Form 10-K
UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
þ
|
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended December 31, 2013
or
¨
|
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period
from
to
96 South George Street, Suite 520
York, Pennsylvania 17401
(Address of principal executive offices)
(717) 225-4711
(Registrants telephone number, including area code)
|
|
|
|
|
|
|
Commission file number |
|
Exact name of registrant as specified in its charter |
|
IRS Employer
Identification No. |
|
State or other jurisdiction of incorporation or organization |
1-03560 |
|
P. H. Glatfelter Company |
|
23-0628360 |
|
Pennsylvania |
Securities registered pursuant to Section 12(b) of the Act:
|
|
|
Title of Each Class |
|
Name of Each Exchange on which registered |
Common Stock, par value $.01 per share |
|
New York Stock Exchange |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes ¨ No þ.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ.
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 the past 90 days. Yes þ No ¨.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File
required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨.
Indicate by check mark if disclosure
of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K. ¨
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. þ Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated
filer ¨ Small reporting company (Do not check if a 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 þ.
Based on the closing price as of June 30, 2013, the aggregate market value of the Common Stock of the Registrant held by non-affiliates was $1,066 million.
Common Stock outstanding on February 25, 2014 totaled 43,146,528 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in this Annual Report on Form 10-K:
Portions of the registrants Proxy Statement to be dated on or about March 29, 2014 are incorporated by reference to Part III.
P. H. GLATFELTER COMPANY
ANNUAL REPORT ON FORM 10-K
For the Year Ended
DECEMBER 31, 2013
Table of Contents
PART I
We make regular filings with the Securities and Exchange Commission (SEC), including this Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K. These filings are available,
free of charge, on our website, www.glatfelter.com, and the SEC website at www.sec.gov. We also provide copies of our SEC filings at no charge upon request to Investor Relations at (717) 225-2719, ir@glatfelter.com, or by mail to
Investor Relations, 96 South George Street, Suite 520, York, PA, 17401. In this filing, unless the context indicates otherwise, the terms we, us, our, the Company, or Glatfelter refer to P.
H. Glatfelter Company and subsidiaries.
Overview Glatfelter began operations in 1864, and we believe we are one of the worlds leading manufacturers of
specialty papers and fiber-based engineered materials. Headquartered in York, Pennsylvania, we own and operate manufacturing facilities located in Pennsylvania, Ohio, Canada, Germany, the United Kingdom, France, and the Philippines.
Acquisitions Over the past several years, we have completed several acquisitions that have diversified our revenue,
expanded our geographic footprint and enhanced our asset base. Most recently, on April 30, 2013 we completed the $211 million acquisition of Dresden Papier GmbH (Dresden), a leading supplier of non-woven wall covering products with
2013 revenues of $158.6 million.
Products Our three business units manufacture a wide array of specialty
papers and fiber-based engineered materials including:
|
|
|
Composite Fibers primarily consists of single-serve coffee and tea filtration papers, nonwoven wall covering materials, metallized and self adhesive
labeling papers, composite laminates, and technical specialties such as battery pasting papers, among others; |
|
|
|
Advanced Airlaid Materials with revenue from the sale of airlaid non-woven fabric-like materials used in feminine hygiene and adult incontinence products,
cleaning pads and wipes, food pads, napkins, tablecloths, and baby wipes; and |
|
|
|
Specialty Papers with revenues from the sale of papers for carbonless and other forms, book publishing, envelopes, and engineered products
|
|
|
such as papers for digital imaging, casting, release, transfer, playing card, postal, FDA-compliant food and beverage applications, and other niche specialty applications.
|
The markets served by the Composite Fibers and Advance Airlaid Materials business units are characterized by
attractive growth rates as the result of new and emerging products and markets, changing end-user preferences and evolving demographics. Specialty Papers serves more mature market segments, many of which are in decline.
As a result of our strategy to diversify sources of revenue and invest in growth businesses, revenue generated from Composite Fibers and Advanced
Airlaid Materials is expected to represent an increasingly greater proportion of total revenue. For 2013, these two business units comprised 48.5% of consolidated revenue compared with 30% in 2006.
Consolidated net sales and the relative net sales contribution of each of our business units for the past three years are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands |
|
2013 |
|
|
2012 |
|
|
2011 |
|
Net sales |
|
$ |
1,722,615 |
|
|
$ |
1,577,788 |
|
|
$ |
1,603,154 |
|
Business unit contribution |
|
|
|
|
|
|
|
|
|
|
|
|
Composite Fibers |
|
|
32.9 |
% |
|
|
27.7 |
% |
|
|
29.7 |
% |
Advanced Airlaid Materials |
|
|
15.6 |
|
|
|
15.6 |
% |
|
|
15.7 |
% |
Specialty Papers |
|
|
51.5 |
|
|
|
56.7 |
% |
|
|
54.6 |
% |
Total |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Our strategies are focused on growing revenues, in part, by leveraging leading positions in key global growth
markets including the single-serve coffee and tea markets, non-woven wall covering materials and the hygiene products markets. To ensure we are best positioned to serve these markets, we have made investments to increase production capacity and
intend to make additional investments in the future.
In addition to leveraging our leading positions, our focus on product innovation
is a critical component of our business strategy. During 2013, 2012 and 2011, we invested $12.2 million, $10.9 million and $11.7 million, respectively, in new product development activities. In each of the past three years, in excess of 50% of net
sales were generated from products developed, enhanced or improved within the past five years.
Other key elements to our success
include margin expansion, driven by cost reduction and continuous improvement initiatives; the generation of strong and
GLATFELTER 2013 FORM
10-K 1
reliable cash flows; and strategic investments to improve our returns on invested capital. The strength of our balance sheet and generation of cash flows has allowed us to pursue strategic
actions such as the $211 million Dresden acquisition, a $50 million investment to expand capacity in Composite Fibers, share repurchase programs and a 11% increase in our common share dividend. These actions and our disciplined approach to capital
expenditures has resulted in the generation of returns on invested capital that exceed our cost of capital.
We have a demonstrated
ability to establish leading market positions through the successful acquisition and integration of complementary businesses. Since 2006, we have successfully completed and integrated five acquisitions. Our acquisition strategy complements our
long-term strategy of driving growth in our markets.
Our Business Units We manage our company as three
distinct business units: (i) Composite Fibers; (ii) Advanced Airlaid Materials; and (iii) Specialty Papers. Net tons sold by each business unit for the past three years were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Short tons |
|
2013 |
|
|
2012 |
|
|
2011 |
|
Composite Fibers |
|
|
133,570 |
|
|
|
90,300 |
|
|
|
93,317 |
|
Advanced Airlaid Materials |
|
|
96,098 |
|
|
|
90,332 |
|
|
|
87,951 |
|
Specialty Papers |
|
|
800,151 |
|
|
|
789,201 |
|
|
|
779,647 |
|
Total |
|
|
1,029,819 |
|
|
|
969,833 |
|
|
|
960,915 |
|
Composite Fibers Our Composite Fibers business unit, based in Gernsbach,
Germany, serves customers globally and focuses on higher value-added products in the following markets:
|
|
|
Food & Beverage paper primarily used for single-serve coffee and tea products; |
|
|
|
Non-woven wall covering base materials used by the worlds largest wallpaper manufacturers; |
|
|
|
Metallized products used in the labeling of beer bottles, packaging innerliners, gift wrap, self-adhesive labels and other consumer product applications;
|
|
|
|
Composite Laminates papers used in production of decorative laminates, furniture, and flooring applications; and |
|
|
|
Technical Specialties a diverse line of special paper products used in batteries, adhesive tapes and other highly-engineered applications.
|
During 2013, we completed the acquisition of Dresden a leading global supplier of nonwoven wallpaper base materials,
and is a major supplier to most of the
worlds largest wallpaper manufacturers. Dresden has a preeminent position in nonwoven wallpaper materials as both the cost and quality leader because of its innovative products,
proprietary manufacturing techniques, and long-standing customer relationships. It produces products with superior performance and characteristics such as dry strip-ability, higher tear resistance, and no material shrinkage or expansion when wet. As
a result, nonwovens are increasingly the product of choice for wallpaper installers and design professionals in Europe, with significant growth potential in Asia. The acquisition of Dresden added another industry-leading nonwovens product line to
our Composite Fibers business, and broadened our relationship with leading producers of consumer and industrial products.
We believe
this business unit maintains a market leadership position in the single-serve coffee and tea markets and nonwoven wallpaper materials markets. Composite Fibers revenue composition by market consisted of the following for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands |
|
2013 |
|
|
2012 |
|
|
2011 |
|
Food & beverage |
|
$ |
302,738 |
|
|
$ |
265,423 |
|
|
$ |
284,748 |
|
Wall covering |
|
|
97,698 |
|
|
|
|
|
|
|
|
|
Metallized |
|
|
83,949 |
|
|
|
87,720 |
|
|
|
95,276 |
|
Composite laminates |
|
|
39,296 |
|
|
|
44,613 |
|
|
|
53,334 |
|
Technical specialties and other |
|
|
42,679 |
|
|
|
38,984 |
|
|
|
42,671 |
|
Total |
|
$ |
566,360 |
|
|
$ |
436,740 |
|
|
$ |
476,029 |
|
We believe many of the market segments served by Composite Fibers, particularly single-serve coffee and tea and
nonwoven wallpaper materials, present attractive growth opportunities by capitalizing on evolving consumer preferences, expanding into new or emerging geographic markets, and by gaining market share through quality product and service offerings.
Many of this business papers are technically sophisticated and, in the case of single serve-coffee and tea products, are extremely lightweight and require specialized fibers. Our engineering capabilities, specifically designed papermaking
equipment, use of specialized fibers and customer orientation positions us well to compete in these global markets.
The primary raw
materials used in the production of our lightweight papers are abaca pulp, wood pulp and synthetic fibers. Abaca pulp is a specialized pulp with limited sources of availability. Our abaca pulp production process, fulfilled by our Philippine mill,
provides a unique advantage by supplying a key raw material used by our Composite Fibers business unit. Sufficient quantities of abaca pulp and the source fiber are required to support growth in this business unit. In the event the supply of
2
abaca fiber becomes constrained or when production demands exceed the capacity of the Philippines mill, alternative sources and/or substitute fibers are used to meet customer demands.
The Composite Fibers business unit is comprised of three paper making facilities (Germany, France and England), a non-woven wall cover base mill
(Germany), metallizing operations (Wales and Germany) and a pulp mill (the Philippines) with the following combined attributes:
|
|
|
|
|
Production
Capacity (short tons) |
|
Principal Raw Material (PRM) |
|
Estimated Annual
Quantity of PRM (short
tons) |
140,900 lightweight |
|
Abaca pulp |
|
18,400 |
|
|
Wood pulp |
|
89,600 |
|
|
Synthetic fiber |
|
25,925 |
28,100 metallized |
|
Base stock |
|
30,200 |
16,500 abaca pulp |
|
Abaca fiber |
|
25,120 |
Composite Fibers lightweight products are produced using highly specialized inclined wire paper machine
technology and we believe we currently maintain approximately 25% of the global inclined wire capacity.
In addition to critical raw
materials, the cost to produce Composite Fibers products is influenced by energy costs. Although the business unit generates all of its steam needed for production, in 2013, it purchased 75% of its electricity.
In Composite Fibers markets, competition is product line specific as the necessity for technical expertise and specialized manufacturing
equipment limits the number of companies offering multiple product lines. The following chart summarizes key competitors by market segment:
|
|
|
Market segment |
|
Competitor |
Single serve coffee & tea |
|
Ahlstrom and Purico |
Nonwoven wallcovering |
|
Ahlstrom, Technocell, Neu Kaliss and Neenah Paper |
Composite laminates |
|
PdM, a division of Schweitzer-Maudit, Purico, MB Papeles and Oi feng |
Metallized |
|
AR Metallizing, Torras Papel Novelis, Vaassen, Galileo Nanotech, and Wenzhou Protec Vacuum Metallizing Co. |
Our strategy in Composite Fibers is focused on:
|
|
|
Capitalizing on rapidly growing global markets in food & beverage, nonwoven wall covering materials, and technical specialties;
|
|
|
|
maximizing capacity utilization provided by the investment in state-of-the-art inclined wire
|
|
|
technology to support consistent growth of key markets; |
|
|
|
enhancing product mix across all of the business units markets by utilizing new product and new business development capabilities;
|
|
|
|
implementing continuous improvement methodologies to increase productivity, reduce costs and expand capacity; and |
|
|
|
ensuring readily available access to specialized raw material requirements to support projected growth. |
As part of our commitment to realizing the growth potential of certain of this business units markets, in 2013 we completed a $50 million
investment to expand our inclined wire capacity by nearly 20%, or approximately 10,500 short tons, by converting a flat wire machine to a state-of-the-art inclined wire machine. Production of saleable products from the new machine began in the
second quarter of 2013.
Advanced Airlaid Materials is a leading global supplier of highly
absorbent cellulose-based airlaid non-woven materials used to manufacture consumer and industrial products for growing global end-user markets. These products include:
Advanced Airlaid
Materials serves customers who are industry leading consumer product companies for feminine hygiene and adult incontinence products. Advanced Airlaid Materials holds leading market share positions in many of the markets it serves, excels in building
long-term customer relationships through superior quality and customer service programs, and has a well-earned reputation for innovation and its ability to quickly bring new products to market.
GLATFELTER 2013 FORM
10-K 3
Advanced Airlaid Materials revenue composition by market consisted of the following for the
years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands |
|
2013 |
|
|
2012 |
|
|
2011 |
|
Feminine hygiene |
|
$ |
219,222 |
|
|
$ |
197,792 |
|
|
$ |
206,724 |
|
Wipes |
|
|
15,186 |
|
|
|
13,562 |
|
|
|
5,463 |
|
Home care |
|
|
14,857 |
|
|
|
14,527 |
|
|
|
15,308 |
|
Adult incontinence |
|
|
5,046 |
|
|
|
6,959 |
|
|
|
6,083 |
|
Other |
|
|
14,085 |
|
|
|
13,442 |
|
|
|
18,469 |
|
Total |
|
$ |
268,396 |
|
|
$ |
246,282 |
|
|
$ |
252,047 |
|
The feminine hygiene category accounted for 82% of Advanced Airlaid Materials revenue in 2013. Sales of this
product are to a small group of large, leading global consumer products companies. This market is considered to be more growth oriented driven by population growth in certain geographic regions, consumer preferences, and suppliers ability to
provide innovative products. In developing regions, demand is also influenced by increases in disposable income and cultural preferences.
The Advanced Airlaid Materials business unit operates state-of-the-art facilities in Falkenhagen, Brandenburg, Germany and Gatineau, Quebec, Canada. The Falkenhagen location operates three multi-bonded production
lines and three proprietary single-lane festooners. The Gatineau location consists of two airlaid production lines employing multi-bonded and thermal-bonded airlaid technologies and two proprietary single-lane festooners.
The business units two facilities operate with the following combined attributes:
|
|
|
|
|
|
|
Airlaid Production
Capacity (short tons) |
|
Principal Raw Material (PRM) |
|
Estimated Annual Quantity of PRM (short tons) |
|
107,000 |
|
Fluff pulp |
|
|
73,900 |
|
In addition to the cost of critical raw materials, the cost to produce multi-bonded and thermal-bonded airlaid
materials is impacted by energy costs. Advanced Airlaid Materials purchases all of its electricity and natural gas. Approximately 80% of this business units revenue is earned under contracts with pass-through provisions directly related to the
price of key raw material costs.
Advanced Airlaid Materials continues to be a technology and product innovation leader in technically
demanding segments of the airlaid market, most notably feminine hygiene. We believe that its facilities are among the most modern and flexible airlaid facilities in the world, allowing it to produce at industry leading operating rates. Its
proprietary single-lane rotary festooning technology provides customers with a product packaged for efficient use. This business units in-house technical expertise,
combined with significant capital investment requirements and rigorous customer expectations creates large barriers to entry for new competitors.
The following summarizes this business units key competitors:
|
|
|
Market segment |
|
Competitor |
Airlaid products |
|
Georgia-Pacific LLC, Duni AB, Petropar SA, McAirlaids GmbH |
The markets served by this business unit are characterized by attractive growth opportunities. To take advantage
of this, our strategy is focused on:
|
|
|
maintaining and expanding relationships with customers that are market-leading consumer product companies; |
|
|
|
expanding geographic reach of markets served; |
|
|
|
optimizing the use of existing production capacity; |
|
|
|
employing continuous improvement methodologies and initiatives to reduce costs, improve efficiencies and create capacity; and |
|
|
|
capitalizing on our product and process innovation capabilities. |
Specialty Papers Our North America-based Specialty Papers business unit focuses on producing papers for the following markets:
|
|
|
Carbonless & forms papers for credit card receipts, multi-part forms, security papers and other end-user applications;
|
|
|
|
Book publishing papers for the production of high quality hardbound books and other book publishing needs; |
|
|
|
Envelope and converting papers primarily utilized for transactional and direct mail applications; and |
|
|
|
Engineered products for digital imaging, casting, release, transfer, playing card, postal, FDA-compliant food and beverage applications, and other niche
specialty applications. |
The market segments in which Specialty Papers competes continue to undergo significant
changes in response to capacity exceeding demand. As a result, certain larger competitors have announced plans to close production facilities in an attempt to influence the supply/demand imbalance.
4
This business unit produces both commodity products and higher-value-added specialty products.
