,726 |
|
Other non-operating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(4,830 |
) |
|
|
1,699 |
|
|
|
(925 |
) |
|
|
|
|
|
|
(4,056 |
) |
Other net |
|
|
13,611 |
|
|
|
285 |
|
|
|
388 |
|
|
|
(14,181 |
) |
|
|
103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other non-operating income (expense) |
|
|
8,781 |
|
|
|
1,984 |
|
|
|
(537 |
) |
|
|
(14,181 |
) |
|
|
(3,953 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
6,781 |
|
|
|
8,732 |
|
|
|
12,409 |
|
|
|
(14,149 |
) |
|
|
13,773 |
|
Income tax provision (benefit) |
|
|
(6,651 |
) |
|
|
3,793 |
|
|
|
3,186 |
|
|
|
13 |
|
|
|
341 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
13,432 |
|
|
|
4,939 |
|
|
|
9,223 |
|
|
|
(14,162 |
) |
|
|
13,432 |
|
Other comprehensive income (loss) |
|
|
(10,619 |
) |
|
|
|
|
|
|
(13,532 |
) |
|
|
13,532 |
|
|
|
(10,619 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
2,813 |
|
|
$ |
4,939 |
|
|
$ |
(4,309 |
) |
|
$ |
(630 |
) |
|
$ |
2,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income for the
three months ended June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousand |
|
Parent Company |
|
|
Guarantors |
|
|
Non Guarantors |
|
|
Adjustments/ Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
Net sales |
|
$ |
216,708 |
|
|
$ |
11,986 |
|
|
$ |
181,277 |
|
|
$ |
(11,986 |
) |
|
$ |
397,985 |
|
Energy and related sales net |
|
|
2,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
218,768 |
|
|
|
11,986 |
|
|
|
181,277 |
|
|
|
(11,986 |
) |
|
|
400,045 |
|
Costs of products sold |
|
|
208,575 |
|
|
|
11,271 |
|
|
|
154,753 |
|
|
|
(12,054 |
) |
|
|
362,545 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
10,193 |
|
|
|
715 |
|
|
|
26,524 |
|
|
|
68 |
|
|
|
37,500 |
|
Selling, general and administrative expenses |
|
|
17,293 |
|
|
|
688 |
|
|
|
13,339 |
|
|
|
|
|
|
|
31,320 |
|
Gains on dispositions of plant, equipment and timberlands, net |
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(29 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
(7,071 |
) |
|
|
27 |
|
|
|
13,185 |
|
|
|
68 |
|
|
|
6,209 |
|
Other non-operating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(6,608 |
) |
|
|
1,992 |
|
|
|
(1,695 |
) |
|
|
|
|
|
|
(6,311 |
) |
Other net |
|
|
12,863 |
|
|
|
34 |
|
|
|
(100 |
) |
|
|
(13,072 |
) |
|
|
(275 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other non-operating income (expense) |
|
|
6,255 |
|
|
|
2,026 |
|
|
|
(1,795 |
) |
|
|
(13,072 |
) |
|
|
(6,586 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
(816 |
) |
|
|
2,053 |
|
|
|
11,390 |
|
|
|
(13,004 |
) |
|
|
(377 |
) |
Income tax provision (benefit) |
|
|
(3,317 |
) |
|
|
676 |
|
|
|
(257 |
) |
|
|
20 |
|
|
|
(2,878 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
2,501 |
|
|
|
1,377 |
|
|
|
11,647 |
|
|
|
(13,024 |
) |
|
|
2,501 |
|
Other comprehensive income (loss) |
|
|
5,974 |
|
|
|
|
|
|
|
3,786 |
|
|
|
(3,786 |
) |
|
|
5,974 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
8,475 |
|
|
$ |
1,377 |
|
|
$ |
15,433 |
|
|
$ |
(16,810 |
) |
|
$ |
8,475 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 19 -
Condensed Consolidating Statement of Income for the
six months ended June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands |
|
Parent Company |
|
|
Guarantors |
|
|
Non Guarantors |
|
|
Adjustments/ Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
Net sales |
|
$ |
437,915 |
|
|
$ |
27,372 |
|
|
$ |
344,141 |
|
|
$ |
(27,383 |
) |
|
$ |
782,045 |
|
Energy and related sales net |
|
|
3,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,491 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
441,406 |
|
|
|
27,372 |
|
|
|
344,141 |
|
|
|
(27,383 |
) |
|
|
785,536 |
|
Costs of products sold |
|
|
393,425 |
|
|
|
25,051 |
|
|
|
292,568 |
|
|
|
(27,356 |
) |
|
|
683,688 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
47,981 |
|
|
|
2,321 |
|
|
|
51,573 |
|
|
|
(27 |
) |
|
|
101,848 |
|
Selling, general and administrative expenses |
|
|
34,727 |
|
|
|
1,341 |
|
|
|
24,012 |
|
|
|
|
|
|
|
60,080 |
|
Gains on dispositions of plant, equipment and timberlands, net |
|
|
(522 |
) |
|
|
(6,451 |
) |
|
|
(25 |
) |
|
|
|
|
|
|
(6,998 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
13,776 |
|
|
|
7,431 |
|
|
|
27,586 |
|
|
|
(27 |
) |
|
|
48,766 |
|
Non-operating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(9,786 |
) |
|
|
3,341 |
|
|
|
(1,757 |
) |
|
|
|
|
|
|
(8,202 |
) |
Other net |
|
|
24,800 |
|
|
|
374 |
|
|
|
861 |
|
|
|
(25,736 |
) |
|
|
299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
15,014 |
|
|
|
3,715 |
|
|
|
(896 |
) |
|
|
(25,736 |
) |
|
|
(7,903 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
