FORM 10-Q
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

 

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

For the quarterly period ended September 30, 2013

or

 

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

For the transition period from              to             

 

LOGO

96 South George Street, Suite 520

York, Pennsylvania 17401

(Address of principal executive offices)

(717) 225-4711

(Registrant’s telephone number, including area code)

 

Commission

file number

 

Exact name of registrant as
specified in its charter

 

IRS Employer

Identification No.

 

State or other jurisdiction of
incorporation or organization

1-03560   P. H. Glatfelter Company   23-0628360   Pennsylvania

N/A

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for at the past 90 days.    Yes   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)    Smaller 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 October 31, 2013 totaled 43,274,410 shares.

 

 

 


Table of Contents

P. H. GLATFELTER COMPANY AND

SUBSIDIARIES

REPORT ON FORM 10-Q

For the QUARTERLY PERIOD ENDED

SEPTEMBER 30, 2013

Table of Contents

 

            Page  

PART I – FINANCIAL INFORMATION

  

Item 1

    

Financial Statements

  
    

Condensed Consolidated Statements of Income for the three months and nine months ended September 30, 2013 and 2012 (unaudited)

     2   
    

Condensed Consolidated Statements of Comprehensive Income for the three months and nine months ended September 30, 2013 and 2012 (unaudited)

     3   
    

Condensed Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012 (unaudited)

     4   
    

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2013 and 2012 (unaudited)

     5   
    

Notes to Condensed Consolidated Financial Statements (unaudited)

     6   

Item 2

    

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

     29   

Item 3

    

Quantitative and Qualitative Disclosures About Market Risks

     39   

Item 4

    

Controls and Procedures

     39   

PART II – OTHER INFORMATION

  

Item 6

    

Exhibits

     40   

SIGNATURES

     41   


Table of Contents

PART I

Item 1 – Financial Statements

P. H. GLATFELTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

 

     Three months ended
September 30
    Nine months ended
September 30
 

In thousands, except per share

   2013     2012     2013     2012  

Net sales

   $ 456,648      $ 404,354      $ 1,287,804      $ 1,186,399   

Energy and related sales, net

     1,196        1,867        2,721        5,358   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     457,844        406,221        1,290,525        1,191,757   

Costs of products sold

     391,805        347,029        1,126,271        1,030,717   
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     66,039        59,192        164,254        161,040   

Selling, general and administrative expenses

     34,480        29,380        102,495        89,460   

Gains on dispositions of plant, equipment and timberlands, net

     (282     (1,473     (374     (8,471
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     31,841        31,285        62,133        80,051   

Non-operating income (expense)

        

Interest expense

     (4,788     (4,152     (13,143     (12,580

Interest income

     92        106        240        332   

Other, net

     (34     (4     388        295   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total non-operating expense

     (4,730     (4,050     (12,515     (11,953
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     27,111        27,235        49,618        68,098   

Income tax provision (benefit)

     (7,008     7,136        (1,063     15,689   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 34,119      $ 20,099      $ 50,681      $ 52,409   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share

        

Basic

   $ 0.79      $ 0.47      $ 1.18      $ 1.22   

Diluted

     0.77        0.46        1.15        1.20   

Cash dividends declared per common share

   $ 0.10      $ 0.09      $ 0.30      $ 0.27   

Weighted average shares outstanding

        

Basic

     43,251        42,837        43,118        42,814   

Diluted

     44,328        43,667        44,213        43,595   

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

 

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9.30.13 Form 10-Q


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P. H. GLATFELTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

 

     Three months ended
September 30
    Nine months ended
September 30
 

In thousands

   2013     2012     2013     2012  

Net income

   $ 34,119      $ 20,099      $ 50,681      $ 52,409   

Foreign currency translation adjustments

     14,263        9,048        6,033        4,473   

Net change in:

        

Deferred gains (losses) on cash flow hedges, net of taxes of $62, $196, $28 and $333, respectively

     (154     (495     (108     (836

Unrecognized retirement obligations, net of taxes of $2,293, $1,787, $6,869 and $5,438, respectively

     3,794        3,013        11,394        8,961   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income

     17,903        11,566        17,319        12,598   
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income

   $ 52,022      $ 31,665      $ 68,000      $ 65,007   
  

 

 

   

 

 

   

 

 

   

 

 

 

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

 

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GLATFELTER

9.30.13 Form 10-Q


Table of Contents

P. H. GLATFELTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

 

     September 30     December 31  

In thousands

   2013     2012  
Assets     

Current assets

    

Cash and cash equivalents

   $ 63,635      $ 97,679   

Accounts receivable, net

     189,746        139,904   

Inventories

     230,418        222,366   

Prepaid expenses and other current assets

     57,922        58,909   
  

 

 

   

 

 

 

Total current assets

     541,721        518,858   

Plant, equipment and timberlands, net

     714,338        621,186   

Other assets

     275,400        102,941   
  

 

 

   

 

 

 

Total assets

   $ 1,531,459      $ 1,242,985   
  

 

 

   

 

 

 
Liabilities and Shareholders’ Equity     

Current liabilities

    

Accounts payable

   $ 139,301      $ 133,389   

Dividends payable

     4,361        3,905   

Environmental liabilities

     125        125   

Other current liabilities

     119,596        113,489   
  

 

 

   

 

 

 

Total current liabilities

     263,383        250,908   

Long-term debt

     438,581        250,000   

Deferred income taxes

     94,846        62,046   

Other long-term liabilities

     136,889        140,352   
  

 

 

   

 

 

 

Total liabilities

     933,699        703,306   

Commitments and contingencies

     —          —     

Shareholders’ equity

    

Common stock

     544        544   

Capital in excess of par value

     51,123        52,492   

Retained earnings

     857,174        819,593   

Accumulated other comprehensive loss

     (146,647     (163,966
  

 

 

   

 

 

 
     762,194        708,663   

Less cost of common stock in treasury

     (164,434     (168,984
  

 

 

   

 

 

 

Total shareholders’ equity

     597,760        539,679   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 1,531,459      $ 1,242,985   
  

 

 

   

 

 

 

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

 

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P. H. GLATFELTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

     Nine months ended
September 30
 

In thousands

   2013     2012  

Operating activities

    

Net income

   $ 50,681      $ 52,409   

Adjustments to reconcile to net cash provided by operations:

    

Depreciation, depletion and amortization

     50,028        51,123   

Amortization of debt issue costs and original issue discount

     977        913   

Pension expense, net of unfunded benefits paid

     9,646        7,711   

Deferred income tax benefit

     (10,876     (10,872

Gains on dispositions of plant, equipment and timberlands, net

     (374     (8,471

Share-based compensation

     5,523        5,004   

Change in operating assets and liabilities

    

Accounts receivable

     (23,496     (25,963

Inventories

     7,225        (14,160

Prepaid and other current assets

     4,659        (4,389

Accounts payable

     5,065        3,029   

Environmental matters

     135        (92

Accruals and other current liabilities

     (7,323     14,510   

Cellulosic biofuel and alternative fuel mixture credits

     9,406        (9,387

Other

     (5,583     (12,900
  

 

 

   

 

 

 

Net cash provided by operating activities

     95,693        48,465   

Investing activities

    

Expenditures for purchases of plant, equipment and timberlands

     (86,089     (45,027

Proceeds from disposals of plant, equipment and timberlands, net

     379        8,875   

Acquisition, net of cash acquired

     (210,911     —     

Other

     (325     (150
  

 

 

   

 

 

 

Net cash used by investing activities

     (296,946     (36,302

Financing activities

    

Net borrowings under (repayments of) revolving credit facility

     126,139        (8,000

Payments of borrowing costs

     (419     (102

Proceeds from term loan

     56,091        —     

Repurchases of common stock

     —          (4,060

Payments of dividends

     (12,603     (11,696

(Payments) proceeds from share-based compensation awards and other

     (2,332     1,461   
  

 

 

   

 

 

 

Net cash provided (used) by financing activities

     166,876        (22,397

Effect of exchange rate changes on cash

     333        279   
  

 

 

   

 

 

 

Net decrease in cash and cash equivalents

     (34,044     (9,955

Cash and cash equivalents at the beginning of period

     97,679        38,277   
  

 

 

   

 

 

 

Cash and cash equivalents at the end of period

   $ 63,635      $ 28,322   
  

 

 

   

 

 

 

Supplemental cash flow information

    

Cash paid for:

    

Interest, net of amounts capitalized

   $ 9,388      $ 7,873   

Income taxes, net

     10,834        26,097   

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

 

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9.30.13 Form 10-Q


Table of Contents

P. H. GLATFELTER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

1. ORGANIZATION

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

 

2. ACCOUNTING POLICIES

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

We prepared these financial statements in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles” or “GAAP”). 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 2012 Annual Report on Form 10-K (“2012 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 February 2013, the FASB issued ASU 2013-02 –Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” which requires new disclosures about items reclassified out of accumulated other comprehensive income. We adopted the requirements of this standard in the first quarter of 2013.