Specialty Papers revenue composition by market consisted of the following for the years indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands |
|
2013 |
|
|
2012 |
|
|
2011 |
|
Carbonless & forms |
|
$ |
369,618 |
|
|
$ |
372,950 |
|
|
$ |
368,582 |
|
Engineered products |
|
|
184,913 |
|
|
|
187,724 |
|
|
|
166,660 |
|
Envelope & converting |
|
|
175,928 |
|
|
|
174,781 |
|
|
|
170,380 |
|
Book publishing |
|
|
153,054 |
|
|
|
155,925 |
|
|
|
166,506 |
|
Other |
|
|
4,346 |
|
|
|
3,397 |
|
|
|
2,950 |
|
Total |
|
$ |
887,859 |
|
|
$ |
894,777 |
|
|
$ |
875,078 |
|
Although many of the markets served by Specialty Papers are mature and, in many instances, declining, we have been
successful at maintaining this units shipments through new product and new business development initiatives while leveraging the flexibility of our operating assets to efficiently respond to changing customer demands. In each of the past nine
years, our flexible asset base, new product development capabilities and superior customer service offerings have allowed us to outperform the broader uncoated free sheet market in terms of shipping volumes.
We believe we are one of the leading suppliers of carbonless and book publishing papers in the United States. Although the markets for these
products are declining, we have been successful in executing our strategy to replace this lost volume with products such as envelope papers and business forms, and other value-added specialty products. Specialty Papers also produces paper that is
converted into specialized envelopes in a wide array of colors, finishes and end-uses. While this market is also declining, we have leveraged our customer service capabilities to grow our market share in each of the last several years.
Specialty Papers highly technical engineered products include those designed for multiple end uses, such as papers for pressure-sensitive
postage stamps, greeting and playing cards, conical cups, digital imaging applications and for release paper applications. Such products comprise an array of distinct business niches that are in a continuous state of evolution. Many of these
products are utilized for demanding, specialized customer and end-user applications. Some of our products are new and higher growth while others are more mature and further along in the product life cycle. Because many of these products are
technically complex and involve substantial customer-supplier development collaboration, they typically command higher per ton prices and generally exhibit greater pricing stability relative to commodity grade paper products.
The Specialty Papers business unit operates two integrated pulp and paper making facilities with
the following combined attributes:
|
|
|
|
|
Uncoated Production Capacity (short tons) |
|
Principal Raw Material (PRM) |
|
Estimated Annual
Quantity of PRM (short
tons) |
810,000 |
|
Pulpwood |
|
2,293,867 |
|
|
Wood-and other pulps |
|
704,869 |
This business units pulp mills have a combined pulp making capacity of 598,000 tons of bleached pulp per
year. The principal raw material used to produce pulp is pulpwood, including both hardwoods and softwoods. Pulpwood is obtained from a variety of locations including the states of Pennsylvania, Maryland, Delaware, New Jersey, New York, West
Virginia, Virginia, Kentucky, Ohio and Tennessee. To protect our sources of pulpwood, we actively promote conservation and forest management among suppliers and woodland owners.
The Spring Grove facility includes five uncoated paper machines as well as an off-line combi-blade coater and a Specialty Coater (S-Coater), which together provide annual production capacity for coated paper of approximately 68,000 tons. Since uncoated paper is used in producing coated paper, this is not additional capacity. The
Chillicothe facility operates four paper machines producing uncoated and carbonless paper. Two of the machines have built-in coating capability which along with three additional coaters at the facility provide annual coated capacity of 130,000 tons.
In addition to critical raw materials, the cost to produce Specialty Papers products is influenced by energy costs. Although the
business unit generates all of its steam needed for production at both facilities and generates more power than it consumes at the Spring Grove, PA facility, in 2013, it purchased approximately 30% of its electricity needed for the Chillicothe, OH
mill. The facilities source of fuel is primarily coal and, to a lesser extent, natural gas.
GLATFELTER 2013 FORM
10-K 5
In Special Papers markets, competition is product line specific due to, in certain instances,
the necessity for technical expertise and specialized manufacturing. The following chart summarizes key competitors by market segment:
|
|
|
Market segment |
|
Competitor |
Carbonless paper |
|
Appvion, Inc., and to a lesser extent, Fibria Celulose (formerly Votorantim Celulose e Papel) and Asia Pulp and Paper Co. |
Engineered products |
|
Specialty papers divisions of International Paper, Domtar Corp., Boise Inc., NewPage Corp. and Sappi Limited, among others. |
Envelope & converting |
|
Domtar and International Papers |
Book publishing |
|
Domtar Corp. and North Pacific Paper (NORPAC), and others |
Customer service, product performance, technological advances and product pricing are important competitive
factors with respect to all our products. We believe our reputation in these areas continues to be excellent.
To be successful in the
market environment in which Specialty Papers operates, our strategy is focused on:
|
|
|
employing our new product and new business development capabilities to meet changing customer demands and ensure optimal utilization of capacity;
|
|
|
|
leveraging our flexible operating platform to optimize product mix by shifting production among facilities to more closely match output with changing demand
trends; |
|
|
|
aggressively employing methodologies to manage pressures on margins presented by more mature markets; |
|
|
|
utilizing ongoing continuous improvement methodologies to ensure operational efficiencies; and |
|
|
|
maintaining superior customer service. |
Additional financial information for each of our business units is included in Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations and in Item 8
Financial Statements and Supplementary Data, Note 23 including geographic revenue and long-lived asset financial information.
Balance Sheet We are focused on prudent financial management and maintaining a strong balance sheet. This includes:
|
|
|
aggressively managing working capital to enhance cash flow from operations;
|
|
|
|
making disciplined capital expenditure decisions; and |
|
|
|
monetizing the value of our timberland assets as opportunities develop. |
The success of these actions positions us with the flexibility to pursue strategic opportunities that will benefit our shareholders.
Concentration of Customers For each of the past three years, no single customer represented more than 10% of our
consolidated net sales. However, as discussed in Item 1A Risk Factors, one customer accounted for the majority of Advanced Airlaid Materials net sales in 2013, 2012 and 2011.
Capital Expenditures Our business is capital intensive and requires extensive expenditures for new and enhanced
equipment. These capital investments are necessary to support growth strategies, research and development initiatives, environmental compliance, and for normal upgrades or replacements. Capital expenditures totaled $103.0 million, $58.8 million and
$64.5 million, in 2013, 2012 and 2011, respectively. For 2014 capital expenditures are estimated to be $80 million to $90 million.
Environmental Matters We are subject to various federal, state and local laws and regulations intended to protect
the environment as well as human health and safety. At various times, we have incurred significant costs to comply with these regulations and we could incur additional costs as new regulations are developed or regulatory priorities change. As a
result of new air quality regulations including the U.S. EPA Best Available Retrofit Technology rule (BART; otherwise known as the Regional Haze Rule) and the Boiler Maximum Achievable Control Technology rule (Boiler MACT), we anticipate that we
could incur material capital and operating costs. Recently issued rules will require process modifications and/or installation of air pollution controls on power boilers at two of our facilities. We are currently reviewing options available to
comply with these rules to understand the effect they may have on our operations, such as reducing or curtailing boiler usage or modifying the types of boilers operated or fuel consumed. The cost of compliance is likely to be significant. Our
current estimate to implement viable options could result in capital spending of between $50 million to $90 million depending on the solutions available to comply with the regulations. However, the amount of capital spending
6
ultimately incurred may differ, and the difference could be material, depending on the option chosen. In addition, the timing of any additional capital spending is uncertain, although we
currently expect to incur the majority of expenditures generally between 2014 and 2016. Enactment of new environmental laws or regulations or changes in existing laws or regulations could significantly change our estimates. For a discussion of other
environmental matters, see Item 8 Financial Statements and Supplementary Data Note 22.
Employees As of December 31, 2013, we employed 4,403 people worldwide, of which approximately 68% are
unionized. The United Steelworkers International Union and the Office and Professional Employees International Union represents approximately 1,580 hourly employees at our Chillicothe, OH and Spring Grove, PA facilities under labor contracts
expiring in November 2015 for Chillicothe and, with respect to Spring Grove, which was renewed in January 2014 for a three year period. Hourly employees at each of our international locations are represented by various unions or works councils. We
consider the overall relationship with our employees to be satisfactory.
Other Available Information The
Corporate Governance page of our corporate web site includes our Governance Principles and Code of Business Conduct, and biographies of our Board of Directors and Executive Officers. In addition, the website includes the charters for the Audit,
Compensation, Finance, and Nominating and Corporate Governance Committees of the Board of Directors. The Corporate Governance page also includes the Code of Business Ethics for the CEO and Senior Financial Officers of Glatfelter, our
whistle-blower policy and other related material. We satisfy the disclosure requirement for any future amendments to, or waivers from, our Code of Business Conduct or Code of Business Ethics for the CEO and Senior Financial Officers by
posting such information on our website. We will provide a copy of the Code of Business Conduct or Code of Business Ethics for the CEO and Senior Financial Officers, without charge, to any person who requests one, by contacting Investor Relations at
(717) 225-2719, ir@glatfelter.com or by mail to 96 South George Street, Suite 520, York, PA, 17401.
Our business and
financial performance may be adversely affected by the global economic environment or downturns in the target markets that we serve.
Adverse global economic conditions could impact our target markets resulting in decreased demand for our products. Approximately 20% of our net sales in 2013 were shipped to customers in western Europe, the demand
for which, in many cases, is dependent on economic conditions in this area, and to the extent customers do business outside of Europe, in other regions of the world. In addition, approximately $125 million of our revenue is earned from shipments to
customers located in the Ukraine, Russia and members of the Commonwealth of Independent States (also known as CIS).
Our
results could be adversely affected if economic conditions weaken or fail to improve or in the event of significant currency devaluations in the countries into which are products are sold. Also, there may be periods during which demand for our
products is insufficient to enable us to operate our production facilities in an economical manner. The economic environment may cause customer insolvencies which may result in their inability to satisfy their financial obligations to us. These
conditions are beyond our ability to control and may have a significant impact on our sales and results of operations.
The markets for
our products are also significantly affected by changes in industry capacity and output. There have been periods of supply/demand imbalance in our industry which have caused pulp prices and our products selling prices to be volatile. The
timing and magnitude of price increases or decreases in these markets have generally varied by region and by product type. A sustained period of weak demand or excess supply would likely adversely affect pulp prices and our products selling
prices. This could have a material adverse affect on our operating and financial results.
The cost of raw materials and energy
used to manufacture our products could increase and the availability of certain raw materials could become constrained.
We
require access to sufficient and reasonably priced quantities of pulpwood, purchased pulps, pulp substitutes, abaca fiber, synthetic fibers, and certain other raw materials. Our Spring Grove and Chillicothe locations are vertically integrated
manufacturing facilities that generate approximately 82% of their annual pulp requirements.
GLATFELTER 2013 FORM
10-K 7
Our Philippine mill purchases abaca fiber to produce abaca pulp, which Composite Fibers uses to
manufacture paper for single-serve coffee, tea and technical specialty products at our Gernsbach, Scaër and Lydney facilities. At certain times the supply of abaca fiber has been constrained due to factors such as weather related damage to the
source crop as well as decisions by land owners to produce alternative crops in lieu of those used to produce abaca fiber.
Our
Advanced Airlaid Materials business unit requires access to sufficient quantities of fluff pulp, the supply of which is subject to availability of certain softwoods. Softwood availability can be limited by many factors, including weather in regions
where softwoods are abundant.
The cost of many of our production materials, including petroleum based chemicals and freight charges,
are influenced by the cost of oil. In addition, coal is a principal source of fuel for both the Spring Grove and Chillicothe facilities and natural gas is used as a source of fuel for our Chillicothe facility and the Composite Fibers and Advanced
Airlaid Materials business units facilities.
Government rules, regulations and policies have an impact on the cost of certain
energy sources, particularly for our European operations. We currently benefit from a number of government sponsored programs designed to mitigate the cost of electricity to larger industrial consumers of power related to initiatives such as
green energy or renewable energy sources. As the political environment changes, any reduction in the extent of government sponsored incentives may adversely affect the cost ultimately borne by our operations.
Although we have contractual cost pass-through arrangements with certain Advanced Airlaid Materials customers, we may not be able to fully
pass increased raw materials or energy costs on to all customers if the market will not bear the higher price or where existing agreements with our customers limit price increases. If price adjustments significantly trail increases in raw materials
or energy prices, our operating results could be adversely affected.
Our industry is highly competitive and increased
competition could reduce our sales and profitability.
The global industries in which we compete has been adversely affected by
capacity exceeding the demand for products and by declining uncoated free sheet demand. As a result, the industry has taken steps to reduce capacity.
However, slowing demand or increased competition could force us to lower our prices or to offer additional services at a higher cost to us, which could reduce our gross margins and net income.
The greater financial resources of certain of our competitors may enable them to commit larger amounts of capital in response to changing market conditions. Certain competitors may also have the ability to develop product or service innovations that
could put us at a competitive disadvantage.
Some of the other factors that may adversely affect our ability to compete in the markets
in which we participate include:
|
|
|
the entry of new competitors into the markets we serve, including foreign producers; |
|
|
|
the willingness of commodity-based producers to enter our markets when they are unable to compete or when demand softens in their traditional markets;
|
|
|
|
the aggressiveness of our competitors pricing strategies, which could force us to decrease prices in order to maintain market share;
|
|
|
|
our failure to anticipate and respond to changing customer preferences; |
|
|
|
the impact of electronic-based substitutes for certain of our products such as carbonless and forms, book publishing, and envelope papers;
|
|
|
|
the impact of replacement or disruptive technologies; |
|
|
|
changes in end-user preferences; |
|
|
|
our inability to develop new, improved or enhanced products; |
|
|
|
our inability to maintain the cost efficiency of our facilities; and |
|
|
|
the cost of regulatory environmental compliance requirements. |
If we cannot effectively compete in the markets in which we operate, our sales and operating results would be adversely affected.
We may not be able to develop new products acceptable to our customers.
Our business
strategy is market focused and includes investments in developing new products to meet the changing needs of our customers and to maintain our market share. Our success will depend, in part on our
8
ability to develop and introduce new and enhanced products that keep pace with introductions by our competitors and changing customer preferences. If we fail to anticipate or respond adequately
to these factors, we may lose opportunities for business with both current and potential customers. The success of our new product offerings will depend on several factors, including our ability to:
|
|
|
anticipate and properly identify our customers needs and industry trends; |
|
|
|
price our products competitively; |
|
|
|
develop and commercialize new products and applications in a timely manner; |
|
|
|
differentiate our products from our competitors products; and |
|
|
|
invest efficiently in research and development activities. |
Our inability to develop new products could adversely impact our business and ultimately harm our profitability.
We are subject to substantial costs and potential liability for environmental matters.
We are subject to various environmental laws and regulations that govern our operations, including discharges into the environment, and the
handling and disposal of hazardous substances and wastes. We are also subject to laws and regulations that impose liability and clean-up responsibility for releases of hazardous substances into the environment. The Clean Air Act, and similar
regulations, will impose significant compliance costs or require significant capital expenditures. To comply with environmental laws and regulations, we have incurred, and will continue to incur, substantial capital and operating expenditures. We
anticipate that environmental regulation of our operations will continue to become more burdensome and that capital and operating expenditures necessary to comply with environmental regulations will continue, and perhaps increase, in the future.
Because environmental regulations are not consistent worldwide, our ability to compete globally may be adversely affected by capital and operating expenditures required for environmental compliance. In addition, we may incur obligations to remove or
mitigate any adverse effects on the environment, such as air and water quality, resulting from mills we operate or have operated. Potential obligations include compensation for the restoration of natural resources, personal injury and property
damages.
See Item 1 Environmental Matters for an additional discussion of expected costs to comply with environmental regulations.
Despite favorable rulings in the pending Fox River litigation, we continue to have potential exposure to liability for remediation and other costs
related to the presence of polychlorinated biphenyls in the lower Fox River on which our former Neenah, Wisconsin mill was located. There can be no assurance that we will not be required to ultimately pay material amounts to resolve our liability in
the Fox River matter. We have financial reserves for environmental matters, including the Fox River site, but we cannot be certain that those reserves will be adequate to provide for future obligations related to these matters, that our share of
costs and/or damages for these matters will not exceed our available resources, or that such obligations will not have a long-term, material adverse effect on our consolidated financial position, liquidity or results of operations.
Our environmental issues are complex and should be reviewed in the context set forth in more detail in Item 8 Financial Statements and
Supplementary Data Note 22.
The Advanced Airlaid Materials business unit generates a substantial portion of its revenue
from one customer serving the hygiene products market, the loss of which could have a material adverse effect on our results of operations.
Advanced Airlaid Materials generates the majority of its net sales of hygiene products from one customer. The loss of this significant customer could have a material adverse effect on their operating results. In
addition, sales in the feminine hygiene market accounted for 83% of Advanced Airlaid Materials net sales in 2013 and sales are concentrated within a small group of large customers. A decline in sales of hygiene products could have a material
adverse effect on this units operating results. Customers in the airlaid non-woven fabric material market, including the hygiene market, may also switch to less expensive products, change preferences or otherwise reduce demand for Advanced
Airlaid Materials products, thus reducing the size of the markets in which it currently sells its products. Any of the foregoing could have a material adverse effect on our financial performance and business prospects.
GLATFELTER 2013 FORM
10-K 9
Our operations may be impaired and we may be exposed to potential losses and liability as a
result of natural disasters, acts of terrorism or sabotage or similar events.
If we have a catastrophic loss or unforeseen
operational problem at certain of our facilities, we could suffer significant lost production which could impair our ability to satisfy customer demands.