28,790 |
|
|
|
11,146 |
|
|
|
26,690 |
|
|
|
(25,763 |
) |
|
|
40,863 |
|
Income tax provision (benefit) |
|
|
(3,520 |
) |
|
|
4,886 |
|
|
|
7,198 |
|
|
|
(11 |
) |
|
|
8,553 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
32,310 |
|
|
|
6,260 |
|
|
|
19,492 |
|
|
|
(25,752 |
) |
|
|
32,310 |
|
Other comprehensive income |
|
|
1,032 |
|
|
|
|
|
|
|
(4,898 |
) |
|
|
4,898 |
|
|
|
1,032 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
33,342 |
|
|
$ |
6,260 |
|
|
$ |
14,594 |
|
|
$ |
(20,854 |
) |
|
$ |
33,342 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Income for the
six months ended June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousand |
|
Parent Company |
|
|
Guarantors |
|
|
Non Guarantors |
|
|
Adjustments/ Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
Net sales |
|
$ |
437,162 |
|
|
$ |
24,818 |
|
|
$ |
357,594 |
|
|
$ |
(24,818 |
) |
|
$ |
794,756 |
|
Energy and related sales net |
|
|
5,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
442,209 |
|
|
|
24,818 |
|
|
|
357,594 |
|
|
|
(24,818 |
) |
|
|
799,803 |
|
Costs of products sold |
|
|
399,537 |
|
|
|
22,742 |
|
|
|
304,855 |
|
|
|
(24,998 |
) |
|
|
702,136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
42,672 |
|
|
|
2,076 |
|
|
|
52,739 |
|
|
|
180 |
|
|
|
97,667 |
|
Selling, general and administrative expenses |
|
|
36,011 |
|
|
|
1,247 |
|
|
|
25,832 |
|
|
|
|
|
|
|
63,090 |
|
Gains on dispositions of plant, equipment and timberlands, net |
|
|
(42 |
) |
|
|
(3,158 |
) |
|
|
(4 |
) |
|
|
|
|
|
|
(3,204 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
6,703 |
|
|
|
3,987 |
|
|
|
26,911 |
|
|
|
180 |
|
|
|
37,781 |
|
Non-operating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net |
|
|
(9,937 |
) |
|
|
3,872 |
|
|
|
(3,199 |
) |
|
|
(3,300 |
) |
|
|
(12,564 |
) |
Other net |
|
|
23,389 |
|
|
|
121 |
|
|
|
(179 |
) |
|
|
(23,599 |
) |
|
|
(268 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
13,452 |
|
|
|
3,993 |
|
|
|
(3,378 |
) |
|
|
(26,899 |
) |
|
|
(12,832 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
20,155 |
|
|
|
7,980 |
|
|
|
23,533 |
|
|
|
(26,719 |
) |
|
|
24,949 |
|
Income tax provision (benefit) |
|
|
228 |
|
|
|
3,132 |
|
|
|
2,836 |
|
|
|
(1,174 |
) |
|
|
5,022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
19,927 |
|
|
|
4,848 |
|
|
|
20,697 |
|
|
|
(25,545 |
) |
|
|
19,927 |
|
Other comprehensive income |
|
|
22,959 |
|
|
|
|
|
|
|
18,200 |
|
|
|
(18,200 |
) |
|
|
22,959 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
42,886 |
|
|
$ |
4,848 |
|
|
$ |
38,897 |
|
|
$ |
(43,745 |
) |
|
$ |
42,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 20 -
Condensed Consolidating Balance Sheet as of
June 30, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands |
|
Parent Company |
|
|
Guarantors |
|
|
Non Guarantors |
|
|
Adjustments/ Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
1,436 |
|
|
$ |
3,424 |
|
|
$ |
18,577 |
|
|
$ |
|
|
|
$ |
23,437 |
|
Other current assets |
|
|
264,584 |
|
|
|
422,835 |
|
|
|
228,525 |
|
|
|
(494,262 |
) |
|
|
421,682 |
|
|
|
|
|
|
|
Plant, equipment and timberlands net |
|
|
240,564 |
|
|
|
6,179 |
|
|
|
348,312 |
|
|
|
|
|
|
|
595,055 |
|
Other assets |
|
|
761,892 |
|
|
|
157,083 |
|
|
|
47,659 |
|
|
|
(852,024 |
) |
|
|
114,610 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,268,476 |
|
|
$ |
589,521 |
|
|
$ |
643,073 |
|
|
$ |
(1,346,286 |
) |
|
$ |
1,154,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
390,880 |
|
|
$ |
53,140 |
|
|
$ |
282,452 |
|
|
$ |
(497,833 |
) |
|
$ |
228,639 |
|
Long-term debt |
|
|
218,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
218,000 |
|
Deferred income taxes |
|
|
27,959 |
|
|
|
3,643 |
|
|
|
38,913 |
|
|
|
(16,187 |
) |
|
|
54,328 |
|
Other long-term liabilities |
|
|
115,596 |
|
|
|
10,048 |
|
|
|
9,049 |
|
|
|
3,083 |
|
|
|
137,776 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
752,435 |
|
|
|
66,831 |
|
|
|
330,414 |
|
|
|
(510,937 |
) |
|
|
638,743 |
|
Shareholders equity |
|
|
516,041 |
|
|
|
522,690 |
|
|
|
312,659 |
|
|
|
(835,349 |
) |
|
|
516,041 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
1,268,476 |
|
|
$ |
589,521 |
|
|
$ |
643,073 |
|
|
$ |
(1,346,286 |
) |
|
$ |
1,154,784 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet as of
December 31, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands |
|
Parent Company |
|
|
Guarantors |
|
|
Non Guarantors |
|
|
Adjustments/ Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
3,007 |
|
|
$ |
2,894 |
|
|
$ |
32,376 |
|
|
$ |
|
|
|
$ |
38,277 |
|
Other current assets |
|
|
203,173 |
|
|
|
378,519 |
|
|
|
223,494 |
|
|
|
(421,050 |
) |
|
|
384,136 |
|