3. ACQUISITION

On April 30, 2013, we completed the acquisition of all outstanding shares of Dresden Papier GmbH (“Dresden”) from Fortress Paper Ltd. for approximately $211 million, net of cash acquired. Dresden, based in Heidenau, Germany, is the leading global supplier of nonwoven wallpaper base materials, and is a major supplier to most of the world’s largest wallpaper manufacturers. In 2012, Dresden’s revenues were approximately $150 million and it employed approximately 146 people at its state-of-the-art, 60,000 metric-ton-capacity manufacturing facility. We financed the acquisition through a combination of cash on hand and borrowings under our Revolving Credit Facility.

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

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

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

 

In thousands

  As
originally

presented
    Cumulative
Adjustments
    Adjusted  

Assets

     

Cash

  $ 12,227        —        $ 12,227   

Accounts receivable

    23,870        —          23,870   

Inventory

    13,864        —          13,864   

Prepaid and other current assets

    6,674        1,386        8,060   

Plant, equipment and timberlands

    60,951        —          60,951   

Intangible assets

    87,596        —          87,596   

Goodwill

    76,256        (1,386     74,870   
 

 

 

   

 

 

   

 

 

 

Total assets

    281,438        —          281,438   

Liabilities

     

Accounts payable and accrued expenses

    20,360        (107     20,253   

Deferred tax liabilities

    36,120        —          36,120   

Other long term liabilities

    1,820        107        1,927   
 

 

 

   

 

 

   

 

 

 

Total liabilities

    58,300        —          58,300   
 

 

 

   

 

 

   

 

 

 

Total

    223,138        —          223,138   

less cash acquired

    (12,227     —          (12,227
 

 

 

   

 

 

   

 

 

 

Total purchase price

  $ 210,911        —        $ 210,911   
 

 

 

   

 

 

   

 

 

 
 

 

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9.30.13 Form 10-Q


Table of Contents

The adjustments set forth above did not impact previously reported results of operations, earnings per share, or cash flows.

We are in the process of finalizing valuations necessary to account for this transaction in accordance with the acquisition method of accounting set forth in FASB ASC 805, Business Combinations. Accordingly, the purchase price allocation set forth above is based on all information available to us at the present time and is subject to change, and such changes could be material.

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

Acquired property, plant and equipment are preliminarily being depreciated on a straight-line basis with estimated remaining lives ranging from 5 years to 30 years. Intangible assets are being amortized on a straight-line basis over an average estimated remaining life of 17 years reflecting the expected future value. In addition, approximately $9.8 million of identifiable intangible assets have an indefinite life and are not being amortized.

The goodwill arising from the acquisition largely relates to strategic benefits, product and market diversification, assembled workforce, and similar factors. For tax purposes, all of the goodwill is non-deductible.

Our results of operations include the results of Dresden prospectively since the acquisition was completed on April 30, 2013. All such results reported herein are included as part of the Composite Fibers business unit. Revenue and operating income of Dresden included in our consolidated results of operations for the first nine months of 2013 totaled $67.8 million and $12.3 million, respectively.

The table below summarizes pro forma financial information as if the acquisition and related financing transaction occurred as of January 1, 2012:

 

                               
     Three months ended
September 30
 

In thousands, except per share

   2013      2012  

Pro forma

     

Net sales

   $ 456,648       $ 439,042   

Net income

     34,273         24,243   

Diluted earnings per share

     0.77         0.56   

 

     Nine months ended
September 30
 

In thousands, except per share

   2013      2012  

Pro forma

     

Net sales

   $ 1,344,623       $ 1,298,629   

Net income

     63,709         67,244   

Diluted earnings per share

     1.44         1.54   

During the first nine months of 2013, we incurred legal, professional and advisory costs directly related to the Dresden acquisition totaling $3.2 million. For purposes of presenting the above pro forma financial information, such costs have been eliminated. All such costs are presented under the caption “Selling, general and administrative expenses” in the accompanying condensed consolidated statements of income. In addition, the pro forma financial information excludes $1.1 million of charges to costs of products sold related to the write up of inventory to fair value and $2.0 million of integration related costs. This unaudited pro forma financial information above is not necessarily indicative of what the operating results would have been had the acquisition been completed at the beginning of the respective period nor is it indicative of future results.

 

 

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9.30.13 Form 10-Q


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

During the first nine months of 2013 and 2012, we completed sales of assets as summarized in the following table:

 

Dollars in thousands

   Acres      Proceeds      Gain  

2013

        

Timberlands

     172       $ 287       $ 282   

Other

     n/a         92         92   
     

 

 

    

 

 

 

Total

      $ 379       $ 374   
     

 

 

    

 

 

 

2012

        

Timberlands

     4,324       $ 8,105       $ 7,867   

Other

     n/a         770         604   
     

 

 

    

 

 

 

Total

      $ 8,875       $ 8,471   
     

 

 

    

 

 

 

 

5. EARNINGS PER SHARE

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

 

     Three months ended
September 30
 

In thousands, except per share

   2013      2012  

Net income

   $ 34,119       $ 20,099   
  

 

 

    

 

 

 

Weighted average common shares outstanding used in basic EPS

     43,251         42,837   

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

     1,077         830   
  

 

 

    

 

 

 

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

     44,328         43,667   
  

 

 

    

 

 

 

Earnings per share

     

Basic

   $ 0.79       $ 0.47   

Diluted

     0.77         0.46   
     Nine months ended
September 30
 

In thousands, except per share

   2013      2012  

Net income

   $ 50,681       $ 52,409   
  

 

 

    

 

 

 

Weighted average common shares outstanding used in basic EPS

     43,118         42,814   

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

     1,095         781   
  

 

 

    

 

 

 

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

     44,213         43,595   
  

 

 

    

 

 

 

Earnings per share

     

Basic

   $ 1.18       $ 1.22   

Diluted

     1.15         1.20   

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:

 

in thousands

   2013      2012  

Three months ended September 30

     —           8   

Nine months ended September 30

     —           158   
 

 

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6. ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table sets forth details of the changes in accumulated other comprehensive income (losses) for the three months ended September 30, 2013 and 2012.

 

in thousands

   Currency
Translation
Adjustments
    Unrealized
gain (loss)
on
cash flow
hedges
    Change in
pensions
    Change in
other
postretirement
defined
benefit plans
    Total  

Balance at July 1, 2013

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

Other comprehensive income before reclassifications (net of tax)

     14,263        (434     —          —          13,829   

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

     —          280        3,746        48        4,074   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net current period other comprehensive income (loss)

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2013

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at July 1, 2012

   $ (15,618   $ 844      $ (146,969   $ (3,966   $ (165,709

Other comprehensive income before reclassifications (net of tax)

     9,048        18        —          —          9,066   

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

     —          (513     3,057        (44     2,500   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net current period other comprehensive income (loss)

     9,048        (495     3,057        (44     11,566   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2012

   $ (6,570   $ 349      $ (143,912   $ (4,010   $ (154,143
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The following table sets forth details of the changes in accumulated other comprehensive income (losses) for the nine months ended September 30, 2013 and 2012.