Natural disasters, such as earthquakes, hurricanes, typhoons, flooding or fire, and acts of terrorism or sabotage affecting our operating activities and major facilities could materially and adversely affect our
operations, operating results and financial condition. In addition, we own and maintain four dams in York County, Pennsylvania, that were built to ensure a steady supply of water for the operation of our facility in Spring Grove which is a primary
manufacturing location for our envelope papers and engineered products. Each of these dams is classified as high hazard by the Commonwealth of Pennsylvania because they are located in close proximity to inhabited areas. Any sudden
failure of a dam, including as a result of natural disaster or act of terrorism or sabotage, would endanger occupants and residential, commercial and industrial structures, for which we could be liable. The failure of a dam could also be extremely
disruptive and result in damage to or the shutdown of our Spring Grove mill. Any losses or liabilities incurred due to the failure of one of our dams may not be fully covered by our insurance policies or may substantially exceed the limits of our
policies, and could materially and adversely affect our operating results and financial condition.
In addition, many of our
papermaking operations require a reliable and abundant supply of water. Such mills rely on a local water body or water source for their water needs and, therefore, are particularly impacted by drought conditions or other natural or manmade
interruptions to its water supplies. At various times and for differing periods, each of our mills has had to modify operations due to water shortages, water clarity, or low flow conditions in its principal water supplies. Any interruption or
curtailment of operations at any of our paper mills due to drought or low flow conditions at the principal water source or another cause could materially and adversely affect our operating results and financial condition.
Our pulp mill in Lanao del Norte on the Island of Mindanao in the Republic of the Philippines is located along the Pacific Rim, one of the
worlds hazard belts. By virtue of its geographic location, this mill is subject to, among similar types of natural disasters discussed above, cyclones, typhoons, and volcanic activity. Moreover, the
area of Lanao del Norte has been a target of suspected terrorist activities. The most common bomb targets in Lanao del Norte to date have been power transmission towers. Our pulp mill in Mindanao
is located in a rural portion of the island and is susceptible to attacks or power interruptions. The Mindanao mill supplies approximately 90% of the abaca pulp that is used by our Composite Fibers business unit to manufacture our paper for single
serve coffee and tea products and certain technical specialties products. Any interruption, loss or extended curtailment of operations at our Mindanao mill could materially affect our operating results and financial condition.
We have operations in a potentially politically and economically unstable location.
Our pulp mill in the Philippines is located in a region that is unstable and subject to political unrest. As discussed above, our Philippine pulp
mill produces abaca pulp, a significant raw material used by our Composite Fibers business unit, and is currently our main provider of abaca pulp. There are limited suitable alternative sources of readily available abaca pulp in the world. In the
event of a disruption in supply from our Philippine mill, there is no guarantee that we could obtain adequate amounts of abaca pulp from alternative sources at a reasonable price or at all. As a consequence, any civil disturbance, unrest, political
instability or other event that causes a disruption in supply could limit the availability of abaca pulp and would increase our cost of obtaining abaca pulp. Such occurrences could adversely impact our sales volumes, revenues and operating results.
Our international operations pose certain risks that may adversely impact sales and earnings.
We have significant operations and assets located in Canada, Germany, France, the United Kingdom, and the Philippines. Our international sales and
operations are subject to a number of unique risks, in addition to the risks in our domestic sales and operations, including differing protections of intellectual property, trade barriers, labor unrest, exchange controls, regional economic
uncertainty, differing (and possibly more stringent) labor regulation, risk of governmental expropriation, domestic and foreign customs and tariffs, differing regulatory environments, difficulty in managing widespread operations and political
instability. These factors may adversely affect our future profits. Also, in some foreign jurisdictions, we may be subject to laws limiting the right and ability of entities
10
organized or operating therein to pay dividends or remit earnings to affiliated companies unless specified conditions are met. Any such limitations would restrict our flexibility in using funds
generated in those jurisdictions.
Foreign currency exchange rate fluctuations could adversely affect our results of operations.
As we diversify our business and expand our global footprint, an increasing proportion of our revenue is generated outside of
the United States. We also own and operate manufacturing facilities in Canada, Germany, France, the United Kingdom and the Philippines. Currently, the majority of our business is transacted in U.S. dollars; however, an increasing portion of business
is transacted in Euros, British Pound Sterling, Canadian dollars or Philippine Peso. With respect to the Euro, we generate substantially greater cash inflow in this currency than we do outflow. However, with respect to the British
Pound Sterling, Canadian dollar, and Philippine Peso, we have greater outflows than inflows of these currencies. As a result of these positions, we are exposed to changes in currency exchange rates. Uncertainty with respect to the ability of
certain European countries to continue to service their sovereign debt obligations and actions proposed to restructure such obligations may cause the value of the euro to fluctuate. In the event that one or more European countries were to replace
the euro with another currency, business may be adversely affected until stable exchange rates are established.
Our ability to
maintain our products price competitiveness is reliant, in part, on the relative strength of the currency in which the product is denominated compared to the currency of the market into which it is sold and the functional currency of our
competitors. Changes in the rate of exchange of foreign currencies in relation to the U.S. dollar, and other currencies, may adversely impact our results of operations and our ability to offer products in certain markets at acceptable prices.
Approximately $125 million of our revenue is earned from shipments to customers located in the Ukraine, Russia and members of the CIS. Although these sales are denominated in euros, a significant devaluation of the customers local currencies
could adversely affect our customers credit risk and our revenue and results of operation.
In the event any of the above risk factors impact our business in a material way or in
combination during the same period, we may be unable to generate sufficient cash flow to simultaneously fund our operations, finance capital expenditures, satisfy obligations and make dividend payments on our common stock.
In addition to debt service obligations, our business is capital intensive and requires significant expenditures to support growth strategies,
research and development initiatives, environmental compliance, and for normal upgrades or replacements. We expect to meet all of our near and long-term cash needs from a combination of operating cash flow, cash and cash equivalents, our existing
credit facility and other long-term debt. If we are unable to generate sufficient cash flow from these sources, we could be unable to meet our near and long-term cash needs or make dividend payments.
ITEM 1B |
UNRESOLVED STAFF COMMENTS |
None.
We own substantially all
of the land and buildings comprising our manufacturing facilities located in Pennsylvania; Ohio; Canada; the United Kingdom; Germany; France; and the Philippines; as well as substantially all of the equipment used in our manufacturing and related
operations. Certain of our operations, particularly our metallized paper production facility located in Caerphilly, Wales, office and warehouse space in Moscow, Russia and our corporate offices located in York, Pennsylvania are under lease
agreements. All of our properties, other than those that are leased, are free from any material liens or encumbrances. We consider all of our buildings to be in good structural condition and well maintained and our properties to be suitable and
adequate for present operations.
We are involved
in various lawsuits that we consider to be ordinary and incidental to our business. The ultimate outcome of these lawsuits cannot be predicted with certainty; however, we do not expect such lawsuits, individually or in the aggregate, will have a
material adverse effect on our consolidated financial position, liquidity or results of operations.
GLATFELTER 2013 FORM
10-K 11
For a discussion of commitments, legal proceedings and related contingencies, see Item 8
Financial Statements and Supplementary Data Note 22.
EXECUTIVE OFFICERS
The following table sets forth certain information with respect to our executive officers and senior management as of March 3, 2014.
|
|
|
|
|
|
|
Name |
|
Age |
|
|
Office with the Company |
Dante C. Parrini |
|
|
49 |
|
|
Chairman and Chief Executive Officer |
John P. Jacunski |
|
|
48 |
|
|
Executive Vice President and Chief Financial Officer |
Christopher W. Astley |
|
|
41 |
|
|
Senior Vice President, Corporate Strategy |
Jonathan A. Bourget |
|
|
49 |
|
|
Vice President & General Manager, Advanced Airlaid Materials Business Unit |
David C. Elder |
|
|
45 |
|
|
Vice President, Finance |
Brian E. Janki |
|
|
41 |
|
|
Vice President & General Manager, Specialty Papers Business Unit |
Kent K. Matsumoto |
|
|
54 |
|
|
Vice President, General Counsel and Corporate Secretary |
Martin Rapp |
|
|
54 |
|
|
Senior Vice President & General Manager, Composite Fibers Business Unit |
Mark A. Sullivan |
|
|
59 |
|
|
Vice President, Global Supply Chain and Information Technology |
William T. Yanavitch II |
|
|
53 |
|
|
Senior Vice President Human Resources and Administration |
Officers are elected to serve at the pleasure of the Board of Directors. Except in the case of officers elected to
fill a new position or a vacancy occurring at some other date, officers are generally elected at the organizational meeting of the Board of Directors held immediately after the annual meeting of shareholders.
Dante C. Parrini became Chief Executive Officer effective January 1, 2011 and Chairman of the Board in May 2011. Prior to this, he was
Executive Vice President and Chief Operating Officer, a position he held since February 2005. Mr. Parrini joined us in 1997 and has previously served as Senior Vice President and General Manager, a position he held beginning in January 2003 and
prior to that as Vice President responsible for Sales and Marketing.
John P. Jacunski was promoted to Executive Vice President
and Chief Financial Officer in February 2014. He joined us in October 2003 and served as Vice President and Corporate Controller. In July 2006 he was promoted to Senior Vice President and Chief Financial Officer. Mr. Jacunski was previously
Vice President and Chief
Financial Officer at WCI Steel, Inc. from June 1999 to October 2003. Prior to joining WCI, Mr. Jacunski was with KPMG, an international accounting and consulting firm, where he served in various
capacities.
Christopher W. Astley joined us in August 2010 and was promoted to Senior Vice President, Corporate Strategy
in February 2014. Prior to joining us, he was an entrepreneur leading a privately held business from 2004 until 2010. Prior to that Mr. Astley held positions with Accenture, a global management consulting firm, and The Coca-Cola Company.
Jonathan A. Bourget joined us in July 2010 as Vice President & General Manager, Advanced Airlaid Materials Business Unit. From
2008 until joining our Company, Mr. Bourget was Vice President & General Manager of European operations at Polymer Group Inc. Prior to this, he held various positions of increasing responsibility, including General Manager Specialties
Division in Europe, with Alcoa Inc.
David C. Elder was promoted to Vice President, Finance in December 2011 and continues as
our Chief Accounting Officer. Prior to his promotion, he was our Vice President, Corporate Controller, a position held since joining Glatfelter in January 2006. Mr. Elder was previously Corporate Controller for YORK International Corporation
and prior to that he was the Director, Financial Planning and Analysis for that company.
Brian E. Janki joined our
Company in August 2013 as Vice President & General Manager, Specialty Papers Business Unit. Prior to this, Mr. Janki was employed by Greif as their Vice President & General Manager, Rigid Industrial Packaging &
Services. During his twelve years with Greif, Mr. Janki held leadership positions including profit/loss responsibilities for two business units, global responsibility for supply chain and sourcing, and transformational assignments including
global oversight of the implementation of the Greif Business System.
Kent K. Matsumoto was appointed Vice President, General
Counsel and Corporate Secretary in October 2013. Mr. Matsumoto joined us in June 2012 as Assistant General Counsel and served as interim General Counsel since March 2013. From July 2008 until February 2012 he was Associate General Counsel for
Wolters Kluwer. He has over 28 years of experience in a variety of corporate and divisional leadership assignments with other companies, including Wolters Kluwer, Mayne Pharma, and Alpharma.
Martin Rapp joined us in August 2006 and was promoted in February 2014 to Senior Vice President and General Manager, Composite Fibers
Business Unit, the unit
12
he has led since joining our company. Prior to this, Mr. Rapp was Vice President and General Manager of Avery Dennisons Roll Materials Business in Central and Eastern Europe since
August 2002.
Mark A. Sullivan joined our Company in December 2003 and serves as Vice President, Global Supply Chain and
Information Technology. Previously, he was our Chief Procurement Officer. Prior to joining Glatfelter, his experience included a broad array of operations and supply chain management responsibilities during twenty years with the DuPont Company.
William T. Yanavitch II was promoted to Senior Vice President Human Resources and Administration in February 2014. Since
joining us in July 2000, he has served as Vice President, Human Resources. Prior to joining us he worked for Dentsply International and Gould Pumps Inc. in various leadership capacities.
ITEM 4 |
MINE SAFETY DISCLOSURES |
Not
Applicable
PART II
ITEM 5 |
MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Common Stock Prices and Dividends Declared Information
The following table shows the high and low prices of our common stock traded on the New York Stock Exchange under the symbol GLT and the dividend declared per share for each quarter during the past two
years:
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter |
|
High |
|
|
Low |
|
|
Dividend |
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
Fourth |
|
$ |
29.25 |
|
|
$ |
25.01 |
|
|
$ |
0.10 |
|
Third |
|
|
28.21 |
|
|
|
25.13 |
|
|
|
0.10 |
|
Second |
|
|
26.44 |
|
|
|
21.53 |
|
|
|
0.10 |
|
First |
|
|
23.66 |
|
|
|
17.11 |
|
|
|
0.10 |
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
Fourth |
|
$ |
18.58 |
|
|
$ |
15.31 |
|
|
$ |
0.09 |
|
Third |
|
|
18.25 |
|
|
|
15.43 |
|
|
|
0.09 |
|
Second |
|
|
16.47 |
|
|
|
14.25 |
|
|
|
0.09 |
|
First |
|
|
16.36 |
|
|
|
14.12 |
|
|
|
0.09 |
|
As of February 26, 2014, we had 1,198 shareholders of record.
STOCK PERFORMANCE GRAPH
The following
graph compares the cumulative 5-year total return of our common stock with the cumulative total returns of both a peer group and a broad market index. For the year ended December 31, 2013, we compare our stock performance to the S&P Small
Cap 600 Paper Products index comprised of us, Clearwater Paper Corp., Kapstone Paper & Packaging Corp., Neenah Paper Inc., Schweitzer-Mauduit International and Wausau Paper Corp. In addition, the chart includes a comparison to the Russell
2000, which we believe is an appropriate benchmark index for stocks such as ours.
The following graph assumes that the value of the
investment in our common stock, in each index, and in the peer group (including reinvestment of dividends) was $100 on December 31, 2008 and charts it through December 31, 2013.
GLATFELTER 2013 FORM
10-K 13
ITEM 6 |
SELECTED FINANCIAL DATA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the year ended December 31
Dollars in thousands, except per share |
|
|
2013 (1) |
|
|
|
2012 |
|
|
|
2011 |
|
|
|
2010 (4) |
|
|
|
2009 |
|
Net sales |
|
$ |
1,722,615 |
|
|
$ |
1,577,788 |
|
|
$ |
1,603,154 |
|
|
$ |
1,455,331 |
|
|
$ |
1,184,010 |
|
Energy and related sales, net |
|
|
3,153 |
|
|
|
7,000 |
|
|
|
9,344 |
|
|
|
10,653 |
|
|
|
13,332 |
|
Total revenue |
|
|
1,725,768 |
|
|
|
1,584,788 |
|
|
|
1,612,498 |
|
|
|
1,465,984 |
|
|
|
1,197,342 |
|
Gains on dispositions of plant, equipment and timberlands, net |
|
|
1,726 |
|
|
|
9,815 |
|
|
|
3950 |
|
|
|
453 |
|
|
|
898 |
|
Net income |
|
|
67,158 |
|
|
|
59,379
|
(2)
|
|
|
42,694
|
(3)
|
|
|
54,434
|
(5)
|
|
|
123,442 |
(6)
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
1.56 |
|
|
|
1.39 |
|
|
|
0.94 |
|
|
|
1.19 |
|
|
|
2.70 |
|
Diluted |
|
|
1.52 |
|
|
|
1.36 |
|
|
|
0.93 |
|
|
|
1.17 |
|
|
|
2.70 |
|
|
|
|
|
|
|
Total assets |
|
$ |
1,678,410 |
|
|
$ |
1,242,985 |
|
|
$ |
1,136,925 |
|
|
$ |
1,341,747 |
|
|
$ |
1,190,294 |
|
Total debt |
|
|
442,325 |
|
|
|
250,000 |
|
|
|
227,000 |
|
|
|
333,022 |
|
|
|
254,583 |
|
Shareholders equity |
|
|
684,476 |
|
|
|
539,679 |
|
|
|
490,404 |
|
|
|
552,442 |
|
|
|
510,704 |
|
|
|
|
|
|
|
Cash dividends declared per common share |
|
|
0.40 |
|
|
|
0.36 |
|
|
|
0.36 |
|
|
|
0.36 |
|
|
|
0.36 |
|
Depreciation, depletion and amortization |
|
|
68,196 |
|
|
|
69,500 |
|
|
|
69,313 |
|
|
|
65,839 |
|
|
|
61,256 |
|
Capital expenditures |
|
|
103,047 |
|
|
|
58,752 |
|
|
|
64,491 |
|
|
|
36,491 |
|
|
|
26,257 |
|
|
|
|
|
|
|
Shares outstanding |
|
|
43,130 |
|
|
|
42,784 |
|
|
|
42,650 |
|
|
|
45,976 |
|
|
|
45,706 |
|
Net tons sold |
|
|
1,029,819 |
|
|
|
969,833 |
|
|
|
960,915 |
|
|
|
927,853 |
|
|
|
818,905 |
|
Number of employees |
|
|
4,403 |
|
|
|
4,258 |
|
|
|
4,274 |
|
|
|
4,337 |
|
|
|
3,546 |
|
(1) |
On April 30, 2013, we acquired Dresden Papier GmbH, the results of which are included prospectively from the acquisition date, including $101.8 million of net sales and
$18.3 million of operating income. |
(2) |
During 2012, we recorded after-tax charges totaling $4.8 million related to the write-off of unamortized deferred issuance costs and the early redemption premium in connection
with the refinancing of $200 million of bonds. In addition, net income includes a $4.0 million benefit from the conversion of alternative fuel mixture credits for cellulosic biofuel production credits. |
(3) |
During 2011, we recorded after-tax charges totaling $6.1 million related to the write-off of unamortized deferred issuance costs and original issue discount and the redemption
premium in connection with the early redemption of $100 million of bonds. |
(4) |
The information set forth above for 2010 includes the financial information for Concert Industries Corp. prospectively from the February 12, 2010 acquisition date.