Plant, equipment and timberlands net |
|
|
243,554 |
|
|
|
6,648 |
|
|
|
351,748 |
|
|
|
|
|
|
|
601,950 |
|
Other assets |
|
|
736,733 |
|
|
|
175,945 |
|
|
|
48,610 |
|
|
|
(848,726 |
) |
|
|
112,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,186,467 |
|
|
$ |
564,006 |
|
|
$ |
656,228 |
|
|
$ |
(1,269,776 |
) |
|
$ |
1,136,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
310,814 |
|
|
$ |
31,328 |
|
|
$ |
293,283 |
|
|
$ |
(424,185 |
) |
|
$ |
211,240 |
|
Long-term debt |
|
|
227,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
227,000 |
|
Deferred income taxes |
|
|
42,252 |
|
|
|
4,079 |
|
|
|
39,511 |
|
|
|
(16,051 |
) |
|
|
69,791 |
|
Other long-term liabilities |
|
|
115,997 |
|
|
|
10,059 |
|
|
|
9,415 |
|
|
|
3,019 |
|
|
|
138,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
696,063 |
|
|
|
45,466 |
|
|
|
342,209 |
|
|
|
(437,217 |
) |
|
|
646,521 |
|
Shareholders equity |
|
|
490,404 |
|
|
|
518,540 |
|
|
|
314,019 |
|
|
|
(832,559 |
) |
|
|
490,404 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
1,186,467 |
|
|
$ |
564,006 |
|
|
$ |
656,228 |
|
|
$ |
(1,269,776 |
) |
|
$ |
1,136,925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 21 -
Condensed Consolidating Statement of Cash Flows for the six months ended June 30,
2012
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands |
|
Parent
Company |
|
Guarantors |
|
Non
Guarantors |
|
Adjustments/ Eliminations |
|
Consolidated |
|
|
Net cash provided (used) by |
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$3,464 |
|
$3,369 |
|
$21,699 |
|
$- |
|
$28,532 |
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of plant, equipment and timberlands |
|
(13,767) |
|
(78) |
|
(16,742) |
|
- |
|
(30,587) |
|
|
Proceeds from disposal plant, equipment and timberlands |
|
533 |
|
6,620 |
|
36 |
|
- |
|
7,189 |
|
|
Repayments from (advances of) intercompany loans, net and other |
|
5,662 |
|
(9,381) |
|
(514) |
|
4,233 |
|
- |
|
|
Total investing activities |
|
(7,572) |
|
(2,839) |
|
(17,220) |
|
4,233 |
|
(23,398) |
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net repayments of indebtedness |
|
(9,000) |
|
- |
|
- |
|
- |
|
(9,000) |
|
|
Payment of dividends to shareholders |
|
(7,800) |
|
- |
|
- |
|
- |
|
(7,800) |
|
|
Repurchases of common stock |
|
(3,565) |
|
- |
|
- |
|
- |
|
(3,565) |
|
|
(Repayments) borrowings of intercompany loans, net |
|
22,300 |
|
- |
|
(18,067) |
|
(4,233) |
|
- |
|
|
Proceeds from stock options exercised and other |
|
602 |
|
- |
|
27 |
|
- |
|
629 |
|
|
Total financing activities |
|
2,537 |
|
- |
|
(18,040) |
|
(4,233) |
|
(19,736) |
|
|
Effect of exchange rate on cash |
|
- |
|
- |
|
(238) |
|
- |
|
(238) |
|
|
Net increase (decrease) in cash |
|
(1,571) |
|
530 |
|
(13,799) |
|
- |
|
(14,840) |
|
|
Cash at the beginning of period |
|
3,007 |
|
2,894 |
|
32,376 |
|
- |
|
38,277 |
|
|
Cash at the end of period |
|
$1,436 |
|
$3,424 |
|
$18,577 |
|
$- |
|
$23,437 |
|
|
Condensed Consolidating Statement of Cash Flows for the six months ended June 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands |
|
Parent
Company |
|
Guarantors |
|
Non
Guarantors |
|
Adjustments/ Eliminations |
|
Consolidated |
|
|
Net cash provided (used) by |
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities |
|
$38,587 |
|
$2,969 |
|
$10,057 |
|
$(3,300) |
|
$48,313 |
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of plant, equipment and timberlands |
|
(13,284) |
|
(16) |
|
(14,577) |
|
|
|
(27,877) |
|
|
Proceeds from disposals of plant, equipment and timberlands |
|
49 |
|
3,373 |
|
18 |
|
|
|
3,440 |
|
|
Repayments of (advances from) intercompany loans, net |
|
(3,586) |
|
(2,156) |
|
|
|
5,742 |
|
|
|
|
Total investing activities |
|
(16,821) |
|
1,201 |
|
(14,559) |
|
5,742 |
|
(24,437) |
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
Net repayments of indebtedness |
|
|
|
|
|
(798) |
|
|
|
(798) |
|
|
Payment of dividends to shareholders |
|
(8,396) |
|
|
|
|
|
|
|
(8,396) |
|
|
Repurchases of common stock |
|
(4,369) |
|
|
|
|
|
|
|
(4,369) |
|
|
(Repayments) borrowings of intercompany loans, net |
|
13,500 |
|
|
|
(7,758) |
|
(5,742) |
|
|
|
|
Payment of intercompany dividends |
|
|
|
(3,300) |
|
|
|
3,300 |
|
|
|
|
Proceeds from stock options exercised and other |
|
117 |
|
|
|
|
|
|
|
117 |
|
|
Total financing activities |
|
852 |
|
(3,300) |
|
(8,556) |
|
(2,442) |
|
(13,446) |
|
|
Effect of exchange rate on cash |
|
|
|
|
|
2,078 |
|
|
|
2,078 |
|
|
Net increase (decrease) in cash |
|
22,618 |
|
870 |
|
(10,980) |
|
- |
|
12,508 |
|
|
Cash at the beginning of period |
|
61,953 |
|
91 |
|
33,744 |
|
|
|
95,788 |
|
|
Cash at the end of period |
|