 

in thousands

   Currency
Translation
Adjustments
    Unrealized
gain (loss)
on
cash flow
hedges
    Change in
pensions
    Change in
other
postretirement
defined
benefit plans
    Total  

Balance at January 1, 2013

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

Other comprehensive income before reclassifications (net of tax)

     6,033        (575     —          —          5,458   

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

     —          467        11,250        144        11,861   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net current period other comprehensive income (loss)

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2013

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at January 1, 2012

   $ (11,043   $ 1,185      $ (153,002   $ (3,881   $ (166,741

Other comprehensive income before reclassifications (net of tax)

     4,473        479        —          —          4,952   

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

     —          (1,315     9,090        (129     7,646   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net current period other comprehensive income (loss)

     4,473        (836     9,090        (129     12,598   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2012

   $ (6,570   $ 349      $ (143,912   $ (4,010   $ (154,143
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Table of Contents

The following table sets forth reclassifications out of accumulated other comprehensive income for the three months and nine months ended September 30, 2013 and 2012.

 

     Three months ended
September 30
    Nine months ended
September 30
     

In thousands

   2013     2012     2013     2012      
Description                            Line Item in Statements of Income

Cash flow hedges (Note 15)

          

(Gains) losses on cash flow hedges

   $ 384      $ (715   $ 641      $ (1,832   Costs of products sold
     (104     202        (174     517      Income tax provision
  

 

 

   

 

 

   

 

 

   

 

 

   

Net of tax

     280        (513     467        (1,315  

Retirement plan obligations (Note 9)

          

Amortization of deferred benefit pension plan items

          

Prior service costs

     572        482        1,838        1,519      Costs of products sold
     201        132        483        322      Selling, general and administrative

Actuarial losses

     3,792        3,272        12,209        10,323      Costs of products sold
     1,445        983        3,502        2,442      Selling, general and administrative
  

 

 

   

 

 

   

 

 

   

 

 

   
     6,010        4,869        18,032        14,606     
     (2,264     (1,812     (6,782     (5,516   Income tax provision
  

 

 

   

 

 

   

 

 

   

 

 

   

Net of tax

     3,746        3,057        11,250        9,090     

Amortization of deferred benefit other plan items

          

Prior service costs

     (100     (190     (301     (570   Costs of products sold
     (25     (44     (74     (133   Selling, general and administrative

Actuarial losses

     155        128        465        384      Costs of products sold
     47        37        141        112      Selling, general and administrative
  

 

 

   

 

 

   

 

 

   

 

 

   
     77        (69     231        (207  
     (29     25        (87     78      Income tax provision
  

 

 

   

 

 

   

 

 

   

 

 

   

Net of tax

     48        (44     144        (129  
  

 

 

   

 

 

   

 

 

   

 

 

   

Total reclassifications, net of tax

   $ 4,074      $ 2,500      $ 11,861      $ 7,646     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

7. INCOME TAXES

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

As of September 30, 2013 and December 31, 2012, we had $16.7 million and $30.4 million of gross unrecognized tax benefits. As of September 30, 2013, if such benefits were to be recognized, approximately $16.7 million would be recorded as a component of income tax expense, thereby affecting our effective tax rate. The change was primarily due to the release of $9.9 million of uncertain tax positions related to alternative fuel mixture credits. The release was recorded in the third quarter in connection with the lapse of the statute of limitations.

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

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

 

     Open Tax Years  

Jurisdiction

   Examinations not
yet initiated
     Examination
in progress
 

United States

     

Federal

     2010 - 2012         N/A   

State

     2008 -2012         2009   

Canada (1)

     2010 - 2012         2007 - 2011   

Germany (1)

     2012         2007 - 2012   

France

     2010 -2012         N/A   

United Kingdom

     2009 - 2012         N/A   

Philippines

     2012         2010-2011   

 

(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

 

 

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Table of Contents

matters with certain tax authorities and the closure of tax years subject to tax audit, reserves are adjusted as necessary. However, future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are determined or resolved or as such statutes are closed. Due to potential for resolution of federal, state and foreign examinations, and the lapse of various statutes of limitation, it is reasonably possible our gross unrecognized tax benefits balance may decrease within the next twelve months by a range of zero to $5.9 million. Substantially all of this range relates to tax positions taken in the U.S., the U.K. and Germany.

We recognize interest and penalties related to uncertain tax positions as income tax expense. For the third quarter and first nine months of 2013, we recognized a net reduction of $0.4 million and $0.1 million, respectively, of interest expense. For the third quarter and first nine months of 2012, we recognized a net reduction of $0.3 million and $0.7 million, respectively, of interest expense. As of September 30, 2013 and December 31, 2012, we had recognized a liability for interest of $1.1 million and $1.4 million, respectively. We did not record any penalties associated with uncertain tax positions during the first nine months of 2013 or 2012.

In the third quarter of 2012, we amended our 2009 federal income tax return to claim a credit for a portion of the converted credits. This required us to return to the Internal Revenue Service $16.8 million, net of credits used to reduce estimated tax payments.

 

8. STOCK-BASED COMPENSATION

The P. H. Glatfelter Amended and Restated Long Term Incentive Plan (the “LTIP”) provides for the issuance of Glatfelter common stock to eligible participants in the form of restricted stock units, restricted stock awards, non-qualified stock options, performance shares, incentive stock options and performance units. In May 2013, our shareholders approved an increase of 1,030,000 in the number shares authorized to be issued under the LTIP.

Pursuant to terms 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 (“RSU”) and Performance Share Awards (“PSAs”) Awards of RSUs and PSAs are made under our LTIP. The vesting of RSUs is based solely on the passage of time, generally on a graded scale over a three, four, and five-year period. PSAs are issued annually and cliff vest on December 31 of the third year following the grant assuming the achievement of predetermined, three-year cumulative performance targets. The performance measures include a minimum, target and maximum performance level providing the grantees an opportunity to receive more or less shares than targeted depending on actual financial performance. For both

RSUs and PSAs, the grant date fair value of the awards, which is equal to the closing price per common share on the date of the award, is used to determine the amount of expense to be recognized over the applicable service period. Settlement of RSUs and PSAs will be made in shares of our common stock currently held in treasury.

The following table summarizes RSU and PSA activity during the first nine months of 2013 and 2012:

 

Units

   2013     2012  

Balance January 1,

     847,679        788,088   

Granted

     210,856        207,728   

Forfeited

     (40,991     (29,825

Shares delivered

     (113,230     (95,430
  

 

 

   

 

 

 

Balance September 30,

     904,314        870,561   
  

 

 

   

 

 

 

The amount granted in 2013 and 2012 includes PSAs of 181,670 and 161,083, respectively, exclusive of reinvested dividends. The following table sets forth aggregate RSU and PSA compensation expense for the periods indicated:

 

     September 30  

Dollars in thousands

   2013      2012  

Three months ended

   $ 892       $ 680   

Nine months ended

   $ 2,216         1,959   

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

 

 

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The following table sets forth information related to outstanding SOSARS.