|
(5) |
During 2010, net income included a $23.2 million tax benefit from cellulosic biofuel production credits. |
(6) |
During 2009, we recognized $107.8 million of alternative fuel mixture credits, all of which were recorded as a reduction to cost of products sold. |
14
ITEM 7 |
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Forward-Looking Statements This Annual Report on Form 10-K includes forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding industry prospects and future consolidated financial position or results of operations, made in this Report
on Form 10-K are forward looking. We use words such as anticipates, believes, expects, future, intends and similar expressions to identify forward-looking statements. Forward-looking
statements reflect managements current expectations and are inherently uncertain. Our actual results may differ significantly from such expectations. The following discussion includes forward-looking statements regarding expectations of, among
others, non-cash pension expense, environmental costs, capital expenditures and liquidity, all of which are inherently difficult to predict. Although we make such statements based on assumptions that we believe to be reasonable, there can be no
assurance that actual results will not differ materially from our expectations. Accordingly, we identify the following important factors, among others, which could cause our results to differ from any results that might be projected, forecasted or
estimated in any such forward-looking statements:
i. |
variations in demand for our products including the impact of any unplanned market-related downtime, or variations in product pricing; |
ii. |
changes in the cost or availability of raw materials we use, in particular pulpwood, pulp, pulp substitutes, caustic soda, and abaca fiber; |
iii. |
changes in energy-related costs and commodity raw materials with an energy component; |
iv. |
our ability to develop new, high value-added products; |
v. |
the impact of exposure to volatile market-based pricing for sales of excess electricity; |
vi. |
the impact of competition, both domestic and international, changes in industry production capacity, including the construction of new mills or new machines, the closing of mills
and incremental changes due to capital expenditures or productivity increases;
|
vii. |
the gain or loss of significant customers and/or on-going viability of such customers; |
viii. |
cost and other effects of environmental compliance, cleanup, damages, remediation or restoration, or personal injury or property damages related thereto, such as the costs of
natural resource restoration or damages related to the presence of polychlorinated biphenyls (PCBs) in the lower Fox River on which our former Neenah mill was located; |
ix. |
adverse results in litigation in the Fox River matter; |
x. |
risks associated with our international operations, including local economic and political environments and fluctuations in currency exchange rates; |
xi. |
geopolitical events, including war and terrorism; |
xii. |
disruptions in production and/or increased costs due to labor disputes; |
xiii. |
the impact of unfavorable outcomes of audits by various state, federal or international tax authorities; |
xiv. |
enactment of adverse state, federal or foreign tax or other legislation or changes in government policy or regulation; and |
xv. |
our ability to finance, consummate and integrate acquisitions; |
Introduction We manufacture a wide array of specialty papers and fiber-based engineered materials and we manage our company along three business units:
|
|
|
Composite Fibers with revenue from the sale of single-serve coffee and tea filtration papers, non-woven wall covering, metallized papers, composite
laminates, and other technical specialty papers; |
|
|
|
Advanced Airlaid Materials with revenue from the sale of airlaid non-woven fabric like materials used in feminine hygiene products, adult incontinence
products, cleaning pads, food pads, napkins, tablecloths, and baby wipes; and |
|
|
|
Specialty Papers with revenue from the sale of carbonless papers, forms, book publishing, envelope & converting papers, and fiber-based
engineered products. |
GLATFELTER 2013 FORM
10-K 15
RESULTS OF OPERATIONS
2013 versus 2012
Overview The following table sets
forth summarized results of operations:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31 |
|
In thousands, except per share |
|
|
2013 |
|
|
|
2012 |
|
Net sales |
|
$ |
1,722,615 |
|
|
$ |
1,577,788 |
|
Gross profit |
|
|
218,660 |
|
|
|
213,649 |
|
Operating income |
|
|
86,519 |
|
|
|
101,874 |
|
Net income |
|
|
67,158 |
|
|
|
59,379 |
|
Earnings per diluted share |
|
|
1.52 |
|
|
|
1.36 |
|
Net income increased 13.1% in the year over year comparison and totaled $67.2 million in 2013, or $1.52 per
diluted share. In 2012 net income was $59.4 million, or $1.36 per diluted share The year over year comparison reflects benefits from a significant acquisition in 2013, solid performance from our two growth businesses and a favorable tax rate.
Effective April 30, 2013, we completed the acquisition of Dresden Papier GmbH (Dresden) for $211 million, net of cash
acquired. Our reported results for 2013 include $101.8 million of net sales and $18.3 million of operating income from Dresden representing its results prospectively from the acquisition date. Such results are reported as part of the Composite
Fibers business unit.
Our growth-oriented fiber-based engineered materials businesses reported improved results evidenced by an $29.8
million increase in operating income. However, total operating income from all of our business units increased $2.2 million reflecting the impact of a lower contribution from Specialty Papers. Overall, total net sales increased $144.8 million, or
9.2% and shipping volumes increased 6.2% in the year-over-year comparison
Composite Fibers operating income increased to $62.4
million from $36.1 million in 2012 primarily due to the inclusion of Dresden, higher selling prices and an improved mix. Excluding Dresden, shipping volumes were essentially unchanged.
Advanced Airlaid Materials operating income increased to $21.5 million compared with $18.0 million in 2012 primarily due to increased
shipping volumes.
Specialty Papers operating income declined to $39.7 million from $67.3 million in 2012. Although shipping
volumes increased 1.4%, this units profitability was unfavorably impacted by operational disruptions and lower selling prices.
In addition to the impact of including Dresden, the consolidated results of operations for 2013 and
2012 include the following significant unusual items:
|
|
|
|
|
|
|
|
|
In thousands, except per share |
|
|
After-tax Gain (loss) |
|
|
|
Diluted EPS |
|
2013 |
|
|
|
|
|
|
|
|
Acquisition and integration costs |
|
$ |
(6,079 |
) |
|
$ |
(0.14 |
) |
International legal entity restructuring costs |
|
|
(630 |
) |
|
|
(0.01 |
) |
Alternative fuel mixture/ Cellulosic biofuel credits |
|
|
10,316 |
|
|
|
0.23 |
|
Timberland sales and related costs |
|
|
1,725 |
|
|
|
0.04 |
|
2012 |
|
|
|
|
|
|
|
|
Early redemption of $200 million bonds |
|
$ |
(4,784 |
) |
|
$ |
(0.11 |
) |
Alternative fuel mixture/ Cellulosic biofuel credits |
|
|
4,020 |
|
|
|
0.09 |
|
Timberland sales and related costs |
|
|
5,388 |
|
|
|
0.12 |
|
The above items increased earnings by $5.3 million, or $0.12 per diluted share, in 2013. Comparatively, in 2012
earnings benefited by $4.6 million or $0.10 per diluted share from the items set forth above.
16
Business Units 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 Companys performance is evaluated internally and by the Companys Board of Directors.
Business Unit Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31
In millions |
|
|
Composite Fibers |
|
|
|
Advanced Airlaid Materials |
|
|
|
Specialty Papers |
|
|
|
Other and Unallocated |
|
|
|
Total |
|
|
|
2013 |
|
|
2012 |
|
|
2013 |
|
|
2012 |
|
|
2013 |
|
|
2012 |
|
|
2013 |
|
|
2012 |
|
|
2013 |
|
|
2012 |
|
Net sales |
|
$ |
566.4 |
|
|
$ |
436.7 |
|
|
$ |
268.4 |
|
|
$ |
246.3 |
|
|
$ |
887.9 |
|
|
$ |
894.8 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,722.6 |
|
|
$ |
1,577.8 |
|
Energy and related sales, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3.2 |
|
|
|
7.0 |
|
|
|
|
|
|
|
|
|
|
|
3.2 |
|
|
|
7.0 |
|
Total revenue |
|
|
566.4 |
|
|
|
436.7 |
|
|
|
268.4 |
|
|
|
246.3 |
|
|
|
891.0 |
|
|
|
901.8 |
|
|
|
|
|
|
|
|
|
|
|
1,725.8 |
|
|
|
1,584.8 |
|
Cost of products sold |
|
|
456.5 |
|
|
|
362.6 |
|
|
|
238.0 |
|
|
|
218.7 |
|
|
|
799.3 |
|
|
|
779.5 |
|
|
|
13.3 |
|
|
|
10.3 |
|
|
|
1,507.1 |
|
|
|
1,371.1 |
|
Gross profit (loss) |
|
|
109.8 |
|
|
|
74.2 |
|
|
|
30.4 |
|
|
|
27.6 |
|
|
|
91.7 |
|
|
|
122.3 |
|
|
|
(13.3 |
) |
|
|
(10.4 |
) |
|
|
218.7 |
|
|
|
213.6 |
|
SG&A |
|
|
47.4 |
|
|
|
38.1 |
|
|
|
8.9 |
|
|
|
9.6 |
|
|
|
52.0 |
|
|
|
55.0 |
|
|
|
25.5 |
|
|
|
18.9 |
|
|
|
133.9 |
|
|
|
121.6 |
|
Gains on dispositions of plant, equipment and timberlands, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.7 |
) |
|
|
(9.8 |
) |
|
|
(1.7 |
) |
|
|
(9.8 |
) |
Total operating income (loss) |
|
|
62.4 |
|
|
|
36.1 |
|
|
|
21.5 |
|
|
|
18.0 |
|
|
|
39.7 |
|
|
|
67.3 |
|
|
|
(37.1 |
) |
|
|
(19.5 |
) |
|
|
86.5 |
|
|
|
101.9 |
|
Non-operating expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(17.3 |
) |
|
|
(22.9 |
) |
|
|
(17.3 |
) |
|
|
(22.9 |
) |
Income (loss) before income taxes |
|
$ |
62.4 |
|
|
$ |
36.1 |
|
|
$ |
21.5 |
|
|
$ |
18.0 |
|
|
$ |
39.7 |
|
|
$ |
67.3 |
|
|
$ |
(54.4 |
) |
|
$ |
(42.4 |
) |
|
$ |
69.2 |
|
|
$ |
78.9 |
|
Supplementary Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net tons sold (thousands) |
|
|
133.6 |
|
|
|
90.3 |
|
|
|
96.1 |
|
|
|
90.3 |
|
|
|
800.2 |
|
|
|
789.2 |
|
|
|
|
|
|
|
|
|
|
|
1,029.8 |
|
|
|
969.8 |
|
Depreciation, depletion and amortization |
|
$ |
24.8 |
|
|
$ |
23.5 |
|
|
$ |
8.9 |
|
|
$ |
8.7 |
|
|
$ |
33.2 |
|
|
$ |
37.4 |
|
|
|
1.3 |
|
|
|
|
|
|
$ |
68.2 |
|
|
$ |
69.5 |
|
Capital expenditures |
|
|
56.9 |
|
|
|
31.4 |
|
|
|
6.7 |
|
|
|
3.9 |
|
|
|
33.8 |
|
|
|
23.1 |
|
|
|
5.7 |
|
|
|
0.3 |
|
|
|
103.0 |
|
|
|
58.8 |
|
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. Dresdens 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.
Sales and Costs of Products Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31 |
|
|
|
|
In thousands |
|
|
2013 |
|
|
|
2012 |
|
|
|
Change |
|
Net sales |
|
$ |
1,722,615 |
|
|
$ |
1,577,788 |
|
|
$ |
144,827 |
|
Energy and related sales net |
|
|
3,153 |
|
|
|
7,000 |
|
|
|
(3,847 |
) |
Total revenues |
|
|
1,725,768 |
|
|
|
1,584,788 |
|
|
|
140,980 |
|
Costs of products sold |
|
|
1,507,108 |
|
|
|
1,371,139 |
|
|
|
135,969 |
|
Gross profit |
|
$ |
218,660 |
|
|
$ |
213,649 |
|
|
$ |
5,011 |
|
Gross profit as a percent of Net sales |
|
|
12.7 |
% |
|
|
13.5 |
% |
|
|
|
|
The following table sets forth the contribution to consolidated net sales by each business unit:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31 |
|
Percent of Total |
|
2013 |
|
|
2012 |
|
Business Unit |
|
|
|
|
|
|
|
|
Composite Fibers |
|
|
32.9 |
% |
|
|
27.7 |
% |
Advanced Airlaid Material |
|
|
15.6 |
|
|
|
15.6 |
|
Specialty Papers |
|
|
51.5 |
|
|
|
56.7 |
|
Total |
|
|
100.0 |
% |
|
|
100.0 |
% |
GLATFELTER 2013 FORM
10-K 17
During 2013, our growth oriented businesses generated approximately 48.5%, or $834.8 million, of
our consolidated net sales compared with 43.3% in 2012, reflecting strategic initiatives to invest in growth businesses. Consolidated net sales for 2013 increased $144.8 million, or 9.2%, in the comparison to 2012 and totaled $1,722.6 million. The
increase was primarily due to the Dresden acquisition and $13.6 million from the favorable impact of foreign currencies. Lower selling prices, primarily in Specialty Papers, adversely affected the comparison by $9.4 million. Shipping volumes
increased 6.2% in the year over year comparison, or 1.8% excluding the Dresden acquisition.
In Composite Fibers, net sales were $566.4
million, an increase of $129.7 million, or 29.7%. The Dresden acquisition accounted for $101.8 million of the increase. On an organic basis, shipping volumes were essentially unchanged with a favorable mix. Higher selling prices and the translation
of foreign currencies benefited the comparison by $2.9 million and $8.7 million, respectively.
Composite Fibers operating income
in 2013 increased $26.3 million, of which Dresden represented $18.3 million. The remaining increase was primarily due to improved mix of products and higher selling prices. Foreign currency translation favorably impacted operating income by $0.6
million compared with the prior year.
In Advanced Airlaid Materials, net sales increased $22.1 million, or 9.0%, in 2013 compared to
2012. The increase in net sales was due to a 6.4% increase in shipping volumes, a $4.9 million benefit from favorable impact of foreign currency exchange partially offset by $2.3 million of lower selling prices.
Operating income in this business unit increased $3.5 million in 2013 compared to 2012 led by a $5.7 million benefit from the increase in shipping
volumes. The translation of foreign currencies favorably impacted operating income by $2.2 million.
In the Specialty Papers business
unit, net sales for 2013 decreased by $6.9 million, or 0.8%, to $887.9 million. The decrease was primarily due to $10.0 million from lower selling prices partially offset by a 1.4% increase in shipping volumes.
Specialty Papers operating income in 2013 of $39.7 million was $27.6 million lower than 2012 primarily due to lower selling prices,
operational interruptions that adversely affected pulp mill production and $3.8 million from lower energy and related sales.
We sell excess power generated by the Spring Grove, PA facility. In addition, two of our facilities
are registered generators of renewable energy credits (RECs). The following table summarizes this activity for 2013 and 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31 |
|
|
|
|
|
In thousands |
|
|
2013 |
|
|
|
2012 |
|
|
|
Change |
|
Energy sales |
|
$ |
8,189 |
|
|
$ |
5,284 |
|
|
$ |
2,905 |
|
Costs to produce |
|
|
(6,784 |
) |
|
|
(4,187 |
) |
|
|
(2,597 |
) |
Net |
|
|
1,405 |
|
|
|
1,097 |
|
|
|
308 |
|
Renewable energy credits |
|
|
1,748 |
|
|
|
5,903 |
|
|
|
(4,155 |
) |
Total |
|
$ |
3,153 |
|
|
$ |
7,000 |
|
|
$ |
(3,847 |
) |
RECs represent sales of certified credits earned related to burning renewable sources of energy such as black
liquor and wood waste. We sell RECs into an emerging and somewhat illiquid market. The extent and value of future revenues from REC sales is dependent on many factors outside of managements control. Therefore, we may not be able to generate
consistent amounts of sales of RECs in future periods.
Pension Expense The following table summarizes
the amounts of pension expense recognized for 2013 compared to 2012:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31 |
|
|
|
|
In thousands |
|
|
2013 |
|
|
|
2012 |
|
|
|
Change |
|
Recorded as: |
|
|
|
|
|
|
|
|
|
|
|
|
Costs of products sold |
|
$ |
12,368 |
|
|
$ |
9,148 |
|
|
$ |
3,220 |
|
SG&A expense |
|
|
1,849 |
|
|
|
2,467 |
|
|
|
(618 |
) |
Total |
|
$ |
14,217 |
|
|
$ |
11,615 |
|
|
$ |
2,602 |
|
The amount of pension expense recognized each year is dependent on various actuarial assumptions and certain other
factors, including discount rates and the fair value of our pension assets. Pension expense in 2014 is expected to be approximately $6.2 million. The decrease is primarily due to higher discount rates and the impact of amortizing deferred actuarial
gains from higher returns on assets in 2013.
Gain on Sales of Plant, Equipment and Timberlands,
net During the years ended December 31, 2013 and 2012, we completed the following sales of assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands |
|
|
Acres |
|
|
|
Proceeds |
|
|
|
Gain |
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
Timberlands |
|
|
876 |
|
|
$ |
1,445 |
|
|
$ |
1,410 |
|
Other |
|
|
n/a |
|
|
|
502 |
|
|
|
316 |
|
Total |
|
|
|
|
|
$ |
1,947 |
|
|
$ |
1,726 |
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
Timberlands |
|
|
4,830 |
|
|
$ |
9,494 |
|
|
$ |
9,203 |
|
Other |
|
|
n/a |
|
|
|
778 |
|
|
|
612 |
|
Total |
|
|
|
|
|
$ |
10,272 |
|
|
$ |
9,815 |
|
18
In connection with each of the asset sales set forth above, we received cash proceeds.