$84,571 |
|
$961 |
|
$22,764 |
|
$- |
|
$108,296 |
|
|
- 22 -
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the information in the unaudited condensed
consolidated financial statements and notes thereto included herein and Glatfelters Financial Statements and Managements Discussion and Analysis of Financial Condition and Results of Operations included in our 2011 Annual Report
on Form 10-K.
Forward-Looking Statements This Quarterly Report on Form 10-Q
includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding industry prospects and future consolidated
financial position or results of operations, made in this Report on Form 10-Q are forward looking. We use words such as anticipates, believes, expects, future, intends and similar
expressions to identify forward-looking statements. Forward-looking statements reflect managements current expectations and are inherently uncertain. Our actual results may differ significantly from such expectations. The following discussion
includes forward-looking statements regarding expectations of, among others, non-cash pension expense, environmental costs, capital expenditures and liquidity, all of which are inherently difficult to predict. Although we make such statements based
on assumptions that we believe to be reasonable, there can be no assurance that actual results will not differ materially from our expectations. Accordingly, we identify the following important factors, among others, which could cause our results to
differ from any results that might be projected, forecasted or estimated in any such forward-looking statements:
i. |
variations in demand for our products including the impact of any unplanned market-related downtime, or variations in product pricing; |
ii. |
changes in the cost or availability of raw materials we use, in particular pulpwood, pulp, pulp substitutes, caustic soda and abaca fiber; |
iii. |
changes in energy-related costs and commodity raw materials with an energy component; |
iv. |
our ability to develop new, high value-added products; |
v. |
the impact of exposure to volatile market-based pricing for sales of excess electricity; |
vi. |
the impact of competition, changes in industry production capacity, including the construction of new mills, the closing of mills and incremental changes due to capital
expenditures or productivity increases; |
vii. |
the gain or loss of significant customers and/or on-going viability of such customers; |
viii. |
cost and other effects of environmental compliance, cleanup, damages, remediation or restoration, or personal injury or property damages related thereto, such as the
costs of natural resource restoration or damages related to the presence of polychlorinated biphenyls (PCBs) in the lower Fox River on which our former Neenah mill was located; |
ix. |
risks associated with our international operations, including local economic and political environments and fluctuations in currency exchange rates;
|
x. |
geopolitical events, including war and terrorism; |
xi. |
disruptions in production and/or increased costs due to labor disputes; |
xii. |
the impact of unfavorable outcomes of audits by various state, federal or international tax authorities; |
xiii. |
enactment of adverse state, federal or foreign tax or other legislation or changes in government policy or regulation; |
xiv. |
adverse results in litigation in the Fox River matter; |
xv. |
our ability to finance, consummate and integrate acquisitions; and |
xvi. |
the cost, and successful design and construction, of the Composite Fibers capacity expansion project. |
We manufacture a wide array of specialty papers and fiber-based engineered materials. We manage our company along three business units:
|
i) |
Specialty Papers with revenue from the sale of carbonless papers and forms, book publishing, envelope & converting papers, and fiber-based engineered
products; |
|
ii) |
Composite Fibers with revenue from the sale of single-serve coffee and tea filtration papers, metallized papers, composite laminates used for decorative
furniture and flooring applications, and other technical specialty papers; and |
|
iii) |
Advanced Airlaid Materials with revenue from the sale of airlaid non-woven fabric like materials used in feminine hygiene products, adult incontinence products,
cleaning pads, wipes, food pads, napkins, tablecloths, and baby wipes. |
- 23 -
RESULTS OF OPERATIONS
Six months ended June 30, 2012 versus the Six months ended June 30, 2011
Overview For the first six months of 2012, net income was $32.3 million, or $0.74 per diluted share, compared with $19.9
million, or $0.43 per diluted share, in the same period of 2011.