 

     2013      2012  

SOSARS

   Shares     Wtd Avg
Exercise
Price
     Shares     Wtd Avg
Exercise
Price
 

Outstanding at January 1,

     2,121,454      $ 12.93         2,298,288      $ 12.35   

Granted

     361,923        18.36         364,114        15.23   

Exercised

     (435,562     12.63         (500,074     12.06   

Canceled / forfeited

     (73,901     16.25         (12,000     14.96   
  

 

 

      

 

 

   

Outstanding at September 30,

     1,973,914      $ 13.87         2,150,328      $ 12.94   

SOSAR Grants

                         

Weighted average grant date fair value per share

   $ 5.64         $ 4.94     

Aggregate grant date fair value (in thousands)

   $ 2,042         $ 1,797     

Black-Scholes assumptions

         

Dividend yield

     2.18        2.31  

Risk free rate of return

     0.99        1.02  

Volatility

     39.62        41.48  

Expected life

     6 yrs           6 yrs     
         

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

 

     September 30  

In thousands

   2013      2012  

Three months ended

   $ 398       $ 369   

Nine months ended

     1,198         1,095   
9. RETIREMENT PLANS AND OTHER POST-RETIREMENT BENEFITS

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

 

     Three months ended  
   September 30  

In thousands

   2013     2012  

Pension Benefits

    

Service cost

   $ 2,897      $ 2,778   

Interest cost

     5,504        5,770   

Expected return on plan assets

     (10,857     (10,541

Amortization of prior service cost

     773        614   

Amortization of unrecognized loss

     5,237        4,255   
  

 

 

   

 

 

 

Subtotal

   $ 3,554      $ 2,876   
  

 

 

   

 

 

 

Other Benefits

    

Service cost

   $ 789      $ 709   

Interest cost

     545        608   

Expected return on plan assets

     —          (113

Amortization of prior service cost

     (125     (234

Amortization of unrecognized loss

     202        165   
  

 

 

   

 

 

 

Net periodic benefit cost

   $ 1,411      $ 1,135   
  

 

 

   

 

 

 

 

     Nine months ended  
   September 30  

In thousands

   2013     2012  

Pension Benefits

    

Service cost

   $ 8,693      $ 8,334   

Interest cost

     16,504        17,304   

Expected return on plan assets

     (32,570     (31,651

Amortization of prior service cost

     2,321        1,841   

Amortization of unrecognized loss

     15,711        12,765   
  

 

 

   

 

 

 

Subtotal

   $ 10,659      $ 8,593   
  

 

 

   

 

 

 

Other Benefits

    

Service cost

   $ 2,367      $ 2,127   

Interest cost

     1,635        1,824   

Expected return on plan assets

     —          (339

Amortization of prior service cost

     (375     (703

Amortization of unrecognized loss

     606        496   
  

 

 

   

 

 

 

Net periodic benefit cost

   $ 4,233      $ 3,405   
  

 

 

   

 

 

 
 

 

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Table of Contents
10. INVENTORIES

Inventories, net of reserves, were as follows:

 

In thousands

   September 30
2013
     December 31
2012
 

Raw materials

   $ 61,246       $ 61,084   

In-process and finished

     102,745         102,331   

Supplies

     66,427         58,951   
  

 

 

    

 

 

 

Total

   $ 230,418       $ 222,366   
  

 

 

    

 

 

 

 

11. OTHER LONG-TERM ASSETS

Other long-term assets consist of the following:

 

In thousands

   September 30
2013
     December 31
2012
 

Pension

   $ 62,775       $ 53,734   

Goodwill and intangibles

     189,862         24,902   

Other

     22,763         24,305   
  

 

 

    

 

 

 

Total

   $ 275,400       $ 102,941   
  

 

 

    

 

 

 

In connection with the Dresden acquisition completed April 30, 2013, we recorded $74.9 million of goodwill and $87.6 million of intangible assets.

 

12. LONG-TERM DEBT

Long-term debt is summarized as follows:

 

In thousands

   September 30
2013
     December 31
2012
 

Revolving credit facility, due Nov. 2016

   $ 130,940       $ —     

5.375% Notes, due Oct. 2020

     250,000         250,000   

2.05% Term Loan, due Mar. 2023

     57,641         —     
  

 

 

    

 

 

 

Total long-term debt

     438,581         250,000   

Less current portion

     —           —     
  

 

 

    

 

 

 

Long-term debt, net of current portion

   $ 438,581       $ 250,000   
  

 

 

    

 

 

 

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 bank’s base rate which is equal to the greater of i) the prime rate; ii) the federal funds rate plus 50 basis points plus an applicable spread ranging from 25 basis points to 125 basis points based on our corporate

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

The Revolving Credit Facility contains a number of customary covenants for financings of this type that, among other things, restrict our ability to dispose of or create liens on assets, incur additional indebtedness, repay other indebtedness, limit 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; and ii) a consolidated EBITDA to interest expense 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 October 3, 2012, we completed an offering of $250 million aggregate principal amount of 5.375% Senior Notes due 2020 (the “5.375% Notes”). The 5.375% Notes are fully and unconditionally guaranteed, jointly and severally, by PHG Tea Leaves, Inc., Mollanvick, Inc., The Glatfelter Pulp Wood Company, and Glatfelter Holdings, LLC (the “Guarantors”).

Unamortized deferred debt issuance costs related to the offering of the 5.375% Notes totaled $4.3 million and $4.8 million as of September 30, 2013 and December 31, 2012, respectively, and are reported under the caption “Other assets” in the accompanying condensed consolidated balance sheets. The deferred costs are being amortized on a straight line basis over the life of the 5.375% Notes.

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

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

 

 

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The 5.375% Notes contain cross default provisions that could result in all such notes becoming due and payable in the event of a failure to repay debt outstanding under the Revolving Credit Agreement at maturity or a default under the Revolving Credit Agreement that accelerates the debt outstanding thereunder. As of September 30, 2013, we met all of the requirements of our debt covenants.

On April 11, 2013, Glatfelter Gernsbach GmbH & Co. KG (“Gernsbach”), a wholly-owned subsidiary of ours, entered into an agreement with IKB Deutsche Industriebank AG, Düsseldorf (“IKB”), pursuant to which Gernsbach borrowed from IKB approximately €42.7 million (or $57.6 million) aggregate principal amount (the “IKB Loan”).

The IKB Loan, guaranteed in full by us, is repayable in 32 quarterly installments beginning on June 30, 2015 and ending on March 31, 2023 and will bear interest at a rate of 2.05% per annum. Interest on the IKB Loan or portion thereof is payable quarterly in each year of the term of the loan with interest accruing from the date the loan or portion thereof is drawn.

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

As of September 30, 2013 and December 31, 2012, we had $5.2 million of letters of credit issued to us by certain financial institutions. The letters of credit, which reduce amounts available under our revolving credit facility, primarily provide financial assurances for the benefit of certain state workers compensation insurance agencies in conjunction with our self-insurance program. We bear the credit risk on this amount to the extent that we do not comply with the provisions of certain agreements. No amounts are outstanding under the letters of credit.

 

13. ASSET RETIREMENT OBLIGATION

During 2008, we recorded $11.5 million, net present value, of asset retirement obligations related to the legal requirement to close several lagoons at the Spring Grove, PA facility. Historically, lagoons were used to dispose of residual waste material. Closure of the lagoons, which is expected to be completed in 2016, will be accomplished by filling the lagoons, installing a non-permeable liner

which will be covered with soil to construct the required cap over the lagoons. The amount referred to above, in addition to upward revisions, was accrued with a corresponding increase in the carrying value of the property, equipment and timberlands caption on the consolidated balance sheet. The amount capitalized is being amortized as a charge to operations on the straight-line basis in relation to the expected closure period. Following is a summary of activity recorded during the first nine months of 2013 and 2012:

 

In thousands

   2013     2012  

Balance at January 1,

   $ 8,882      $ 9,679   

Accretion

     234        347   

Payments

     (2,719     (945

Gain

     (1,255     —     
  

 

 

   

 

 

 

Balance at September 30,

   $ 5,142      $ 9,081   
  

 

 

   

 

 

 

During the third quarter of 2013, we recognized a $1.3 million gain related to the progress of closure activities for a portion of the lagoons required to be retired. The gain is reflected in the accompanying condensed consolidated statements of income under the caption “costs of products sold.”