Other and Unallocated The amount of net operating expenses not allocated to a business unit and reported as
Other and Unallocated in our table of Business Unit Performance, excluding gains from sales of plant, equipment and timberlands, totaled $38.8 million in 2013 compared with $29.3 million in 2012. The increase is
primarily due to acquisition and integration expenses, legal entity restructuring related costs and higher pension expense.
Non-operating income (expense) as presented in the Business Unit Performance table includes $18.0 million and $18.7 million of interest
expense for 2013 and 2012, respectively. The amount reported for 2012 includes a $1.9 million charge related to the write-off of unamortized issuance costs in connection with the refinancing or our long-term bonds. Excluding the 2012 write-off,
interest expense increased $1.2 million primarily reflecting the financing of the Dresden acquisition.
Income
taxes In 2013, income tax expense totaled $2.0 million on pre-tax income of $69.2 million. The comparable amounts in 2012 were $19.6 million and $78.9 million, respectively. Tax expense in 2013 benefited from a greater
proportion of earnings generated in lower tax foreign jurisdictions relative to the U.S. and by an aggregate of $16.3 million from cellulosic biofuel production credits, research and development credits, reduction in reserves due to the lapse of
statutes of limitation and changes in international statutory rates.
Foreign Currency We own and
operate manufacturing facilities in Canada, Germany, France, the United Kingdom and the Philippines. The functional currency in Canada is the U.S. dollar, in Germany and France the Euro, in the UK it is the British Pound Sterling, and in the
Philippines it is the Peso. During 2013, Euro functional currency operations generated approximately 31.0% of net sales and 29.1% of operating expenses and British Pound Sterling operations represented 6.2% of net sales and 5.8% of operating
expenses. The translation of the results from international operations into U.S. dollars is subject to changes in foreign currency exchange rates. The table below summarizes the translation impact on reported results that changes in currency
exchange rates had on our non-U.S. based operations from the conversion of these operations results:
|
|
|
|
|
In thousands |
|
|
Year ended December 31, 2013 |
|
|
|
Favorable (unfavorable) |
|
Net sales |
|
$ |
13,555 |
|
Costs of products sold |
|
|
(9,723 |
) |
SG&A expenses |
|
|
(987 |
) |
Income taxes and other |
|
|
(84 |
) |
Net income |
|
$ |
2,761 |
|
The above table only presents the financial reporting impact of foreign currency translations assuming currency
exchange rates in 2013 were the same as 2012. It does not present the impact of certain competitive advantages or disadvantages of operating or competing in multi-currency markets.
2012 versus 2011
Overview For the year ended December 31, 2012, net income was $59.4 million, or $1.36 per diluted share, compared with net
income of $42.7 million, or $0.93 per diluted share, in 2011. The amounts reported for 2012 include after-tax charges totaling $4.8 million incurred in connection with the refinancing of $200 million fixed-rate bonds for a new $250 million
fixed-rate issuance, as well as a $4.0 million benefit from the conversion of alternative fuel mixture credits for cellulosic biofuel production credits. Results for 2011 include after-tax charges totaling $7.5 million for costs incurred to redeem
$100 million of fixed-rate bonds, acquisition and integration expenses and work force efficiency actions. Reported results for both years included after-tax gains of $5.4 million and $4.2 million in 2012 and 2011, respectively, from the sales of
timberlands and, in 2011, the release of tax reserves related to prior timberland sales. Unfavorable foreign currency translations affected the comparison of reported results for 2012 with 2011 by $5.7 million.
From an operating perspective, our businesses performed well during 2012 compared with 2011, evidenced by a $9.9 million, or 8.9%, increase in
operating income led by strong improvements from Specialty Papers and Advanced Airlaid Materials. Composite Fibers results were unfavorable in the comparison by $4.7 million.
Our Composite Fibers business units operating income decreased to $36.1 million from $40.8 million in 2011. Volumes shipped decreased 3.2%
compared to 2011 reflecting generally softer economic conditions in its market segments. Unfavorable foreign currency translations affected this units operating income by $3.2 million.
GLATFELTER 2013 FORM
10-K 19
Advanced Airlaid Materials operating income increased $4.6 million, or 34.3%, largely
reflecting lower input costs and an increase in shipping volumes. Unfavorable foreign currency translations affected this units operating income by $3.0 million.
Specialty Papers operating income totaled $67.3 million and $57.3 million for 2012 and 2011, respectively. Volumes shipped increased in the comparison to 2011 and this units profitability was further
favorably impacted by higher selling prices and slightly lower input costs partially offset by higher spending for maintenance and other costs.
During 2012, we generated significant operating cash flow of $112.8 million, and although lower than 2011, this was largely due to the year over year impact of receiving cash in 2011 compared with a net outflow of
cash in 2012 related to cellulosic biofuel production and alternative fuel mixture credits.
The following table sets forth summarized
consolidated results of operations:
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31 |
|
In thousands, except
per share |
|
|
2012 |
|
|
|
2011 |
|
Net sales |
|
$ |
1,577,788 |
|
|
$ |
1,603,154 |
|
Gross profit |
|
|
213,649 |
|
|
|
206,193 |
|
Operating income |
|
|
101,874 |
|
|
|
85,272 |
|
Net income |
|
|
59,379 |
|
|
|
42,694 |
|
Earnings per diluted share |
|
|
1.36 |
|
|
|
0.93 |
|
The consolidated results of operations for 2012 and 2011 include the following items not considered
to be part of our core business operations:
|
|
|
|
|
|
|
|
|
In thousands, except per share |
|
|
After-tax Gain (loss) |
|
|
|
Diluted EPS |
|
2012 |
|
|
|
|
|
|
|
|
Early redemption of $200 million bonds |
|
$ |
(4,784 |
) |
|
$ |
(0.11 |
) |
Conversion of alternative fuel mixture/Cellulosic biofuel credits |
|
|
4,020 |
|
|
|
0.09 |
|
Timberland sales and related transaction costs |
|
|
5,388 |
|
|
|
0.12 |
|
2011 |
|
|
|
|
|
|
|
|
Early redemption of $100 million bonds |
|
|
(6,065 |
) |
|
|
(0.13 |
) |
Charge for workforce efficiencies |
|
|
(652 |
) |
|
|
(0.01 |
) |
Acquisition and integration costs |
|
|
(792 |
) |
|
|
(0.02 |
) |
Timberland sales and related transaction costs |
|
|
4,160 |
|
|
|
0.09 |
|
During 2012, the aggregate effect of the unusual items set forth above increased earnings by $4.6 million, or
$0.10 per diluted share. In 2011, the items set forth above decreased earnings by $3.3 million, or $0.07 per diluted share.
Business Unit Performance
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31 |
|
In millions |
|
|
Composite Fibers |
|
|
|
Advanced Airlaid Materials |
|
|
|
Specialty Papers |
|
|
|
Other and Unallocated |
|
|
|
Total |
|
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
|
2012 |
|
|
2011 |
|
Net sales |
|
$ |
436.7 |
|
|
$ |
476.0 |
|
|
$ |
246.3 |
|
|
$ |
252.0 |
|
|
$ |
894.8 |
|
|
$ |
875.1 |
|
|
|
|
|
|
|
|
|
|
$ |
1,577.8 |
|
|
$ |
1,603.2 |
|
Energy and related sales, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.0 |
|
|
|
9.3 |
|
|
|
|
|
|
|
|
|
|
|
7.0 |
|
|
|
9.3 |
|
Total revenue |
|
|
436.7 |
|
|
|
476.0 |
|
|
|
246.3 |
|
|
|
252.0 |
|
|
|
901.8 |
|
|
|
884.4 |
|
|
|
|
|
|
|
|
|
|
|
1,584.8 |
|
|
|
1,612.5 |
|
Cost of products sold |
|
|
362.6 |
|
|
|
395.7 |
|
|
|
218.7 |
|
|
|
227.7 |
|
|
|
779.5 |
|
|
|
775.7 |
|
|
|
10.3 |
|
|
|
7.2 |
|
|
|
1,371.1 |
|
|
|
1,406.3 |
|
Gross profit (loss) |
|
|
74.2 |
|
|
|
80.3 |
|
|
|
27.6 |
|
|
|
24.3 |
|
|
|
122.3 |
|
|
|
108.7 |
|
|
|
(10.4 |
) |
|
|
(7.2 |
) |
|
|
213.6 |
|
|
|
206.2 |
|
SG&A |
|
|
38.1 |
|
|
|
39.5 |
|
|
|
9.6 |
|
|
|
10.9 |
|
|
|
55.0 |
|
|
|
51.4 |
|
|
|
18.9 |
|
|
|
23.0 |
|
|
|
121.6 |
|
|
|
124.9 |
|
Gains on dispositions of plant, equipment and timberlands |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9.8 |
) |
|
|
(4.0 |
) |
|
|
(9.8 |
) |
|
|
(4.0 |
) |
Total operating income (loss) |
|
|
36.1 |
|
|
|
40.8 |
|
|
|
18.0 |
|
|
|
13.4 |
|
|
|
67.3 |
|
|
|
57.3 |
|
|
|
(19.5 |
) |
|
|
(26.2 |
) |
|
|
101.9 |
|
|
|
85.3 |
|
Non-operating expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22.9 |
) |
|
|
(34.4 |
) |
|
|
(22.9 |
) |
|
|
(34.4 |
) |
Income (loss) before income taxes |
|
$ |
36.1 |
|
|
$ |
40.8 |
|
|
$ |
18.0 |
|
|
$ |
13.4 |
|
|
$ |
67.3 |
|
|
$ |
57.3 |
|
|
$ |
(42.4 |
) |
|
$ |
(60.7 |
) |
|
$ |
78.9 |
|
|
$ |
50.8 |
|
Supplementary Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net tons sold |
|
|
90.3 |
|
|
|
93.3 |
|
|
|
90.3 |
|
|
|
88.0 |
|
|
|
789.2 |
|
|
|
779.6 |
|
|
|
|
|
|
|
|
|
|
|
969.8 |
|
|
|
960.9 |
|
Depreciation, depletion and amortization |
|
$ |
23.5 |
|
|
$ |
24.8 |
|
|
$ |
8.7 |
|
|
$ |
8.5 |
|
|
$ |
37.4 |
|
|
$ |
36.0 |
|
|
|
|
|
|
|
|
|
|
$ |
69.5 |
|
|
$ |
69.3 |
|
Capital expenditures |
|
|
31.4 |
|
|
|
22.5 |
|
|
|
3.9 |
|
|
|
10.6 |
|
|
|
23.1 |
|
|
|
31.4 |
|
|
|
0.3 |
|
|
|
|
|
|
|
58.8 |
|
|
|
64.5 |
|
The sum of individual amounts set forth above may not agree to the consolidated financial statements included herein
due to rounding.
20
Sales and Costs of Products Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31 |
|
|
|
|
In thousands |
|
|
2012 |
|
|
|
2011 |
|
|
|
Change |
|
Net sales |
|
$ |
1,577,788 |
|
|
$ |
1,603,154 |
|
|
$ |
(25,366 |
) |
Energy and related sales net |
|
|
7,000 |
|
|
|
9,344 |
|
|
|
(2,344 |
) |
Total revenues |
|
|
1,584,788 |
|
|
|
1,612,498 |
|
|
|
(27,710 |
) |
Costs of products sold |
|
|
1,371,139 |
|
|
|
1,406,305 |
|
|
|
(35,166 |
) |
Gross profit |
|
$ |
213,649 |
|
|
$ |
206,193 |
|
|
$ |
7,456 |
|
Gross profit as a percent of Net sales |
|
|
13.5 |
% |
|
|
12.9 |
% |
|
|
|
|
The following table sets forth the contribution to consolidated net sales by each business unit:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31 |
|
Percent of Total |
|
2012 |
|
|
2011 |
|
Business Unit |
|
|
|
|
|
|
|
|
Composite Fibers |
|
|
27.7 |
% |
|
|
29.7 |
% |
Advanced Airlaid Material |
|
|
15.6 |
|
|
|
15.7 |
|
Specialty Papers |
|
|
56.7 |
|
|
|
54.6 |
|
Total |
|
|
100.0 |
% |
|
|
100.0 |
% |
Net sales for 2012 decreased $25.4 million, or 1.6%, in the comparison to 2011 and totaled $1,577.8 million. The
translation of foreign currencies unfavorably impacted net sales by $35.8 million more than offsetting a $3.5 million benefit from higher selling prices. Shipping volumes were up slightly as higher shipping volumes in both Specialty Papers and
Advanced Airlaid Materials were partially offset by softer demand in Composite Fibers related to the weak European economy.
In
Composite Fibers, net sales were $436.7 million, a decrease of $39.3 million, or 8.3%, primarily due to the translation of foreign currencies which unfavorably impacted the comparison by $24.4 million. Average selling prices were essentially
unchanged and total shipping volumes were lower in the comparison by approximately 3%.
Composite Fibers operating income in 2012
totaled $36.1 million, a $4.7 million decrease compared to 2011 primarily due to lower shipping volumes and a $3.2 million unfavorable effect from foreign currency translation.
On October 14, 2012, a fire was sustained by our Scäer, France facility, one of several facilities within the Composite Fibers business
unit. The fire damaged the electrical system primarily servicing one of two papermaking machines at the facility as well as certain mill infrastructure. All customer orders were fulfilled by shipping products on hand or by utilizing assets at the
business units other facilities. The total cost of the fire in 2012 was $3.9 million which was offset by expected insurance recoveries, net of deductibles.
In Advanced Airlaid Materials, net sales declined $5.7 million in the comparison of 2012 to 2011.
The decline in net sales was due to the $11.5 million negative effect of foreign currency translation and a $2.7 million impact of lower selling prices. These factors were partially offset by the benefit from a 2.6% increase in shipping volumes.
Operating income in this business unit increased $4.6 million in 2012 compared to 2011 led by a $8.3 million benefit from lower raw
material and energy costs in addition to continuous improvement initiatives including supply chain efficiencies, waste reduction and improved throughput, and benefits from a new festooner. The translation of foreign currencies negatively impacted
operating income by $3.0 million.
In the Specialty Papers business unit, net sales for 2012 increased $19.7 million, or 2.3%, to
$894.8 million. The increase was primarily due to a $6.5 million benefit from higher selling prices and a 1.2% increase in shipping volumes.
Specialty Papers operating income in 2012 of $67.3 million was $10.0 million higher than 2011 reflecting the benefits from higher selling prices and shipping volumes, and a $5.7 million benefit from lower raw
material costs. These factors were partially offset by higher maintenance and other cost inflation as well as $2.3 million of lower energy and related sales.
We sell excess power generated by the Spring Grove, PA facility. In addition, two of our facilities are registered generators of renewable energy credits (RECs). The following table summarizes this
activity for 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31 |
|
|
|
|
|
In thousands |
|
|
2012 |
|
|
|
2011 |
|
|
|
Change |
|
Energy sales |
|
$ |
5,284 |
|
|
$ |
10,992 |
|
|
$ |
(5,708 |
) |
Costs to produce |
|
|
(4,187 |
) |
|
|
(9,319 |
) |
|
|
5,132 |
|
Net |
|
|
1,097 |
|
|
|
1,673 |
|
|
|
(576 |
) |
Renewable energy credits |
|
|
5,903 |
|
|
|
7,671 |
|
|
|
(1,768 |
) |
Total |
|
$ |
7,000 |
|
|
$ |
9,344 |
|
|
$ |
(2,344 |
) |
Pension Expense The following table summarizes the amounts of pension expense
recognized for 2012 compared to 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31 |
|
|
|
|
In thousands |
|
|
2012 |
|
|
|
2011 |
|
|
|
Change |
|
Recorded as: |
|
|
|
|
|
|
|
|
|
|
|
|
Costs of products sold |
|
$ |
9,148 |
|
|
$ |
6,735 |
|
|
$ |
2,413 |
|
SG&A expense |
|
|
2,467 |
|
|
|
3,645 |
|
|
|
(1,178 |
) |
Total |
|
$ |
11,615 |
|
|
$ |
10,380 |
|
|
$ |
1,235 |
|
GLATFELTER 2013 FORM
10-K 21
The amount set forth above for pension expense recorded as selling, general and administrative
(SG&A) expense in 2011 includes a $2.0 million one-time pension settlement charge recorded in connection with the retirement of our former Chief Executive Officer.
The amount of pension expense recognized each year is dependent on various actuarial assumptions and certain other factors, including discount
rates and the fair value of our pension assets.
Gain on Sales of Plant, Equipment and Timberlands,
net During the years ended December 31, 2012 and 2011, we completed the following sales of assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands |
|
|
Acres |
|
|
|
Proceeds |
|
|
|
Gain |
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
Timberlands |
|
|
4,830 |
|
|
$ |
9,494 |
|
|
$ |
9,203 |
|
Other |
|
|
n/a |
|
|
|
778 |
|
|
|
612 |
|
Total |
|
|
|
|
|
$ |
10,272 |
|
|
$ |
9,815 |
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
Timberlands |
|
|
942 |
|
|
$ |
3,821 |
|
|
$ |
3,590 |
|
Other |
|
|
n/a |
|
|
|
670 |
|
|
|
360 |
|
Total |
|
|
|
|
|
$ |
4,491 |
|
|
$ |
3,950 |
|
In connection with each of the asset sales set forth above, we received cash proceeds.