Operationally, our results reflect $5.9 million of higher
operating income from our business units primarily reflecting higher selling prices, efficient operations and continuous improvement initiatives.
Specialty Papers operating income increased $5.8 million to $27.9 million for the first six months of 2012. Volumes shipped declined 2.0%; however this units profitability was favorably
impacted by higher selling prices, the mix of products sold and efficient operations.
Our Composite Fibers business
units operating income declined $2.8 million to $18.8 million primarily due to lost production associated with two machine upgrades as well as the translation of foreign currencies. Volumes shipped were essentially unchanged in the comparison,
although the demand trends were impacted by the uncertain European economic conditions.
Advanced Airlaid Materials
operating income increased $2.9 million to $8.4 million, reflecting improvements in operating efficiency and lower raw material and energy costs.
Consolidated net income also benefited by $2.9 million, or $0.07 per diluted share, from
lower interest expense as a result of the debt refinancing activities undertaken in the fourth quarter of 2011. Diluted shares outstanding for the first six months of 2012 declined by 3.0 million shares compared with the same period of 2011
primarily due to the 2011 share repurchase program.
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30 |
|
In thousands, except per share |
|
2012 |
|
|
2011 |
|
Net sales |
|
$ |
782,045 |
|
|
$ |
794,756 |
|
Gross profit |
|
|
101,848 |
|
|
|
97,667 |
|
Operating income |
|
|
48,766 |
|
|
|
37,781 |
|
Net income |
|
|
32,310 |
|
|
|
19,927 |
|
Earnings per diluted share |
|
|
0.74 |
|
|
|
0.43 |
|
The consolidated results of operations summarized above include the following significant items:
|
|
|
|
|
|
|
|
|
In thousands, except per share |
|
After-tax Gain (loss) |
|
|
Diluted EPS |
|
2012 |
|
|
|
|
|
|
|
|
Conversion of Alternative fuel mixture for Cellulosic biofuel credits |
|
$ |
4,440 |
|
|
$ |
0.10 |
|
Timberland sales and related costs |
|
|
3,696 |
|
|
|
0.08 |
|
|
|
|
2011 |
|
|
|
|
|
|
|
|
Timberlands sales and related costs |
|
$ |
1,650 |
|
|
$ |
0.04 |
|
Acquisition and integration costs |
|
|
(793 |
) |
|
|
(0.02 |
) |
The above items increased earnings by $8.1 million, or $0.18 per diluted share, in the first six months
of 2012 and by $0.9 million, or $0.02 per diluted share, in the first six months of 2011.
During the second quarter of
2012, we recorded a $4.4 million, or $0.10 per diluted share, benefit in connection with our intention to convert alternative fuel mixture credits earned in 2009 for cellulosic biofuel credits.
The consolidated amounts reported for 2012 and 2011 also includes $3.7 million and $1.7 million, respectively, in after-tax gains from
timberland sales.