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

 

In millions

   September 30
2013
     December 31
2012
 

Other current liabilities

   $ 1.2       $ 3.6   

Other long-term liabilities

     3.9         5.3   
  

 

 

    

 

 

 

Total

   $ 5.1       $ 8.9   
  

 

 

    

 

 

 

 

14. FAIR VALUE OF FINANCIAL INSTRUMENTS

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

 

     September 30, 2013      December 31, 2012  

In thousands

   Carrying
Value
     Fair Value      Carrying
Value
     Fair Value  

Fixed-rate bonds

   $ 250,000       $ 254,321       $ 250,000       $ 260,340   

2.05% Term loan

     57,641         55,917         —           —     

Variable rate debt

     130,940         130,940         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 438,581       $ 441,178       $ 250,000       $ 260,340   
  

 

 

    

 

 

    

 

 

    

 

 

 

As of September 30, 2013, and December 31, 2012, we had $250.0 million of 5.375% fixed rate bonds. These bonds are publicly registered, but thinly traded. Accordingly, the values set forth above for the bonds, as

 

 

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well as our other debt instruments, are based on observable inputs and other relevant market data (Level 2). The fair value of financial derivatives is set forth below in Note 15.

 

15. FINANCIAL DERIVATIVES AND HEDGING ACTIVITIES

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

Derivatives Designated as Hedging Instruments - Cash Flow Hedges We use currency forward contracts as cash flow hedges to manage our exposure to fluctuations in the currency exchange rates on certain forecasted production costs expected to be incurred over a maximum of twelve months. Currency forward contracts involve fixing the 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 or certain production costs with exposure to changes in foreign currency exchange rates. The effective portion of changes in the fair value of derivatives designated and that qualify as cash flow hedges of foreign exchange risk is deferred as a component of accumulated other comprehensive income in the accompanying condensed consolidated balance sheets and is subsequently reclassified into costs of products sold in the period that inventory produced using the hedged transaction affects earnings. The ineffective portion of the change in fair value of the derivative is recognized directly to earnings and reflected in the accompanying condensed consolidated statements of income as non-operating income (expense) under the caption “Other-net.”

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

 

In thousands    September 30
2013
     December 31
2012
 

Derivative

   Buy Notional  

Sell / Buy

     

Euro / U.S. dollar

     25,275         27,003   

U.S. dollar / Canadian dollar

     13,317         12,369   

These contracts have maturities of twelve months or less.

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

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

 

In thousands    September 30
2013
    December 31
2012
 

Derivative

   Sell (Buy) Notional  

Sell / Buy

    

Euro / U.S. dollar

     18,000        13,000   

Euro / British Pound

     (8,000     4,000   

Euro / British Pound

     5,000        —     

Canadian dollar / U.S. dollar

     2,000        2,000   

U.S. dollar / Euro

     6,000        2,000   

U.S. dollar / British Pound

     6,000        —     

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

 

 

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

 

In thousands   September 30
2013
    December 31
2012
    September 30
2013
    December 31
2012
 
Balance sheet
caption
  Prepaid Expenses and Other
Current Assets
    Other Current
Liabilities
 

Designated as hedging:

       

Forward foreign currency exchange contracts

  $ 40      $ 107      $ 675      $ 751   

Not designated as hedging:

       

Forward foreign currency exchange contracts

  $ 42      $ 159      $ 67      $ 16   

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

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

 

     Three months ended
September 30
    Nine months ended
September 30
 

In thousands

   2013     2012     2013     2012  

Designated as hedging:

        

Forward foreign currency exchange contracts:

        

Effective portion – cost of products sold

   $ (384   $ 715      $ (641   $ 1,832   

Ineffective portion – other – net

     49        18        74        244   

Not designated as hedging:

        

Forward foreign currency exchange contracts:

        

Other – net

   $ (348   $ (684   $ (794   $ (290

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

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

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

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

 

In thousands

   2013     2012  

Balance at January 1,

   $ (599   $ 1,649   

Deferred (losses) gains on cash flow hedges

     (778     663   

Reclassified to earnings

     641        (1,832
  

 

 

   

 

 

 

Balance at September 30,

   $ (736   $ 480   
  

 

 

   

 

 

 

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

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

 

 

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16. SHARE REPURCHASES

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 through September 30, 2013, made under this program:

 

     shares      (thousands)  

Authorized amount

     n/a       $ 25,000   

Repurchases

     291,120         (4,462
     

 

 

 

Remaining authorization

      $ 20,538   
     

 

 

 

During the first nine months of 2013, no shares were repurchased.

 

17. COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS

Fox River – Neenah, Wisconsin

Background. We have significant uncertainties associated with environmental claims arising out of the presence of polychlorinated biphenyls (“PCBs”) in sediments in the lower Fox River, on which our former Neenah facility was located, and in the Bay of Green Bay Wisconsin (collectively, the “Site”). The United States, the State of Wisconsin, and two Indian tribes (collectively, the “Governments”) seek to require (a) a cleanup of the Site (“response actions”), (b) reimbursement of cleanup costs (“response costs”), and (c) natural resource damages (“NRDs”). They claim that we, together with seven other entities that have been formally notified that they are potentially responsible parties (“PRPs”) under CERCLA for response costs or NRDs, are jointly and severally responsible under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA” or “Superfund”) for those response actions, response costs, and NRDs, all of which may total in excess of $1 billion.

The PRPs consist of us, Appvion, Inc. (formerly known as Appleton Papers Inc.), CBC Coating, Inc. (formerly known as Riverside Paper Corporation), Georgia-Pacific Consumer Products, L.P. (formerly known as Fort James Operating Company), Menasha Corporation, NCR Corporation (“NCR”), U.S. Paper Mills Corp., and WTM I Company.

The Governments have identified manufacturing and recycling of NCR®-brand carbonless copy paper as the

principal source of the PCBs in sediments at the Site. Our predecessor, the Bergstrom Paper Company, and later we operated a deinking paper mill in Neenah, Wisconsin. This mill received NCR®-brand carbonless copy paper in its furnish and discharged PCBs to Little Lake Butte des Morts, an impoundment of the river at the upstream end of the Site.

The United States Environmental Protection Agency (“EPA”) has divided the Site into five “operable units”, 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 this portion of the site.

We have resolved our liability for response actions and response costs associated with the permanent cleanup of Little Lake Butte des Morts through a consent decree, and amendments, entered in United States v. P.H. Glatfelter Co., No. 2:03-cv-949-LA (E.D. Wis.). Together with WTM I Company and with assistance from Menasha Corporation, we have completed that cleanup except for on-going operation and maintenance.

In November 2007, the EPA issued a unilateral administrative order for remedial action (“UAO”) to us and to seven other respondents directing us to implement the cleanup of the Site downstream of Little Lake Butte des Morts. Since that time, the district court has held that one of the respondents, Appvion, is not liable for this Site. In addition, the United States and the State of Wisconsin have entered into a settlement with another respondent, Georgia-Pacific LLP (“GP”), limiting GP’s responsibility to the downstream-most three miles of the river. Work has proceeded to implement the UAO, mostly funded by NCR and its indemnitors.