Other and Unallocated The amount of net operating expenses not allocated to a business unit and reported as
Other and Unallocated in our table of Business Unit Performance, excluding gains from sales of plant, equipment and timberlands, totaled $29.3 million in 2012 compared with $30.2 million in 2011. The amount reported for 2011 includes the
$2.0 million one-time pension settlement charge discussed earlier. Excluding the one-time pension charge, net operating expenses not allocated to a business unit increased $1.1 million primarily due to higher professional services fees and other
cost inflation.
Non-operating income (expense) as presented in the Business Unit Performance table includes $18.7 million of
interest expense for 2012 and $31.8 million for 2011. In connection with debt refinancing or redemption initiatives, the reported amounts include $1.9 million and $5.9 million in 2012 and 2011, respectively, related to the write-off of unamortized
issuance costs and original issue discount.
Excluding these write-offs, interest expense declined to $16.8 million in 2012 compared to $25.9 million in 2011, primarily reflecting the 2011 redemption of $100 million of 7.125% notes.
Income taxes In 2012, income tax expense totaled $19.6 million on pre-tax income of $78.9 million. The
comparable amounts in 2011 were $8.2 million and $50.8 million, respectively. Tax expense in 2011 includes a net $5.2 million income tax benefit realized in connection with the resolution of certain foreign tax audits, and expiration of statutes of
limitation, partially offset by an increase in the valuation allowance on certain net operating loss carryforwards.
Foreign
Currency We own and operate manufacturing facilities in Canada, Germany, France, the United Kingdom and the Philippines. The functional currency in Canada is the U.S. dollar, in Germany and France the Euro, in the UK it is
the British Pound Sterling, and in the Philippines it is the Peso. During 2012, Euro functional currency operations generated approximately 25.3% of net sales and 24.2% of operating expenses and British Pound Sterling operations
represented 7.5% of net sales and 7.6% of operating expenses. The translation of the results from international operations into U.S. dollars is subject to changes in foreign currency exchange rates. The table below summarizes the translation impact
on reported results that changes in currency exchange rates had on our non-U.S. based operations from the conversion of these operations results:
|
|
|
|
|
In thousands |
|
|
Year ended December 31, 2012 |
|
|
|
Favorable (unfavorable) |
|
Net sales |
|
$ |
(35,818 |
) |
Costs of products sold |
|
|
26,828 |
|
SG&A expenses |
|
|
2,813 |
|
Income taxes and other |
|
|
514 |
|
Net income |
|
$ |
(5,664 |
) |
The above table only presents the financial reporting impact of foreign currency translations assuming currency
exchange rates in 2012 were the same as 2011. It does not present the impact of certain competitive advantages or disadvantages of operating or competing in multi-currency markets.
22
LIQUIDITY AND CAPITAL RESOURCES
Our business is capital intensive and requires significant expenditures for new or enhanced equipment, to support our research and development efforts, for environmental compliance matters including, but not
limited to, the Clean Air Act, and to support our business strategy. In addition, we have mandatory debt service requirements of both principal and interest. The following table summarizes cash flow information for each of the years presented:
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31 |
|
In thousands |
|
2013 |
|
|
2012 |
|
Cash and cash equivalents at beginning of period |
|
$ |
97,679 |
|
|
$ |
38,277 |
|
Cash provided (used) by |
|
|
|
|
|
|
|
|
Operating activities |
|
|
173,635 |
|
|
|
112,846 |
|
Investing activities |
|
|
(312,436 |
) |
|
|
(48,705 |
) |
Financing activities |
|
|
163,175 |
|
|
|
(5,489 |
) |
Effect of exchange rate changes on cash |
|
|
829 |
|
|
|
750 |
|
Net cash provided |
|
|
25,203 |
|
|
|
59,402 |
|
Cash and cash equivalents at end of period |
|
$ |
122,882 |
|
|
$ |
97,679 |
|
At the end of the 2013, we had $122.9 million in cash and cash equivalents held by both domestic and foreign
subsidiaries. Although unremitted earnings of our foreign subsidiaries is deemed to be permanently reinvested, substantially all of the cash and cash equivalents is available for use domestically.
In addition to our cash and cash equivalents, as of December 31, 2013, $211.3 million is available under our revolving credit agreement,
which matures in November 2016.
Cash flow provided from operating activities increased in the year-over-year comparison by $60.8
million primarily due to a reduction in cash used for working capital lower cash income tax payments and higher net income.
Net cash
used by investing activities increased $263.7 million in the comparison of 2013 to 2012. In 2013, we spent $210.9 million to acquire Dresden. In addition, in 2013 capital expenditures totaled $103.0 million, an increase of $44.3 million primarily
reflecting the investment completed in 2013 to expand capacity to serve Composite Fibers growth markets. Capital expenditures in 2014 are expected to be approximately $80 million to $90 million.
Net cash provided by financing activities totaled $163.2 million in 2013 reflecting additional borrowings used to finance the Dresden acquisition.
In 2013 our Board of Directors authorized an 11% increase in our quarterly cash dividend. In 2013,
we used $17.0 million of cash for dividends on our common stock compared with $15.6 million in 2012. In February 2014, we announced an additional 10% increase in our dividend. The Board of Directors determines what, if any, dividends will be paid to
our shareholders. Dividend payment decisions are based upon then-existing factors and conditions and, therefore, historical trends of dividend payments are not necessarily indicative of future payments.
In 2012, as discussed below, we issued $250.0 million of 5.375% bonds and used the proceeds to repay all amounts outstanding under our revolving
credit agreement and to redeem $200.0 million of 7.125% notes together with a redemption premium and consent fee of $5.1 million.
The
following table sets forth our outstanding long-term indebtedness:
|
|
|
|
|
|
|
|
|
In thousands |
|
2013 |
|
|
2012 |
|
Revolving credit facility, due Nov. 2016 |
|
$ |
133,540 |
|
|
$ |
|
|
5.375% Notes, due Oct. 2020 |
|
|
250,000 |
|
|
|
250,000 |
|
2.05% Term Loan, due Mar. 2023 |
|
|
58,785 |
|
|
|
|
|
Total long-term debt |
|
|
442,325 |
|
|
|
250,000 |
|
Less current portion |
|
|
|
|
|
|
|
|
Long-term debt, net of current portion |
|
$ |
442,325 |
|
|
$ |
250,000 |
|
Our revolving credit facility contains a number of customary compliance covenants, the most restrictive of which
is a maximum leverage ratio of 3.5x. As of December 31, 2013, the leverage ratio, as calculated in accordance with the definition in our credit agreement, was 2.2x, well within the limits set forth in our credit agreement. Based on our
expectations of future results of operations and capital needs, we do not believe the debt covenants will impact our operations or limit our ability to undertake financings that may be necessary to meet our capital needs.
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 credit agreement at maturity, or a default under the credit agreement, that accelerates the debt outstanding thereunder. As discussed above, as of December 31, 2013, we met all of the requirements of our debt
covenants. The significant terms of the debt instruments are more fully discussed in Item 8 Financial Statements Note 16.
Cash used for common share repurchases totaled $5.7 million in 2012, and $48.0 million in 2011. The amount for 2012 includes $1.2 million under a $50 million
GLATFELTER 2013 FORM
10-K 23
program authorized in 2011. In May 2012, our Board of Directors authorized a second, two-year share repurchase program for up to $25.0 million, exclusive of commissions, of our outstanding common
stock. The following table summarizes share repurchases made under this program through December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
shares |
|
|
(thousands) |
|
Authorized amount |
|
|
n/a |
|
|
$ |
25,000 |
|
Repurchases |
|
|
291,120 |
|
|
|
(4,462 |
) |
Remaining authorization |
|
|
|
|
|
$ |
20,538 |
|
We are subject to various federal, state and local laws and regulations intended to protect the environment as
well as human health and safety. At various times, we have incurred significant costs to comply with these regulations and we could incur additional costs as new regulations are developed or regulatory priorities change. As a result of new air
quality regulations including the U.S. EPA Best Available Retrofit Technology rule (BART; otherwise known as the Regional Haze Rule) and the Boiler Maximum Achievable Control Technology rule (Boiler MACT), we anticipate that we could incur material
capital and operating costs. Recently issued rules will require process modifications and/or installation of air pollution controls on power boilers at two of our facilities. We are currently reviewing options available to comply with these rules to
understand the effect they may have on our operations, such as reducing or curtailing boiler usage or modifying the types of boilers operated or fuel consumed. The cost of compliance is likely to be significant. Our current estimate to implement
viable options could result in capital spending of between $50 million to $90 million depending on the solutions available to comply with the
regulations. However, the amount of capital spending ultimately incurred may differ, and the difference could be material, depending on the option chosen. In addition, the timing of any
additional capital spending is uncertain, although we currently expect to incur the majority of expenditures generally between 2014 and 2016. Enactment of new environmental laws or regulations or changes in existing laws or regulations could
significantly change our estimates.
In addition, we may incur obligations to remove or mitigate any adverse effects on the environment
resulting from our operations, including the restoration of natural resources and liability for personal injury and for damages to property and natural resources. See Item 8 Financial Statements and Supplementary Data Note 22 for
a summary of significant environmental matters.
We expect to meet all of our near and long-term cash needs from a combination of
operating cash flow, cash and cash equivalents, and our existing credit facilities. However, an unfavorable outcome of various environmental matters could have a material adverse impact on our consolidated financial position, liquidity and/or
results of operations.
Off-Balance-Sheet Arrangements As of December 31, 2013 and 2012, we had not
entered into any off-balance-sheet arrangements. Financial derivative instruments to which we are a party and guarantees of indebtedness, which solely consist of obligations of subsidiaries and a partnership, are reflected in the condensed
consolidated balance sheets included herein in Item 8 Financial Statements and Supplementary Data.
Contractual
Obligations The following table sets forth contractual obligations as of December 31, 2013:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due During the Year Ended
December 31, |
|
In millions |
|
Total |
|
|
2014 |
|
|
2015 to 2016 |
|
|
2017 to 2018 |
|
|
2019 and beyond |
|
Long-term debt (1) |
|
$ |
546 |
|
|
$ |
17 |
|
|
$ |
180 |
|
|
$ |
43 |
|
|
$ |
306 |
|
Operating leases (2) |
|
|
16 |
|
|
|
7 |
|
|
|
7 |
|
|
|
2 |
|
|
|
|
|
Purchase obligations (3) |
|
|
116 |
|
|
|
72 |
|
|
|
44 |
|
|
|
|
|
|
|
|
|
Other long term obligations (4), (5) |
|
|
78 |
|
|
|
9 |
|
|
|
17 |
|
|
|
14 |
|
|
|
38 |
|
|
|
|
|
|
Total |
|
$ |
756 |
|
|
$ |
105 |
|
|
$ |
248 |
|
|
$ |
59 |
|
|
$ |
344 |
|
(1) |
Represents principal and interest payments due on long-term debt, the significant terms of which are discussed in Item 8 Financial Statements, Note 16,
Long-term Debt. The amounts set forth above include expected interest payments of $104.6 million over the term of the underlying debt instruments based contractual rates or current market rates in the case of variable rate instruments.
|
(2) |
Represents rental agreements for various land, buildings, vehicles, and computer and office equipment. |
(3) |
Represents open purchase order commitments and other obligations, primarily for raw material, and forward purchases with minimum annual purchase obligations. In certain
situations, prices are subject to variations based on market prices. In such situations, the information above is based on prices in effect at December 31, 2013. |
(4) |
Primarily represents expected benefits to be paid pursuant to retirement medical plans and nonqualified pension plans and the expected costs of asset retirement obligations.
|
(5) |
Since we are unable to reasonably estimate the timing of ultimate payment, the amounts set forth above do not include any payments that may be made related to uncertain tax
positions, including potential interest, accounted for in accordance with ASC 740-10-20. As discussed in more detail in Item 8 Financial Statements, Note 8, Income Taxes, such amounts totaled $14.9 million at
December 31, 2013. |
24
Critical Accounting Policies and Estimates The preceding discussion
and analysis of our consolidated financial position and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.
The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On
an on-going basis, we evaluate our estimates, including those related to inventories, long-lived assets, pension and post-retirement obligations, environmental liabilities and income taxes. We base our estimates on historical experience and on
various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates.
We believe the following represent the most significant and subjective estimates used in the
preparation of our consolidated financial statements.
Long-lived Assets We evaluate the recoverability
of our long-lived assets, including plant, equipment, timberlands, goodwill and other intangible assets periodically or whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. Our evaluations include
considerations of a variety of qualitative factors and analyses based on the cash flows generated by the underlying assets, profitability information, including estimated future operating results, trends or other determinants of fair value. If the
value of an asset determined by these evaluations is less than its carrying amount, a loss is recognized for the difference between the fair value and the carrying value of the asset. Future adverse changes in market conditions or poor operating
results of the related business may indicate an inability to recover the carrying value of the assets, thereby possibly requiring an impairment charge in the future.
Pension and Other Post-Retirement Obligations Accounting for defined-benefit pension plans, and any curtailments thereof, requires various assumptions, including, but not limited to,
discount rates, expected long-term rates of return on plan assets, future compensation growth rates and mortality rates. Accounting for our retiree medical plans, and any curtailments thereof, also requires various assumptions, which include, but
are not limited to, discount rates and annual rates of increase in the per capita costs of health care benefits.
The following chart summarizes the more significant assumption used in the actuarial valuation of
our defined-benefit plans for each of the past three years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2013 |
|
|
|
2012 |
|
|
|
2011 |
|
Pension plans |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate |
|
|
|
|
|
|
|
|
|
|
|
|
for benefit expense |
|
|
4.28 |
% |
|
|
5.09 |
% |
|
|
5.81 |
% |
for benefit obligation |
|
|
5.20 |
|
|
|
4.28 |
|
|
|
5.09 |
|
Expected long-term rate of |
|
|
|
|
|
|
|
|
|
|
|
|
on plan assets (1) |
|
|
8.50 |
|
|
|
8.50 |
|
|
|
8.50 |
|
Rate of compensation increase |
|
|
4.00 |
|
|
|
4.00 |
|
|
|
4.00 |
|
Post-retirement medical |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average discount rate |
|
|
3.58 |
|
|
|
4.45 |
|
|
|
5.12 |
|
for benefit expense |
|
|
|
|
|
|
|
|
|
|
|
|
for benefit obligation |
|
|
4.52 |
|
|
|
3.58 |
|
|
|
4.45 |
|
Health care cost trend rate |
|
|
|
|
|
|
|
|
|
|
|
|
assumed for next year |
|
|
7.46 |
|
|
|
7.68 |
|
|
|
7.90 |
|
Ultimate cost trend rate |
|
|
4.50 |
|
|
|
4.50 |
|
|
|
4.50 |
|
Year that the ultimate cost trend rate is reached |
|
|
2028 |
|
|
|
2028 |
|
|
|
2028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
For 2014, the expected long-term rate of return on pension plan assets was reduced to 8.00%. |
We evaluate these assumptions at least once each year or as facts and circumstances dictate and we make changes as conditions warrant. Changes to
these assumptions will increase or decrease our reported net periodic benefit expense, which will result in changes to the recorded benefit plan assets and liabilities.
Environmental Liabilities We maintain accruals for losses associated with environmental obligations when it is probable that a liability has been incurred and the amount of the
liability can be reasonably estimated based on existing legislation and remediation technologies. These accruals are adjusted periodically as assessment and remediation actions continue and/or further legal or technical information develops. Such
undiscounted liabilities are exclusive of any insurance or other claims against third parties. Recoveries of environmental remediation costs from other parties, including insurance carriers, are recorded as assets when their receipt is assured
beyond a reasonable doubt.
Income Taxes We record the estimated future tax effects of temporary
differences between the tax bases of assets and liabilities and amounts reported in our balance sheets, as well as operating loss and tax credit carry forwards. These deferred tax assets and liabilities are measured using enacted tax rates and laws
that will be in effect when such amounts are expected to reverse or be utilized. We regularly review our deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals
GLATFELTER 2013 FORM
10-K 25
of existing temporary differences and tax planning strategies. If we are unable to generate sufficient future taxable income, or if there is a material change in the actual effective tax rates or
time period within which the underlying temporary differences become taxable or deductible, we could be required to increase the valuation allowance against our deferred tax assets, which may result in a substantial increase in our effective tax
rate and a material adverse impact on our reported results.
Significant judgment is required in determining our worldwide provision
for income taxes and recording the related assets and liabilities. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is less than certain. We and our subsidiaries are examined
by various Federal,
State and foreign tax authorities. We regularly assess the potential outcomes of these examinations and any future examinations for the current or prior years in determining the adequacy of our
provision for income taxes. We continually assess the likelihood and amount of potential adjustments and adjust the income tax provision, the current liability and deferred taxes in the period in which the facts that give rise to a revision become
known.
Other significant accounting policies, not involving the same level of uncertainties as those discussed above, are nevertheless
important to an understanding of the Consolidated Financial Statements. Refer to Item 8 Financial Statements and Supplementary Data Notes to Consolidated Financial Statements for additional accounting policies.