- 24 -
Business Unit Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30
In millions |
|
Specialty Papers |
|
|
Composite Fibers |
|
|
Advanced Airlaid Materials |
|
|
Other and Unallocated |
|
|
Total |
|
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
Net sales |
|
$ |
437.9 |
|
|
$ |
437.2 |
|
|
$ |
220.6 |
|
|
$ |
231.6 |
|
|
$ |
123.6 |
|
|
$ |
126.0 |
|
|
|
|
|
|
|
|
|
|
$ |
782.0 |
|
|
$ |
794.8 |
|
Energy and related sales, net |
|
|
3.5 |
|
|
|
5.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.5 |
|
|
|
5.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
441.4 |
|
|
|
442.2 |
|
|
|
220.6 |
|
|
|
231.6 |
|
|
|
123.6 |
|
|
|
126.0 |
|
|
|
|
|
|
|
|
|
|
|
785.5 |
|
|
|
799.8 |
|
Cost of products sold |
|
|
386.1 |
|
|
|
393.9 |
|
|
|
182.3 |
|
|
|
190.6 |
|
|
|
110.1 |
|
|
|
115.0 |
|
|
|
5.2 |
|
|
|
2.6 |
|
|
|
683.7 |
|
|
|
702.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
55.3 |
|
|
|
48.3 |
|
|
|
38.3 |
|
|
|
41.0 |
|
|
|
13.4 |
|
|
|
11.0 |
|
|
|
(5.2 |
) |
|
|
(2.6 |
) |
|
|
101.8 |
|
|
|
97.7 |
|
SG&A |
|
|
27.4 |
|
|
|
26.2 |
|
|
|
19.5 |
|
|
|
19.4 |
|
|
|
5.0 |
|
|
|
5.5 |
|
|
|
8.3 |
|
|
|
12.0 |
|
|
|
60.1 |
|
|
|
63.1 |
|
Gains on dispositions of plant, equipment and timberlands, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7.0 |
) |
|
|
(3.2 |
) |
|
|
(7.0 |
) |
|
|
(3.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss) |
|
|
27.9 |
|
|
|
22.1 |
|
|
|
18.8 |
|
|
|
21.6 |
|
|
|
8.4 |
|
|
|
5.5 |
|
|
|
(6.5 |
) |
|
|
(11.5 |
) |
|
|
48.8 |
|
|
|
37.8 |
|
Other non-operating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7.9 |
) |
|
|
(12.8 |
) |
|
|
(7.9 |
) |
|
|
(12.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
27.9 |
|
|
$ |
22.1 |
|
|
$ |
18.8 |
|
|
$ |
21.6 |
|
|
$ |
8.4 |
|
|
$ |
5.5 |
|
|
$ |
(14.4 |
) |
|
$ |
(24.3 |
) |
|
$ |
40.9 |
|
|
$ |
24.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net tons sold |
|
|
382.6 |
|
|
|
390.5 |
|
|
|
45.7 |
|
|
|
45.8 |
|
|
|
45.1 |
|
|
|
43.8 |
|
|
|
|
|
|
|
|
|
|
|
473.3 |
|
|
|
480.2 |
|
Depreciation, depletion and amortization |
|
$ |
17.9 |
|
|
$ |
17.5 |
|
|
$ |
11.8 |
|
|
$ |
12.5 |
|
|
$ |
4.3 |
|
|
$ |
4.3 |
|
|
|
|
|
|
|
|
|
|
$ |
34.1 |
|
|
$ |
34.3 |
|
Capital expenditures |
|
|
13.7 |
|
|
|
13.3 |
|
|
|
15.3 |
|
|
|
10.5 |
|
|
|
1.4 |
|
|
|
4.1 |
|
|
|
0.1 |
|
|
|
|
|
|
|
30.6 |
|
|
|
27.9 |
|
The clerical accuracy of the amounts set forth above may be affected by, or the amounts may not agree
to the consolidated financial statements included herein due to, rounding.
Sales and Costs of Products Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
June 30 |
|
|
|
|
In thousands |
|
2012 |
|
|
2011 |
|
|
Change |
|
Net sales |
|
$ |
782,045 |
|
|
$ |
794,756 |
|
|
$ |
(12,711 |
) |
Energy and related sales net |
|
|
3,491 |
|
|
|
5,047 |
|
|
|
(1,556 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
785,536 |
|
|
|
799,803 |
|
|
|
(14,267 |
) |
Costs of products sold |
|
|
683,688 |
|
|
|
702,136 |
|
|
|
(18,448 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
$ |
101,848 |
|
|
$ |
97,667 |
|
|
$ |
4,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit as a percent of Net sales |
|
|
13.0 |
% |
|
|
12.3 |
% |
|
|
|
|
Net sales for the first six months of 2012 decreased by $12.7 million, or 1.6%, to $782.0
million. The translation of foreign currencies unfavorably impacted net sales by $18.5 million in the comparison more than offsetting a $6.8 million benefit from higher selling prices. Total volumes shipped declined 1.4%.
The following table sets forth the contribution to consolidated net sales by each business unit:
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30 |
|
Percent of Total |
|
2012 |
|
|
2011 |
|
Business Unit |
|
|
|
|
|
|
|
|
Specialty Papers |
|
|
56.0 |
% |
|
|
55.0 |
% |
Composite Fibers |
|
|
28.2 |
|
|
|
29.1 |
|
Advanced Airlaid Material |
|
|
15.8 |
|
|
|
15.9 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
In the Specialty Papers business unit, net sales increased slightly primarily reflecting
a $6.3 million benefit from higher selling prices and an improved mix of products sold, substantially offset by a 2.0% decline in volumes shipped.