In January 2008, two of the UAO respondents, NCR and Appleton Papers Inc. (now known as Appvion), brought two actions, consolidated under the caption Appleton Papers Inc. v. George A. Whiting Paper Co., No. 2:08-cv-16-WCG (E.D. Wis.) (“Whiting Litigation”), that ultimately involved us and more than two dozen parties in litigation to allocate among the parties the responsibility for response actions, response costs, and NRDs for this Site. Most of the parties responsible for relatively small discharges of PCBs settled with the Governments, resolving their liability. On June 27, 2013, the district court entered a final judgment that (a) neither NCR nor Appvion may pursue any other party for contribution, (b) NCR owes us and the other non-settling parties “full contribution” for any amounts we may have to pay on account of response actions or response costs downstream of Little Lake Butte des Morts or on account of NRDs, (c) NCR is not liable for response costs, response actions, or

 

 

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NRDs in Little Lake Butte des Morts, and (d) NCR owes us reimbursement of $4.28 million in costs we incurred in the past. NCR and Appvion have appealed that judgment. We have filed a cross-appeal of that judgment (as have several other defendants), challenging those portions of the judgment with which we disagree, including the ruling that NCR is not liable for response costs, response actions, or NRDs in Little Lake Butte des Morts. Until the Whiting Litigation judgment is affirmed on appeal, all past and future costs or damages incurred by any person remain the subject of litigation against us.

In October 2010, the United States and the State of Wisconsin sued us and thirteen other defendants to recover an injunction requiring the UAO respondents to complete the response actions required by the UAO and all parties to reimburse past and future response costs incurred by the Governments as well as to pay NRDs. That case is captioned United States v. NCR Corp., No. 1:10-cv-910-WCG (E.D. Wis.) (“Government Action”). To date, litigation of the Government Action has been limited to the United States’ claim against the UAO respondents for a mandatory injunction to require implementation of the remaining work under the UAO, that is, completion of the remedy in the 33 miles of the river downstream of Little Lake Butte des Morts. Following a trial in December 2012, on May 1, 2013, the district court granted that injunction (“May 2013 Order”). The May 2013 Order directs the Company “jointly and severally” along with three other defendants that are also enjoined (NCR, WTM I Company, and Menasha Corporation) to comply with the UAO. An accompanying declaratory judgment declares the Company and those three defendants jointly and severally liable with three additional defendants (Georgia-Pacific, LLP, U.S. Paper Mills, Inc., and CBC Coatings, Inc.) that have entered into agreements with the United States governing those parties’ compliance with the UAO. The district court has denied NCR’s motion to require us to contribute to compliance with the injunction. We have appealed the May 2013 Order, as have NCR, WTM I, and Menasha.

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 response costs and NRDs at this site may exceed $1 billion and that $1.5 billion is a reasonable “outside estimate.” Much of that amount has already been incurred. As described below, some of that amount is NRDs. The parties implementing the response action under the UAO in the downstream part of the river estimate the cost of work being done in 2013 and the future cost of work yet to be done totals approximately $360 million. The Governments seek to have that work done at a rate estimated to cost approximately $70 million each year from 2013 through 2016, and at lower rate afterward.

NRDs. The Governments’ NRD assessment documents claimed that we are jointly and severally responsible for NRDs with a value between $176 million and $333 million. The Governments 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. The May 2013 Order does not determine whether liability for NRDs would be joint and several. Moreover, we believe that the Natural Resource Trustees may not legally pursue this claim at this late date, as the limitations period for NRD claims is three years from discovery.

Reserves for the Site. As of September 30, 2013, our reserve for the Site, including our remediation and ongoing monitoring obligations in Little Lake Butte des Morts, our share of remediation of the rest of the Site, 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 $16.3 million. Of our total reserve for the Fox River, $0.1 million is recorded in the accompanying condensed consolidated balance sheets under the caption “Environmental liabilities” and the remainder is recorded under the caption “Other long term liabilities.”

 

 

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Although we believe that amounts already funded by us and WTM I to implement the Little Lake Butte des Morts 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 do not believe that we will be allocated a significant percentage share of liability in any final equitable allocation of the response costs and NRDs. 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 the determination in the Whiting Litigation that NCR owes us “full contribution” for response costs and NRDs that we may become obligated to pay except in OU1, and assumed that we will not bear the entire cost of remediation or damages to the exclusion of other known parties at the Site, who are also potentially jointly and severally liable. The existence and ability of other parties 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 responsible parties and any known insurance, indemnity or cost sharing agreements between responsible parties 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 potentially responsible party’s (“PRP’s”) facility to the lower Fox River and Green Bay. These reports estimate our Neenah mill’s share of the mass of PCBs discharged to be as high as 27%. The district court in its May 2013 Order found the discharge mass estimates used in these studies not to be accurate. We believe that the Neenah mill’s absolute and relative contribution of PCB mass is significantly lower than the estimates set forth in these studies. The trial court in the Government Action has found that the Neenah mill discharged an unknown amount of PCBs.

In any event, based upon the rulings in the Whiting Litigation and the Government Action, neither of which endorsed an equitable allocation in proportion to the mass of PCBs discharged, we continue to believe 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 party’s role in causing discharge, must be considered in order for the allocation to be equitable.

In the 1990s, we 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 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.

Range of Reasonably Possible Outcomes. Our analysis of the range of reasonably possible outcomes is derived from all available information, including but not limited to decisions of the courts, official documents such as records of decision, discussions with the United States and other parties, as well as legal counsel and engineering consultants. Based on our analysis of the current records of decision and cost estimates for work to be performed at the Site, 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 $275 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

 

 

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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 rulings 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 adverse rulings on some issues in the Whiting Litigation and the Government Action and increases in cost estimates for some of the work may make an outcome in the upper end of the range more likely. The Company also believes that the effect of reading the Whiting Litigation decisions together with the May 2013 Order requires the ongoing compliance with the UAO to be funded by NCR, or to the extent that the Company is required to provide any such funding, that NCR will be required to reimburse the Company. There can be no assurance, however, that the May 2013 Order will not have a material adverse effect on the Company’s consolidated financial position, liquidity or results of operation.

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 those obligations will not have a long-term, material adverse effect on our consolidated financial position, liquidity or results of operations. Should a court grant the United States or the State of Wisconsin relief that requires us individually either to perform directly or to contribute significant amounts towards remedial action downstream of Little Lake Butte des Morts or to NRDs, those developments could have a material adverse effect on our consolidated financial position, liquidity and results of operations and might result in a default under our loan covenants.

 

 

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18. SEGMENT INFORMATION

The following table sets forth financial and other information by business unit for the period indicated:

 

Three months ended September 30

In millions

  Specialty Papers     Composite Fibers     Advanced Airlaid
Materials
    Other and
Unallocated
    Total  
    2013     2012     2013     2012     2013     2012     2013     2012     2013     2012  

Net sales

  $ 225.7      $ 232.6      $ 161.5      $ 110.8      $ 69.5      $ 60.9      $ —        $ —        $ 456.6      $ 404.4   

Energy and related sales, net

    1.2        1.9        —          —          —          —          —          —          1.2        1.9   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    226.9        234.5        161.5        110.8        69.5        60.9        —          —          457.8        406.2   

Cost of products sold

    196.4        199.1        129.5        91.2        63.7        54.1        2.3        2.6        391.8        347.0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss)

    30.5        35.4        31.9        19.7        5.8        6.8        (2.3     (2.6     66.0        59.2   

SG&A

    12.5        14.0        13.0        9.4        1.9        2.2        7.1        3.9        34.5        29.4   

Gains on dispositions of plant, equipment and timberlands, net

    —          —          —          —          —          —          (0.3     (1.5     (0.3     (1.5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating income (loss)

    18.1        21.4        18.9        10.3        3.9        4.6        (9.1     (5.0     31.8        31.3   

Non-operating expense

    —          —          —          —          —          —          (4.7     (4.1     (4.7     (4.1
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

  $ 18.1      $ 21.4      $ 18.9      $ 10.3      $ 3.9      $ 4.6      $ (13.8   $ (9.0   $ 27.1      $ 27.2   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Supplementary Data

                   

Net tons sold

    203.6        204.5        40.3        23.5        24.8        22.8        —          —          268.7        250.9   

Depreciation, depletion and amortization

  $ 8.3      $ 9.2      $ 7.1      $ 5.7      $ 2.2      $ 2.1        0.4        —        $ 18.0      $ 17.1   