ITEM 7A |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31 |
|
|
At December 30, 2013 |
|
Dollars in thousands |
|
2014 |
|
|
2015 |
|
|
2016 |
|
|
2017 |
|
|
2018 |
|
|
Carrying Value |
|
|
Fair Value |
|
Long-term debt |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average principal outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At fixed interest rates Bond |
|
$ |
250,000 |
|
|
$ |
250,000 |
|
|
$ |
250,000 |
|
|
$ |
250,000 |
|
|
$ |
250,000 |
|
|
$ |
250,000 |
|
|
$ |
254,533 |
|
At fixed interest rates Term Loan |
|
|
58,785 |
|
|
|
57,683 |
|
|
|
51,437 |
|
|
|
44,089 |
|
|
|
36,741 |
|
|
|
58,785 |
|
|
|
57,952 |
|
At variable interest rates |
|
|
133,540 |
|
|
|
133,540 |
|
|
|
116,848 |
|
|
|
|
|
|
|
|
|
|
|
133,540 |
|
|
|
133,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
442,325 |
|
|
$ |
446,025 |
|
Weighted-average interest rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On fixed rate debt Bond |
|
|
5.375 |
% |
|
|
5.375 |
% |
|
|
5.375 |
% |
|
|
5.375 |
% |
|
|
5.375 |
% |
|
|
|
|
|
|
|
|
On fixed rate debt Term Loan |
|
|
2.05 |
% |
|
|
2.05 |
% |
|
|
2.05 |
% |
|
|
2.05 |
% |
|
|
2.05 |
% |
|
|
|
|
|
|
|
|
On variable rate debt |
|
|
1.93 |
% |
|
|
1.93 |
% |
|
|
1.93 |
% |
|
|
1.93 |
% |
|
|
1.93 |
% |
|
|
|
|
|
|
|
|
The table above presents the average principal outstanding and related interest rates for the next
five years for debt outstanding as of December 31, 2013. Fair values included herein have been determined based upon rates currently available to us for debt with similar terms and remaining maturities.
Our market risk exposure primarily results from changes in interest rates and currency exchange rates. At December 31, 2013, we had long-term
debt outstanding of $442.3 million, of which 30.2% is at variable interest rates. Variable-rate debt outstanding consists of borrowings under our revolving credit agreement that accrues interest based on one month LIBOR plus a margin. At
December 31, 2013, the weighted-average interest rate paid on variable rate debt was approximately 1.93%. A hypothetical 100 basis point increase or decrease in the interest rate on variable rate debt would increase or decrease annual interest
expense by $1.3 million.
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. For a more complete discussion of this activity, refer to Item 8 Financial Statements and Supplementary Data Note 19.
We are subject to certain risks associated with changes in foreign currency exchange rates to the extent our operations are conducted in
currencies other than the U.S. dollar. During 2013, Euro functional currency operations generated approximately 31.0% of net sales and 29.1% of operating expenses and British Pound Sterling operations represented 6.2% of net sales and 5.8% of
operating expenses.
26
ITEM 8 |
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of P. H. Glatfelter Company (the Company) is responsible for establishing and maintaining adequate internal control over financial reporting. The Companys internal control over
financial reporting is a process designed under the supervision of the chief executive and chief financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Companys financial
statements for external reporting purposes in accordance with accounting principles generally accepted in the United States.
As of
December 31, 2013, management conducted an assessment of the effectiveness of the Companys internal control over financial reporting based on the framework established in Internal Control Integrated Framework (1992) issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). We excluded from our assessment, as permitted under the applicable SEC rules, regulations and related interpretations, the internal control over financial reporting of
Dresden Papier GmbH, which was acquired on April 30, 2013, and whose assets constitute 17.8% of total assets, and which represented 5.9% of total net sales, of the consolidated financial statement amounts as of and for the year ended
December 31, 2013. Management has determined that the Companys internal control over financial reporting as of December 31, 2013, is effective to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of the Companys financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States.
The Companys internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and
dispositions of assets; provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial
statements in accordance with accounting principles generally accepted in the United States, and that receipts and expenditures are being made only in accordance with authorizations of
management; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Companys assets that could have a material effect on our financial statements.
The Companys internal control over financial reporting as of December 31, 2013, has been audited by Deloitte & Touche LLP, an
independent registered public accounting firm, as stated in their reports appearing herein, which expresses an unqualified opinion on the effectiveness of the Companys internal control over financial reporting as of December 31, 2013.
The Companys management, including the chief executive officer and chief financial officer, does not expect that our internal
control over financial reporting will prevent or detect all errors and all frauds. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems objectives will be
met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by
management override of the controls. The design of any system of controls is based, in part, on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under
all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance
with policies or procedures.
GLATFELTER 2013 FORM
10-K 27
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of P. H. Glatfelter Company
We have audited the internal control over financial reporting of P. H. Glatfelter and subsidiaries (the Company) as of December 31,
2013, based on criteria established in Internal Control Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in Managements Report on Internal Control
over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Dresden Papier GmbH. (Dresden), which was acquired on April 30, 2013 and whose assets constitute 17.8% of total assets,
and which represented 5.9% of total net sales, of the consolidated financial statement amounts as of and for the year ended December 31, 2013. Accordingly, our audit did not include the internal control over financial reporting at Dresden. The
Companys management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over
financial reporting is a process designed by, or under the supervision of, the companys principal executive and principal financial officers, or persons performing similar functions, and effected by the companys board of directors,
management, and other personnel to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal
control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any
evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2013, based on the criteria established in Internal Control Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated
financial statements and financial statement schedule as of and for the year ended December 31, 2013 of the Company and our report dated March 3, 2014 expressed an unqualified opinion on those financial statements and financial statement schedule.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
March 3, 2014
28
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of P. H. Glatfelter Company
We have audited the accompanying consolidated balance sheets of P. H. Glatfelter Company and subsidiaries (the Company) as of December
31, 2013 and 2012, and the related consolidated statements of income, comprehensive income, shareholders equity, and cash flows for each of the three years in the period ended December 31, 2013. Our audits also included the financial statement
schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on the financial statements and financial
statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of P. H. Glatfelter Company
and subsidiaries as of December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013, in conformity with accounting principles generally accepted in the United
States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of December 31, 2013, based on the criteria established in Internal Control Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 3, 2014 expressed an unqualified opinion on the Companys internal control over financial reporting.
DELOITTE & TOUCHE LLP
Philadelphia,
Pennsylvania
March 3, 2014
GLATFELTER 2013 FORM
10-K 29
P. H. GLATFELTER COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31 |
|
In thousands, except per share |
|
|
|
|
2013 |
|
|
|
2012 |
|
|
|
2011 |
|
Net sales |
|
|
|
$ |
1,722,615 |
|
|
$ |
1,577,788 |
|
|
$ |
1,603,154 |
|
Energy and related sales, net |
|
|
|
|
3,153 |
|
|
|
7,000 |
|
|
|
9,344 |
|
Total revenues |
|
|
|
|
1,725,768 |
|
|
|
1,584,788 |
|
|
|
1,612,498 |
|
Costs of products sold |
|
|
|
|
1,507,108 |
|
|
|
1,371,139 |
|
|
|
1,406,305 |
|
Gross profit |
|
|
|
|
218,660 |
|
|
|
213,649 |
|
|
|
206,193 |
|
Selling, general and administrative expenses |
|
|
|
|
133,867 |
|
|
|
121,590 |
|
|
|
124,871 |
|
Gains on dispositions of plant, equipment and timberlands, net |
|
|
|
|
(1,726 |
) |
|
|
(9,815 |
) |
|
|
(3,950 |
) |
Operating income |
|
|
|
|
86,519 |
|
|
|
101,874 |
|
|
|
85,272 |
|
Non-operating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
|
|
(17,965 |
) |
|
|
(18,694 |
) |
|
|
(31,794 |
) |
Interest income |
|
|
|
|
310 |
|
|
|
460 |
|
|
|
666 |
|
Other, net |
|
|
|
|
337 |
|
|
|
(4,699 |
) |
|
|
(3,299 |
) |
Total non-operating expense |
|
|
|
|
(17,318 |
) |
|
|
(22,933 |
) |
|
|
(34,427 |
) |
Income before income taxes |
|
|
|
|
69,201 |
|
|
|
78,941 |
|
|
|
50,845 |
|
Income tax provision |
|
|
|
|
2,043 |
|
|
|
19,562 |
|
|
|
8,151 |
|
Net income |
|
|
|
$ |
67,158 |
|
|
$ |
59,379 |
|
|
$ |
42,694 |
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
$ |
1.56 |
|
|
$ |
1.39 |
|
|
$ |
0.94 |
|
Diluted |
|
|
|
|
1.52 |
|
|
|
1.36 |
|
|
|
0.93 |
|
|
|
|
|
|
Cash dividends declared per common share |
|
|
|
$ |
0.40 |
|
|
$ |
0.36 |
|
|
$ |
0.36 |
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
|
|
43,158 |
|
|
|
42,851 |
|
|
|
45,228 |
|
Diluted |
|
|
|
|
44,299 |
|
|
|
43,672 |
|
|
|
45,794 |
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
30
P. H. GLATFELTER COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31 |
|
|
|
In thousands |
|
2013 |
|
|
2012 |
|
|
2011 |
|
|
|
Net income |
|
$ |
67,158 |
|
|
$ |
59,379 |
|
|
$ |
42,694 |
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
14,826 |
|
|
|
11,358 |
|
|
|
(10,160 |
) |
|
|
Net change in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred gains (losses) on cash flow hedges, net of taxes of $178, $638 and $(464), respectively |
|
|
(517 |
) |
|
|
(1,609 |
) |
|
|
1,185 |
|
|
|
Unrecognized retirement obligations, net of taxes of $(45,118), $3,914 and $22,672, respectively |
|
|
74,300 |
|
|
|
(6,974 |
) |
|
|
(36,519 |
) |
|
|
Other comprehensive income (loss) |
|
|
88,609 |
|
|
|
2,775 |
|
|
|
(45,494 |
) |
|
|
Comprehensive income (loss) |
|
$ |
155,767 |
|
|
$ |
62,154 |
|
|
$ |
(2,800 |
) |
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
GLATFELTER 2013 FORM
10-K 31
P. H. GLATFELTER COMPANY and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31 |
|
|
|
In thousands |
|
2013 |
|
|
2012 |
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
122,882 |
|
|
$ |
97,679 |
|
|
|
Accounts receivable (less allowance for doubtful accounts:
2013 $2,725; 2012 $2,858) |
|
|
167,830 |
|
|
|
139,904 |
|
|
|
Inventories |
|
|
236,310 |
|
|
|
222,366 |
|
|
|
Prepaid expenses and other current assets |
|
|
59,560 |
|
|
|
58,909 |
|
|
|
Total current assets |
|
|
586,582 |
|
|
|
518,858 |
|
|
|
|
|
|
|
Plant, equipment and timberlands, net |
|
|
723,340 |
|
|
|
621,186 |
|
|
|
Goodwill |
|
|
95,948 |
|
|
|
16,601 |
|
|
|
Intangible assets |
|
|
96,081 |
|
|
|
8,301 |
|
|
|
Other assets |
|
|
176,459 |
|
|
|
78,039 |
|
|
|
Total assets |
|
$ |
1,678,410 |
|
|
$ |
1,242,985 |
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity |
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
161,242 |
|
|
$ |
133,389 |
|
|
|
Dividends payable |
|
|
4,363 |
|
|
|
3,905 |
|
|
|
Environmental liabilities |
|
|
125 |
|
|
|
125 |
|
|
|
Other current liabilities |
|
|
122,637 |
|
|
|
113,489 |
|
|
|
Total current liabilities |
|
|
288,367 |
|
|
|
250,908 |
|
|
|
|
|
|
|
Long-term debt |
|
|
442,325 |
|
|
|
250,000 |
|
|
|
Deferred income taxes |
|
|
141,020 |
|
|
|
62,046 |
|
|
|
Other long-term liabilities |
|
|
122,222 |
|
|
|
140,352 |
|
|
|
Total liabilities |
|
|
993,934 |
|
|
|
703,306 |
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity |
|
|
|
|
|
|
|
|
|
|
Common stock, $0.01 par value; authorized 120,000,000 shares issued 54,361,980 (including treasury shares: 2013
11,234,039; 2012 11,578,028) |
|
|
544 |
|
|
|
544 |
|
|
|
Capital in excess of par value |
|
|
53,940 |
|
|
|
52,492 |
|
|
|
Retained earnings |
|
|
869,329 |
|
|
|
819,593 |
|
|
|
Accumulated other comprehensive loss |
|
|
(75,357 |
) |
|
|
(163,966 |
) |
|
|
|
|
|
848,456 |
|
|
|
708,663 |
|
|
|
Less cost of common stock in treasury |
|
|
(163,980 |
) |
|
|
(168,984 |
) |
|
|
Total shareholders equity |
|
|
684,476 |
|
|
|
539,679 |
|
|
|
Total liabilities and shareholders equity |
|
$ |
1,678,410 |
|
|
$ |
1,242,985 |
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
32
P.H. GLATFELTER COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31 |
|
|
|
In thousands |
|
2013 |
|
|
2012 |
|
|
2011 |
|
|
|
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
67,158 |
|
|
$ |
59,379 |
|
|
$ |
42,694 |
|
|
|
Adjustments to reconcile to net cash provided by operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization |
|
|
68,196 |
|
|
|
69,500 |
|
|
|
69,313 |
|
|
|
Amortization of debt issue costs and original issue discount |
|
|
1,305 |
|
|
|
3,177 |
|
|
|
8,838 |
|
|
|
Pension expense, net of unfunded benefits paid |
|
|
12,787 |
|
|
|
10,427 |
|
|
|
2,127 |
|
|
|
Deferred income tax benefit |
|
|
(11,485 |
) |
|
|
(2,209 |
) |
|
|
333 |
|
|
|
Gains on dispositions of plant, equipment and timberlands, net |
|
|
(1,726 |
) |
|
|
(9,815 |
) |
|
|
(3,950 |
) |
|
|
Share-based compensation |
|
|
7,337 |
|
|
|
6,520 |
|
|
|
5,762 |
|
|
|
Change in operating assets and liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(777 |
) |
|
|
(3,379 |
) |
|
|
3,771 |
|
|
|
Inventories |
|
|
2,704 |
|
|
|
(12,615 |
) |
|
|
(7,280 |
) |
|
|
Prepaid and other current assets |
|
|
7,965 |
|
|
|
(14,952 |
) |
|
|
2,115 |
|
|
|
Accounts payable |
|
|
24,822 |
|
|
|
6,953 |
|
|
|
13,606 |
|
|
|
Environmental liabilities |
|
|
(510 |
) |
|
|
(151 |
) |
|
|
(57 |
) |
|
|
Accruals and other current liabilities |
|
|
(6,708 |
) |
|
|
15,134 |
|
|
|
(2,516 |
) |
|
|
Cellulosic biofuel and alternative fuel mixture credits |
|
|
9,848 |
|
|
|
(6,728 |
) |
|
|
17,833 |
|
|
|
Other |
|
|
(7,281 |
) |
|
|
(8,395 |
) |
|
|
(12,282 |
) |
|
|
Net cash provided by operating activities |
|
|
173,635 |
|
|
|
112,846 |
|
|
|
140,307 |
|
|
|
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for purchases of plant, equipment and timberlands |
|
|
(103,047 |
) |
|
|
(58,752 |
) |
|
|
(64,491 |
) |
|
|
Proceeds from disposals of plant, equipment and timberlands, net |
|
|
1,947 |
|
|
|
10,272 |
|
|
|
4,491 |
|
|
|
Proceeds from timberland installment sale note receivable |
|
|
|
|
|
|
|
|
|
|
43,170 |
|
|
|
Acquisition, net of cash acquired |
|
|
(210,911 |
) |
|
|
|
|
|
|
|
|
|
|
Other |
|
|
(425 |
) |
|
|
(225 |
) |
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(312,436 |
) |
|
|
(48,705 |
) |
|
|
(16,830 |
) |
|
|
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from note offerings |
|
|
|
|
|
|
250,000 |
|
|
|
|
|
|
|
Repayments of note offerings |
|
|
|
|
|
|
(205,131 |
) |
|
|
(103,563 |
) |
|
|
Net borrowings under (repayments of) revolving credit facility |
|
|
126,139 |
|
|
|
(27,000 |
) |
|
|
27,000 |
|
|
|
Payments of borrowing costs |
|
|
(419 |
) |
|
|
(4,748 |
) |
|
|
(1,672 |
) |
|
|
Repayment of term loans |
|
|
|
|
|
|
|
|
|
|
(36,695 |
) |
|
|
Repayment of short term debt |
|
|
|
|
|
|
|
|
|
|
(798 |
) |
|
|
Proceeds from term loan |
|
|
56,091 |
|
|
|
|
|
|
|
|
|
|
|
Repurchases of common stock |
|
|
|
|
|
|
(5,675 |
) |
|
|
(48,033 |
) |
|
|
Payments of dividends |
|
|
(16,965 |
) |
|
|
(15,608 |
) |
|
|
(16,611 |
) |
|
|
(Payments) proceeds from share-based compensation awards and other |
|
|
(1,671 |
) |
|
|
2,673 |
|
|
|
232 |
|
|
|
Net cash provided (used) by financing activities |
|
|
163,175 |
|
|
|
(5,489 |
) |
|
|
(180,140 |
) |
|
|
Effect of exchange rate changes on cash |
|
|
829 |
|
|
|
750 |
|
|
|
(848 |
) |
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
25,203 |
|
|
|
59,402 |
|
|
|
(57,511 |
) |
|
|
Cash and cash equivalents at the beginning of period |
|
|
97,679 |
|
|
|
38,277 |
|
|
|
95,788 |
|
|
|
Cash and cash equivalents at the end of period |
|
$ |
122,882 |
|
|
$ |
97,679 |
|
|
$ |
38,277 |
|
|
|
|
|
|
|
Supplemental cash flow information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest, net of amounts capitalized |
|
$ |
17,231 |
|
|
$ |
14,400 |
|
|
$ |
24,191 |
|
|
|
Income taxes, net |
|
|
15,588 |
|
|
|
44,657 |
|
|
|
(8,344 |
) |
|
|
The accompanying notes are an integral part of these consolidated financial statements.