Specialty Papers operating income in the first six months of 2012 was $5.8 million higher than the same period of 2011 reflecting the benefits from higher selling prices, a $0.5 million benefit from
lower raw material costs, in addition to benefits from continuous improvement initiatives, production efficiencies, and cost control initiatives. These factors were partially offset by $1.5 million of lower energy and related sales. Results for the
first six months of 2011 benefited by $2.8 million from an insurance recovery and the resolution of a tax audit.
We
sell excess power generated by the Spring Grove, PA facility. The following table summarizes this activity for the first half of 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended June 30 |
|
|
|
|
In thousands |
|
2012 |
|
|
2011 |
|
|
Change |
|
Energy sales |
|
$ |
2,112 |
|
|
$ |
5,816 |
|
|
$ |
(3,704 |
) |
Costs to produce |
|
|
(1,805 |
) |
|
|
(4,956 |
) |
|
|
3,151 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net |
|
|
307 |
|
|
|
860 |
|
|
|
(553 |
) |
Renewable energy credits |
|
|
3,184 |
|
|
|
4,187 |
|
|
|
(1,003 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,491 |
|
|
$ |
5,047 |
|
|
$ |
(1,556 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Renewable energy credits (RECs) represent sales of certified credits earned related to
burning renewable sources of energy such as black liquor and wood waste.
- 25 -
We sell RECs into an emerging and illiquid market. The extent and value of future revenues from REC sales is dependent on many factors outside of managements control. Therefore, we may not
be able to generate consistent additional sales of RECs in future periods.
In Composite Fibers, net sales were $220.6
million, a decrease of $11.0 million, or 4.8%, primarily due to the translation of foreign currencies which unfavorably impacted the comparison by $12.7 million partially offset by a $0.7 million benefit from higher selling prices. Total volumes
shipped were essentially unchanged in the comparison.
Composite Fibers operating income in the first half of 2012
decreased by $2.8 million, primarily due to $1.8 million from the translation of foreign currencies. In addition, unfavorable operating costs including higher energy costs, general inflation, and a $1.6 million impact from the completion of machine
upgrades adversely affected the comparison.
In Advanced Airlaid Materials, net sales were $123.6 million and $126.0 million
in the first half of 2012 and 2011, respectively. The total volumes shipped increased 3.0%; however, currency translation and average selling prices unfavorably affected the comparison by $5.7 million and $0.9 million, respectively.
Operating income in this business unit increased $2.9 million compared with the year ago quarter led by a $3.0 million benefit from
lower raw material and energy costs in addition to continuous improvement initiatives including supply chain efficiencies, waste reduction and improved throughput, and benefits from a new festooner. The translation of foreign currencies negatively
impacted results by $1.0 million.
Pension Expense The following table summarizes the amounts of pension expense
recognized for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended
June 30 |
|
|
|
|
In thousands |
|
2012 |
|
|
2011 |
|
|
Change |
|
Recorded as: |
|
|
|
|
|
|
|
|
|
|
|
|
Costs of products sold |
|
$ |
4,538 |
|
|
$ |
3,264 |
|
|
$ |
1,274 |
|
SG&A expense |
|
|
1,179 |
|
|
|
771 |
|
|
|
408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,717 |
|
|
$ |
4,035 |
|
|
$ |
1,682 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of pension expense recognized each year is determined using various actuarial assumptions
and certain other factors.
Other and Unallocated The amount of net expenses not allocated to a business unit
and reported as Other and Unallocated in our table of Business Unit Performance totaled $6.5 million in the first half of 2012 compared with $11.5 million in the first half of 2011. The change was primarily due to a $3.8 million
increase in gains on dispositions of plant, equipment and timberlands in the first half of 2012. Excluding these gains, other and unallocated net operating expenses decreased $1.2 million as lower legal and professional fees were partially offset by
an increase in pension expense.
Non-operating income (expense) as presented in the Business Unit
Performance table includes $8.4 million of interest expense for the first half of 2012, a decrease of $4.5 million in the comparison primarily due to the redemption in the fourth quarter of 2011 of $100.0 million of 7 1/8% bonds.
Income taxes For the first six months of 2012, we
recorded a provision for income taxes of $8.6 million on $40.9 million of pretax income, or 20.9%. The comparable amounts in the first half of 2011 were income tax expense $5.0 million on $24.9 million of pretax income, or 20.1%. Income taxes in the
first half of 2012 benefited by $4.4 million from the conversion of alternative fuel mixture credits to cellulosic biofuel credits. The 2011 amounts include the benefit recorded in connection with the resolution of certain foreign tax audits,
partially offset by adjustments to the carrying value of deferred taxes in connection with changes in state tax laws.
Foreign Currency We own and operate facilities in Canada, Germany, France, the United Kingdom and the Philippines. The
functional currency of our Canadian operations is the U.S. dollar. However, in Germany and France it is the Euro, in the UK, it is the British Pound Sterling, and in the Philippines the functional currency is the Peso. During the first six
months of 2012, Euro functional currency operations generated approximately 25.9% of our sales and 24.7% of operating expenses and British Pound Sterling operations represented 7.5% of net sales and 7.3% of operating expenses. The translation
of the results from these international operations into U.S. dollars is subject to changes in foreign currency exchange rates.