Capital expenditures

    11.1        5.4        12.8        7.5        0.8        1.4        0.7        0.1        25.3        14.4   

Nine months ended September 30

In millions

  Specialty Papers     Composite Fibers     Advanced Airlaid
Materials
    Other and
Unallocated
    Total  
    2013     2012     2013     2012     2013     2012     2013     2012     2013     2012  

Net sales

  $ 669.8      $ 670.5      $ 415.9      $ 331.4      $ 202.2      $ 184.5      $ —        $ —        $ 1,287.8      $ 1,186.4   

Energy and related sales, net

    2.7        5.4        —          —          —          —          —          —          2.7        5.4   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

    672.5        675.9        415.9        331.4        202.2        184.5        —          —          1,290.5        1,191.8   

Cost of products sold

    599.7        585.2        334.5        273.5        182.0        164.3        10.0        7.8        1,126.3        1,030.7   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss)

    72.8        90.7        81.3        57.9        20.1        20.2        (10.0     (7.8     164.3        161.0   

SG&A

    40.3        41.3        34.4        28.8        6.4        7.2        21.3        12.2        102.5        89.5   

Gains on dispositions of plant, equipment and timberlands, net

    —          —          —          —          —          —          (0.4     (8.5     (0.4     (8.5
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total operating income (loss)

    32.5        49.4        46.9        29.1        13.7        13.0        (31.0     (11.5     62.1        80.1   

Non-operating expense

    —          —          —          —          —          —          (12.5     (12.0     (12.5     (12.0
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

  $ 32.5      $ 49.4      $ 46.9      $ 29.1      $ 13.7      $ 13.0      $ (43.5   $ (23.4   $ 49.6      $ 68.1   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Supplementary Data

                   

Net tons sold (thousands)

    601.6        587.1        97.9        69.2        72.4        67.9        —          —          771.9        724.2   

Depreciation, depletion and amortization

  $ 24.9      $ 27.1      $ 17.7      $ 17.6      $ 6.6      $ 6.5        0.8        —        $ 50.0      $ 51.1   

Capital expenditures

    27.9        19.1        49.0        22.9        4.8        2.8        4.4        0.2        86.1        45.0   

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

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

 

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 or are included in “Other and Unallocated” in the Business Unit Performance table.

Management evaluates results of operations of the business units before pension expense, certain corporate level costs, and the effects of certain gains or losses not considered to be related to the core business operations. 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 the Company’s performance is evaluated internally and by the Company’s Board of Directors.

 

 

 

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19. GUARANTOR FINANCIAL STATEMENTS

Our 5.375% Notes are fully and unconditionally guaranteed, on a joint and several basis, by certain of our 100%-owned domestic subsidiaries, PHG Tea Leaves, Inc., Mollanvick, Inc., The Glatfelter Pulp Wood Company, and Glatfelter Holdings, LLC. The guarantees are subject to certain customary release provisions including i) the designation of such subsidiary as an unrestricted or excluded subsidiary; (ii) in connection with any sale or disposition of the capital stock of the subsidiary guarantor; and (iii) upon our exercise of our legal defeasance option or our covenant defeasance option, all of which are more fully described in the Indenture dated as of October 3, 2012 among us, the Guarantors and US Bank National Association, as Trustee, relating to the 5.375% Notes. The following presents our condensed consolidating statements of income, including comprehensive income for the three months and nine months ended September 30, 2013 and 2012, our condensed consolidating balance sheets as of September 30, 2013 and December 31, 2012 and condensed consolidating cash flows for the nine months ended September 30, 2013 and 2012. 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 Statements of Income and Comprehensive Income for the

three months ended September 30, 2013

 

In thousands

   Parent
Company
    Guarantors     Non
Guarantors
    Adjustments/
Eliminations
    Consolidated  

Net sales

   $ 225,690      $ 12,688      $ 230,958      $ (12,688   $ 456,648   

Energy and related sales, net

     1,196        —          —          —          1,196   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     226,886        12,688        230,958        (12,688     457,844   

Costs of products sold

     201,414        10,907        192,209        (12,725     391,805   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     25,472        1,781        38,749        37        66,039   

Selling, general and administrative expenses

     15,716        677        18,087        —          34,480   

Gains on dispositions of plant, equipment and timberlands, net

     (3     (282     3        —          (282
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     9,759        1,386        20,659        37        31,841   

Other non-operating income (expense)

          

Interest expense

     (3,885     —          (903     —          (4,788

Interest income

     (621     2,344        (1,631     —          92   

Other, net

     19,377        162        (587     (18,986     (34
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other non-operating income (expense)

     14,871        2,506        (3,121     (18,986     (4,730
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     24,630        3,892        17,538        (18,949     27,111   

Income tax provision (benefit)

     (9,489     (364     2,827        18        (7,008
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     34,119        4,256        14,711        (18,967     34,119   

Other comprehensive income

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ 52,022      $ 10,656      $ 14,492      $ (25,148   $ 52,022   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

- 22 -

GLATFELTER

9.30.13 Form 10-Q


Table of Contents

Condensed Consolidating Statements of Income and Comprehensive Income for the

three months ended September 30, 2012

 

In thousands

   Parent
Company
    Guarantors     Non
Guarantors
    Adjustments/
Eliminations
    Consolidated  

Net sales

   $ 232,620      $ 13,936      $ 171,734      $ (13,936   $ 404,354   

Energy and related sales, net

     1,867        —          —          —          1,867   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     234,487        13,936        171,734        (13,936     406,221   

Costs of products sold

     203,084        12,472        145,377        (13,904     347,029   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     31,403        1,464        26,357        (32     59,192   

Selling, general and administrative expenses

     16,842        880        11,658        —          29,380   

Gains on dispositions of plant, equipment and timberlands, net

     16        (1,489     —          —          (1,473
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     14,545        2,073        14,699        (32     31,285   

Other non-operating income (expense)

          

Interest expense

     (4,152     —          —          —          (4,152

Interest income

     (765     1,779        (908     —          106   

Other, net

     12,016        269        238        (12,527     (4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other non-operating income (expense)

     7,099        2,048        (670     (12,527     (4,050
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     21,644        4,121        14,029        (12,559     27,235   

Income tax provision (benefit)

     1,545        1,637        3,967        (13     7,136   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     20,099        2,484        10,062        (12,546     20,099   

Other comprehensive income

     11,566        3,923        5,356        (9,279     11,566   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ 31,665      $ 6,407      $ 15,418      $ (21,825   $ 31,665   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

- 23 -

GLATFELTER

9.30.13 Form 10-Q


Table of Contents

Condensed Consolidating Statements of Income and Comprehensive Income for the

nine months ended September 30, 2013

 

In thousands

   Parent
Company
    Guarantors     Non
Guarantors
    Adjustments/
Eliminations
    Consolidated  

Net sales

   $ 669,792      $ 40,988      $ 618,012      $ (40,988   $ 1,287,804   

Energy and related sales – net

     2,721        —          —          —          2,721   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     672,513        40,988        618,012        (40,988     1,290,525   

Costs of products sold

     614,507        35,843        516,747        (40,826     1,126,271   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     58,006        5,145        101,265        (162     164,254   

Selling, general and administrative expenses

     52,640        1,909        47,946        —          102,495   

Gains on dispositions of plant, equipment and timberlands, net

     (17     (357     —          —          (374
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     5,383        3,593        53,319        (162     62,133   

Other non-operating income (expense)

          

Interest expense

     (11,573     —          (1,570     —          (13,143

Interest income

     (2,031     5,697        (3,426     —          240   

Other, net

     45,342        283        868        (46,105     388   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other non-operating income (expense)

     31,738        5,980        (4,128     (46,105     (12,515
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     37,121        9,573        49,191        (46,267     49,618   

Income tax provision (benefit)

     (13,560     1,210        11,353        (66     (1,063
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     50,681        8,363        37,838        (46,201     50,681   