- 26 -
The table below summarizes the effect from foreign currency translation on the first six
months of 2012 reported results compared to the first six months 2011:
|
|
|
|
|
In thousands |
|
Six months ended June 30 |
|
|
|
Favorable (unfavorable) |
|
Net sales |
|
$ |
(18,493 |
) |
Costs of products sold |
|
|
14,225 |
|
SG&A expenses |
|
|
1,528 |
|
Income taxes and other |
|
|
225 |
|
|
|
|
|
|
Net income |
|
$ |
(2,515 |
) |
|
|
|
|
|
The above table only presents the financial reporting impact of foreign currency translations assuming
currency exchange rates in 2012 were the same as 2011. It does not present the impact of certain competitive advantages or disadvantages of operating or competing in multi-currency markets.
Three months ended June 30, 2012 versus the Three months ended June 30,
2011
Overview Net income in the second quarter of 2012 totaled $13.4 million, or $0.31 per diluted share
compared with $2.5 million or $0.05 per diluted share for the second quarter of 2011. The following table sets forth summarized results of operations:
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30 |
|
In thousands, except per share |
|
2012 |
|
|
2011 |
|
Net sales |
|
$ |
384,693 |
|
|
$ |
397,985 |
|
Gross profit |
|
|
40,878 |
|
|
|
37,500 |
|
Operating income |
|
|
17,726 |
|
|
|
6,209 |
|
Net income |
|
|
13,432 |
|
|
|
2,501 |
|
Earnings per diluted share |
|
|
0.31 |
|
|
|
0.05 |
|
The consolidated results of operations for the three months ended June 30, 2012 and 2011 include
the following significant items:
|
|
|
|
|
|
|
|
|
In thousands, except per share |
|
After-tax Gain (loss) |
|
|
Diluted EPS |
|
2012 |
|
|
|
|
|
|
|
|
Conversion of Alternative fuel mixture for Cellulosic biofuel credits |
|
$ |
4,440 |
|
|
$ |
0.10 |
|
Timberland sales and related costs |
|
|
3,696 |
|
|
|
0.08 |
|
|
|
|
2011 |
|
|
|
|
|
|
|
|
Timberlands sales and related costs |
|
$ |
(69 |
) |
|
|
|
|
Acquisition and integration costs |
|
|
(518 |
) |
|
|
(0.01 |
) |
The above items increased earnings in the second quarter of 2012 by $8.1 million, or $0.18 per diluted
share and reduced earnings by $0.6 million, or $0.01 per diluted share, in the second quarter of 2011.
Business Unit Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30
In millions |
|
Specialty Papers |
|
|
Composite Fibers |
|
|
Advanced Airlaid Materials |
|
|
Other and Unallocated |
|
|
Total |
|
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
Net sales |
|
$ |
214.1 |
|
|
$ |
216.7 |
|
|
$ |
108.6 |
|
|
$ |
116.4 |
|
|
$ |
62.0 |
|
|
$ |
64.9 |
|
|
|
|
|
|
|
|
|
|
$ |
384.7 |
|
|
$ |
398.0 |
|
Energy and related sales, net |
|
|
1.6 |
|
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.6 |
|
|
|
2.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
215.7 |
|
|
|
218.8 |
|
|
|
108.6 |
|
|
|
116.4 |
|
|
|
62.0 |
|
|
|
64.9 |
|
|
|
|
|
|
|
|
|
|
|
386.3 |
|
|
|
400.0 |
|
Cost of products sold |
|
|
197.5 |
|
|
|
206.5 |
|
|
|
90.7 |
|
|
|
97.6 |
|
|
|
55.0 |
|
|
|
58.3 |
|
|
|
2.2 |
|
|
|
0.1 |
|
|
|
345.4 |
|
|
|
362.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
18.3 |
|
|
|
12.2 |
|
|
|
17.9 |
|
|
|
18.8 |
|
|
|
6.9 |
|
|
|
6.6 |
|
|
|
(2.2 |
) |
|
|
(0.1 |
) |
|
|
40.9 |
|
|
|
37.5 |
|
SG&A |
|
|
14.0 |
|
|
|
12.3 |
|
|
|
10.0 |
|
|
|
9.6 |
|
|
|
2.3 |
|
|
|
2.8 |
|
|
|
3.8 |
|
|
|
6.6 |
|
|
|
30.1 |
|
|
|
31.3 |
|
Gains on dispositions of plant, equipment and timberlands, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7.0 |
) |
|
|
|
|
|
|
(7.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss) |
|
|
4.2 |
|
|
|
(0.1 |
) |
|
|
7.9 |
|
|
|
9.2 |
|
|
|
4.6 |
|
|
|
3.8 |
|
|
|
1.0 |
|
|
|
(6.7 |
) |
|
|
17.7 |
|
|
|
6.2 |
|
Other non-operating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4.0 |
) |
|
|
(6.6 |
) |
|
|
(4.0 |
) |
|
|
(6.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|