Other comprehensive income

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

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ 68,000      $ 11,534      $ 32,760      $ (44,294   $ 68,000   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

- 24 -

GLATFELTER

9.30.13 Form 10-Q


Table of Contents

Condensed Consolidating Statements of Income and Comprehensive Income for the

nine months ended September 30, 2012

 

In thousands

   Parent
Company
    Guarantors     Non
Guarantors
    Adjustments/
Eliminations
    Consolidated  

Net sales

   $ 670,536      $ 41,307      $ 515,874      $ (41,318   $ 1,186,399   

Energy and related sales, net

     5,358        —          —          —          5,358   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     675,894        41,307        515,874        (41,318     1,191,757   

Costs of products sold

     596,508        37,524        437,945        (41,260     1,030,717   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

     79,386        3,783        77,929        (58     161,040   

Selling, general and administrative expenses

     51,570        2,220        35,670        —          89,460   

Gains on dispositions of plant, equipment and timberlands, net

     (506     (7,940     (25     —          (8,471
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     28,322        9,503        42,284        (58     80,051   

Other non-operating income (expense)

          

Interest expense

     (12,575     —          (5     —          (12,580

Interest income

     (2,129     5,121        (2,660     —          332   

Other, net

     36,817        642        1,099        (38,263     295   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total other non-operating income (expense)

     22,113        5,763        (1,566     (38,263     (11,953
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     50,435        15,266        40,718        (38,321     68,098   

Income tax provision (benefit)

     (1,974     6,523        11,165        (25     15,689   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     52,409        8,743        29,553        (38,296     52,409   

Other comprehensive income

     12,598        1,815        1,366        (3,181     12,598   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive income (loss)

   $ 65,007      $ 10,558      $ 30,919      $ (41,477   $ 65,007   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

- 25 -

GLATFELTER

9.30.13 Form 10-Q


Table of Contents

Condensed Consolidating Balance Sheet as of

September 30, 2013

 

In thousands

   Parent
Company
     Guarantors      Non
Guarantors
     Adjustments/
Eliminations
    Consolidated  
Assets              

Cash and cash equivalents

   $ 34,505       $ 88       $ 29,042       $ —        $ 63,635   

Other current assets

     277,452         365,428         302,465         (467,259     478,086   

Plant, equipment and timberlands, net

     244,090         5,877         464,371         —          714,338   

Other assets

     848,779         244,498         210,969         (1,028,846     275,400   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 1,404,826       $ 615,891       $ 1,006,847       $ (1,496,105   $ 1,531,459   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
Liabilities and Shareholders’ Equity              

Current liabilities

   $ 409,815       $ 56,244       $ 264,980       $ (467,656   $ 263,383   

Long-term debt

     250,000         —           503,131         (314,550     438,581   

Deferred income taxes

     32,601         1,893         77,880         (17,528     94,846   

Other long-term liabilities

     114,650         6,234         13,250         2,755        136,889   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     807,066         64,371         859,241         (796,979     933,699   

Shareholders’ equity

     597,760         551,520         147,606         (699,126     597,760   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 1,404,826       $ 615,891       $ 1,006,847       $ (1,496,105   $ 1,531,459   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Condensed Consolidating Balance Sheet as of

December 31, 2012

 

In thousands

   Parent
Company
     Guarantors      Non
Guarantors
     Adjustments/
Eliminations
    Consolidated  
Assets              

Cash and cash equivalents

   $ 43,748       $ 4,311       $ 49,620       $ —        $ 97,679   

Other current assets

     204,961         387,627         214,568         (385,977     421,179   

Plant, equipment and timberlands, net

     241,969         6,204         373,013         —          621,186   

Other assets

     787,348         160,741         45,133         (890,281     102,941   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total assets

   $ 1,278,026       $ 558,883       $ 682,334       $ (1,276,258   $ 1,242,985   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 
Liabilities and Shareholders’ Equity              

Current liabilities

   $ 337,761       $ 6,041       $ 291,547       $ (384,441   $ 250,908   

Long-term debt

     250,000         —           —           —          250,000   

Deferred income taxes

     34,604         3,691         40,972         (17,221     62,046   

Other long-term liabilities

     115,982         10,602         11,093         2,675        140,352   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities

     738,347         20,334         343,612         (398,987     703,306   

Shareholders’ equity

     539,679         538,549         338,722         (877,271     539,679   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 1,278,026       $ 558,883       $ 682,334       $ (1,276,258   $ 1,242,985   
  

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

- 26 -

GLATFELTER

9.30.13 Form 10-Q


Table of Contents

Condensed Consolidating Statement of Cash Flows for the nine

months ended September 30, 2013

 

In thousands

   Parent
Company
    Guarantors     Non
Guarantors
    Adjustments/
Eliminations
    Consolidated  

Net cash provided (used) by

          

Operating activities

   $ 36,772      $ (4,431   $ 63,123      $ 229      $ 95,693   

Investing activities

          

Expenditures for plant, equipment and timberlands

     (32,007     (68     (53,805     (209     (86,089

Proceeds from disposals of plant, equipment and timberlands, net

     22        357        —          —          379   

Repayments from (advances of) intercompany loans, net and other

     820        (810     —          (10     —     

Intercompany capital contributed

     —          (91     —          91        —     

Acquisitions, net of cash acquired

               —          (210,911     —          (210,911

Other

     (325     —          —          —          (325
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investing activities

     (31,490     (612     (264,716     (128     (296,946

Financing activities

          

Net proceeds from indebtedness

     —          —          182,230        —          182,230   

Payments of note offering costs

     (160     —          (259     —          (419

Payment of dividends to shareholders

     (12,603     —          —          —          (12,603

(Repayments) borrowings of intercompany loans, net

     570        820        (1,380     (10     —     

Intercompany capital received

     —          —          91        (91     —     

Payments for share-based compensation awards and other

     (2,332     —          —          —          (2,332
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total financing activities

     (14,525     820        180,682        (101     166,876   

Effect of exchange rate on cash

     —          —          333        —          333   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net decrease in cash

     (9,243 )      (4,223 )      (20,578 )      —          (34,044 ) 

Cash at the beginning of period

     43,748        4,311        49,620        —          97,679   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash at the end of period

   $ 34,505      $ 88      $ 29,042      $ —        $ 63,635   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

- 27 -

GLATFELTER

9.30.13 Form 10-Q


Table of Contents

Condensed Consolidating Statement of Cash Flows for the nine

months ended September 30, 2012

 

In thousands

   Parent
Company
    Guarantors     Non
Guarantors
    Adjustments/
Eliminations
    Consolidated  

Net cash provided (used) by

          

Operating activities

   $ 9,196      $ 4,971      $ 34,298      $ —        $ 48,465   

Investing activities

          

Expenditures for plant, equipment and timberlands

     (19,035     (281     (25,711     —          (45,027

Proceeds from disposals of plant, equipment and timberlands, net

     654        8,185        36        —          8,875   

Repayments from (advances of) intercompany loans, net

     13,397        (2,722     (514     (10,161     —     

Other

     (150     —          —          —          (150
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total investing activities

     (5,134     5,182        (26,189     (10,161     (36,302

Financing activities

          

Net (repayments of) proceeds from indebtedness

     (8,000     —          —          —          (8,000

Payments of note offering costs

     (102     —          —          —          (102

Payment of dividends to shareholders

     (11,696     —          —          —          (11,696

Repurchases of common stock

     (4,060     —          —          —          (4,060

(Repayments) borrowings of intercompany loans, net

     18,510        (7,400     (21,271     10,161        —     

Proceeds from stock options exercised and other

     1,434        —          27        —          1,461   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total financing activities

     (3,914     (7,400.0     (21,244     10,161        (22,397

Effect of exchange rate on cash

     —          —          279        —          279   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash

     148        2,753        (12,856     —          (9,955

Cash at the beginning of period