GLATFELTER 2013 FORM
10-K 33
P. H. GLATFELTER COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
For the Years Ended December 31, 2013, 2012 and 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands |
|
Common Stock |
|
|
Capital in Excess of Par Value |
|
|
Retained Earnings |
|
|
Accumulated Other Comprehensive Loss |
|
|
Treasury
Stock |
|
|
Total Shareholders Equity |
|
Balance at January 1, 2011 |
|
$ |
544 |
|
|
$ |
48,145 |
|
|
$ |
749,453 |
|
|
$ |
(121,247 |
) |
|
$ |
(124,453 |
) |
|
$ |
552,442 |
|
Net income |
|
|
|
|
|
|
|
|
|
|
42,694 |
|
|
|
|
|
|
|
|
|
|
|
42,694 |
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45,494 |
) |
|
|
|
|
|
|
(45,494 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,800 |
) |
Tax effect on exercise of stock awards |
|
|
|
|
|
|
90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90 |
|
Cash dividends declared ($0.36 per share) |
|
|
|
|
|
|
|
|
|
|
(16,322 |
) |
|
|
|
|
|
|
|
|
|
|
(16,322 |
) |
Share-based compensation expense |
|
|
|
|
|
|
3,633 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,633 |
|
Repurchase of common shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(48,904 |
) |
|
|
(48,904 |
) |
Delivery of treasury shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs |
|
|
|
|
|
|
(215 |
) |
|
|
|
|
|
|
|
|
|
|
215 |
|
|
|
|
|
401 (k) plans |
|
|
|
|
|
|
(141 |
) |
|
|
|
|
|
|
|
|
|
|
2,108 |
|
|
|
1,967 |
|
Director compensation |
|
|
|
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
177 |
|
|
|
164 |
|
Employee stock options exercised net |
|
|
|
|
|
|
(22 |
) |
|
|
|
|
|
|
|
|
|
|
156 |
|
|
|
134 |
|
|
|
|
|
|
Balance at December 31, 2011 |
|
|
544 |
|
|
|
51,477 |
|
|
|
775,825 |
|
|
|
(166,741 |
) |
|
|
(170,701 |
) |
|
|
490,404 |
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
59,379 |
|
|
|
|
|
|
|
|
|
|
|
59,379 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,775 |
|
|
|
|
|
|
|
2,775 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62,154 |
|
Tax effect on exercise of stock awards |
|
|
|
|
|
|
631 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
631 |
|
Cash dividends declared ($0.36 per share) |
|
|
|
|
|
|
|
|
|
|
(15,611 |
) |
|
|
|
|
|
|
|
|
|
|
(15,611 |
) |
Share-based compensation expense |
|
|
|
|
|
|
3,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,970 |
|
Repurchase of common shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,675 |
) |
|
|
(5,675 |
) |
Delivery of treasury shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs |
|
|
|
|
|
|
(1,433 |
) |
|
|
|
|
|
|
|
|
|
|
1,096 |
|
|
|
(337 |
) |
401 (k) plans |
|
|
|
|
|
|
234 |
|
|
|
|
|
|
|
|
|
|
|
2,212 |
|
|
|
2,446 |
|
Employee stock options exercised net |
|
|
|
|
|
|
(2,387 |
) |
|
|
|
|
|
|
|
|
|
|
4,084 |
|
|
|
1,697 |
|
|
|
|
|
|
Balance at December 31, 2012 |
|
|
544 |
|
|
|
52,492 |
|
|
|
819,593 |
|
|
|
(163,966 |
) |
|
|
(168,984 |
) |
|
|
539,679 |
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
67,158 |
|
|
|
|
|
|
|
|
|
|
|
67,158 |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88,609 |
|
|
|
|
|
|
|
88,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
155,767 |
|
Tax effect on exercise of stock awards |
|
|
|
|
|
|
1,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,451 |
|
Cash dividends declared ($0.40 per share) |
|
|
|
|
|
|
|
|
|
|
(17,422 |
) |
|
|
|
|
|
|
|
|
|
|
(17,422 |
) |
Share-based compensation expense |
|
|
|
|
|
|
4,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,473 |
|
Delivery of treasury shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs |
|
|
|
|
|
|
(1,763 |
) |
|
|
|
|
|
|
|
|
|
|
1,234 |
|
|
|
(529 |
) |
401 (k) plans |
|
|
|
|
|
|
1,099 |
|
|
|
|
|
|
|
|
|
|
|
1,791 |
|
|
|
2,890 |
|
Employee stock options exercised net |
|
|
|
|
|
|
(3,812 |
) |
|
|
|
|
|
|
|
|
|
|
1,979 |
|
|
|
(1,833 |
) |
|
|
|
|
|
Balance at December 31, 2013 |
|
$ |
544 |
|
|
$ |
53,940 |
|
|
$ |
869,329 |
|
|
$ |
(75,357 |
) |
|
$ |
(163,980 |
) |
|
$ |
684,476 |
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
34
P. H. GLATFELTER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
Principles of Consolidation The consolidated financial statements include the accounts of
Glatfelter and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.
Accounting
Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 consolidated financial statements are reasonable, based upon currently available facts and known circumstances, but recognizes that actual results may differ from those estimates and assumptions.
Cash and Cash Equivalents We classify all highly liquid instruments with an original maturity of three months or
less at the time of purchase as cash equivalents.
Inventories Inventories are stated at the lower of
cost or market. Raw materials, in-process and finished inventories of our U.S. manufacturing operations are valued using the last-in, first-out (LIFO) method, and the supplies inventories are valued principally using the average-cost method.
Inventories at our foreign operations are valued using the average cost method.
Plant, Equipment and
Timberlands For financial reporting purposes, depreciation is computed using the straight-line method over the estimated useful lives of the respective assets.
The range of estimated service lives used to calculate financial reporting depreciation for
principal items of plant and equipment are as follows:
|
|
|
|
|
Buildings |
|
|
10 45 Years |
|
Machinery and equipment |
|
|
7 35 Years |
|
Other |
|
|
4 40 Years |
|
Maintenance and Repairs Maintenance and repairs costs are charged to income and
major renewals and betterments are capitalized. At the time property is retired or sold, the net carrying value is eliminated and any resultant gain or loss is included in income.
Valuation of Long-lived Assets, Intangible Assets and Goodwill We evaluate long-lived assets for impairment when a
specific event indicates that the carrying value of an asset may not be recoverable. Recoverability is assessed based on estimates of future cash flows expected to result from the use and eventual disposition of the asset. If the sum of expected
undiscounted cash flows is less than the carrying value of the asset, the assets fair value is estimated and an impairment loss is recognized for any deficiencies. Goodwill and non-amortizing tradename intangible assets are reviewed, on a
discounted cash flow basis, during the third quarter of each year for impairment or more frequently if impairment indicators are present. Impairment losses, if any, are recognized for the amount by which the carrying value of the reporting unit
exceeds its fair value. The carrying value of a reporting unit is defined using an enterprise premise which is generally determined by the difference between the units assets and operating liabilities.
Asset Retirement Obligations In accordance with the Financial Accounting Standards Board (FASB) Accounting Standards
Codification (ASC) No. 410, Asset Retirement and Environmental Obligations, we accrue asset retirement obligations in the period in which obligations relating to future asset retirements are incurred and when a reasonable
estimate of fair value can be determined. Under these standards, costs are to be accrued at estimated fair value, and a related long-lived asset is capitalized. Over time, the liability is accreted to its settlement value and the capitalized cost is
depreciated over the useful life of the related asset for which the obligation exists. Upon settlement of the liability, we recognize a gain or loss for any difference between the settlement amount and the liability recorded.
GLATFELTER 2013 FORM
10-K 35
Income Taxes Income taxes are determined using the asset and
liability method of accounting for income taxes in accordance with FASB ASC 740 Income Taxes (ASC 740). Under ASC 740, tax expense includes U.S. and international income taxes plus the provision for U.S. taxes on undistributed
earnings of international subsidiaries not deemed to be permanently invested. Tax credits and other incentives reduce tax expense in the year the credits are claimed. Certain items of income and expense are not reported in tax returns and financial
statements in the same year. The tax effect of such temporary differences is reported in deferred income taxes. Deferred tax assets are recognized if it is more likely than not that the assets will be realized in future years. We establish a
valuation allowance for deferred tax assets for which realization is not more likely than not.
Income tax contingencies are accounted
for in accordance with FASB ASC 740-10-20 Income Taxes. Significant judgment is required in determining our worldwide provision for income taxes and recording the related assets and liabilities. In the ordinary course of our business, there
are many transactions and calculations where the ultimate tax determination is less than certain. We and our subsidiaries are examined by various Federal, State, and foreign tax authorities. We regularly assess the potential outcomes of these
examinations and any future examinations for the current or prior years in determining the adequacy of our provision for income taxes. We continually assess the likelihood and amount of potential adjustments and record any necessary adjustments in
the period in which the facts that give rise to a revision become known.
Treasury Stock Common stock
purchased for treasury is recorded at cost. At the date of subsequent reissue, the treasury stock account is reduced by the cost of such stock on the weighted-average cost basis.
Foreign Currency Translation Foreign currency translation gains and losses and the effect of exchange rate changes
on transactions designated as hedges of net foreign investments are included as a component of other comprehensive income (loss). Transaction gains and losses are included in income in the period in which they occur.
Revenue Recognition We recognize revenue on product sales when the customer takes title and assumes the risks and
rewards of ownership. Estimated costs for sales incentives, discounts and sales returns and allowances are recorded as sales deductions in the period in which the related revenue is recognized.
Revenue from energy sales is recognized when electricity is delivered to the customer. Certain
costs associated with the production of electricity, such as fuel, labor, depreciation and maintenance are netted against energy sales for presentation on the Consolidated Statements of Income.
Revenue from renewable energy credits is recorded under the caption Energy and related sales in the Consolidated Statements of Income
and is recognized when all risks, rights and rewards to the certificate are transferred to the counterparty.
Environmental
Liabilities Accruals for losses associated with environmental obligations are recorded when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on existing
legislation and remediation technologies. Costs related to environmental remediation are charged to expense. These accruals are adjusted periodically as assessment and remediation actions continue and/or further legal or technical information
develops. Such undiscounted liabilities are exclusive of any insurance or other claims against third parties. Environmental costs are capitalized if the costs extend the life of the asset, increase its capacity and/or mitigate or prevent
contamination from future operations. Recoveries of environmental remediation costs from other parties, including insurance carriers, are recorded as assets when their receipt is assured beyond a reasonable doubt.
Earnings Per Share Basic earnings per share is computed by dividing net income by the weighted-average common
shares outstanding during the respective periods. Diluted earnings per share is computed by dividing net income by the weighted-average common shares and common share equivalents outstanding during the period. The dilutive effect of common share
equivalents is considered in the diluted earnings per share computation using the treasury stock method.
Financial Derivatives and
Hedging Activities We use financial derivatives to manage exposure to changes in foreign currencies. In accordance with FASB ASC 815 Derivatives and Hedging (ASC 815), we record all derivatives on the
balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting, and
whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting.
36
Cash Flow Hedges The effective portion of the gain or loss on those
derivative instruments designated and qualifying as a hedge of the exposure to variability in expected future cash flows related to forecasted transactions is deferred and reported as a component of accumulated other comprehensive income (loss).
Deferred gains or losses are reclassified to our results of operations at the time the hedged forecasted transaction is recorded in our results of operations. The effectiveness of cash flow hedges is assessed at inception and quarterly thereafter.
If the instrument becomes ineffective or it becomes probable that the originally forecasted transaction will not occur, the related change in fair value of the derivative instrument is also reclassified from accumulated other comprehensive
income (loss) and recognized in earnings.
Fair Value of Financial Instruments Under the accounting for
fair value measurements and disclosures, a fair value hierarchy was established that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets
for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). A financial instruments level within the fair value hierarchy is based on the lowest level of any input that is
significant to the fair value measurement. The three levels of the fair value hierarchy are described below:
|
|
|
Level 1 |
|
Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. |
|
|
Level 2 |
|
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or
liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are
derived principally from or corroborated by observable market data by correlation or other means. |
|
|
Level 3 |
|
Inputs that are both significant to the fair value measurement and unobservable. |
Recently Issued Accounting Pronouncements
In February 2013, the FASB issued ASU 2013-02 Comprehensive Income (Topic 220): Reporting Amounts Reclassified Out of Accumulated
Other Comprehensive Income which will require new disclosures about items reclassified out of accumulated other comprehensive income. The new standard became effective for us beginning January 1, 2013. This standard did not have a
material impact on us.
In July 2013, the FASB issued ASU 2013-11 (Income Taxes (Topic 740): Presentation of an Unrecognized Tax
Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists), which provides that an unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial
statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except to the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is
not available, in which case the unrecognized tax benefit should be presented in the financial statements as a liability This update is effective for fiscal years, and interim periods within those years, beginning after December 15, 2013, with
early adoption permitted. We believe that our implementation of this guidance will have no material impact on our consolidated financial statements.
On April 30, 2013, we completed the acquisition of all outstanding shares of Dresden Papier GmbH (Dresden)
from Fortress Paper Ltd. for $211 million, net of cash acquired. Dresden, based in Heidenau, Germany, is the leading global supplier of nonwoven wallpaper base materials, and is a major supplier to most of the worlds largest wallpaper
manufacturers. Dresdens revenues for the full year 2013 were $158.6 million and it employed approximately 146 people at its state-of-the-art, 72,800 short-ton-capacity manufacturing facility. We financed the acquisition through a combination
of cash on hand and borrowings under our Revolving Credit Facility.
GLATFELTER 2013 FORM
10-K 37
The acquisition of Dresden adds another industry-leading nonwovens product line to our Composite
Fibers business, and broadens our relationship with leading producers of consumer and industrial products. This acquisition also provides 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 and cash equivalents |
|
$ |
12,227 |
|
|
$ |
|
|
|
$ |
12,227 |
|
Accounts receivable |
|
|
23,870 |
|
|
|
|
|
|
|
23,870 |
|
Inventory |
|
|
13,864 |
|
|
|
|
|
|
|
13,864 |
|
Prepaid and other current assets |
|
|
6,674 |
|
|
|
1,386 |
|
|
|
8,060 |
|
Plant, equipment and timberlands |
|
|
60,951 |
|
|
|
|
|
|
|
60,951 |
|
Intangible assets |
|
|
87,596 |
|
|
|
|
|
|
|
87,596 |
|
Goodwill |
|
|
76,256 |
|
|
|
(1,386) |
|
|
|
74,870 |
|
Total assets |
|
|
281,438 |
|
|
|
|
|
|
|
281,438 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable |
|
|
20,360 |
|
|
|
(107) |
|
|
|
20,253 |
|
Deferred tax liabilities |
|
|
36,120 |
|
|
|
|
|
|
|
36,120 |
|
Other long term liabilities |
|
|
1,820 |
|
|
|
107 |
|
|
|
1,927 |
|
Total liabilities |
|
|
58,300 |
|
|
|
|
|
|
|
58,300 |
|
Total |
|
|
223,138 |
|
|
|
|
|
|
|
223,138 |
|
less cash acquired |
|
|
(12,227 |
) |
|
|
|
|
|
|
(12,227 |
) |
Total purchase price |
|
$ |
210,911 |
|
|
$ |
|
|
|
$ |
210,911 |
|
The adjustments set forth above primarily relate to the recognition of additional indemnification receivable from
the seller associated with certain tax matters. Such adjustments did not impact previously reported results of operations, earnings per share, or cash flows.
The preliminary purchase price allocation set forth above is based on all information available to us at the present time and is subject to change. In the event new information, primarily related to an on-going tax
audit for periods prior to the acquisition, becomes available, the measurement of the amounts of an indemnification receivable reflected above under the caption Prepaid and other current assets may be affected.
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 managements 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 connection with the Dresden acquisition we recorded $74.9 million of goodwill and $87.6 million of intangible assets. The goodwill arising from the acquisition largely relates to strategic benefits, product and
market diversification, assembled workforce, and similar factors. For tax purposes, none of the goodwill is deductible. Intangible assets consist of $9.8 million of non-amortizing tradename, and the remainder consists of technology and customer
relationships.
Our results of operations include the results of Dresden prospectively since the acquisition was completed on
April 30, 2013. All such results reported herein are included as part of the Composite Fibers business unit. Revenue and operating income of Dresden included in our consolidated results of operations for 2013 totaled $101.8 million and $18.3
million, respectively.
The table below summarizes pro forma financial information as if the acquisition and related financing
transaction occurred as of January 1, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31 |
|
In thousands, except per share |
|
|
2013 |
|
|
|
2012 |
|
|
|
2011 |
|
Pro forma |
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
|
$ |
1,779,434 |
|
|
$ |
1,727,538 |
|
|
$ |
1,749,342 |
|
Net income |
|
|
80,381 |
|
|
|
79,075 |
|
|
|
56,789 |
|
Diluted earnings per share |
|
|
1.82 |
|
|
|
1.81 |
|
|
|
1.24 |
|
During 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
38
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.
4. |
ENERGY AND RELATED SALES, NET |
We sell excess power generated by the Spring Grove, PA facility. We also sell renewable energy credits generated by the Spring
Grove, PA and Chillicothe, OH facilities representing sales of certified credits earned related to burning renewable sources of energy such as black liquor and wood waste.
The following table summarizes this activity for each of the past three years:
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands |
|
|
2013 |
|
|
|
2012 |
|
|
|
2011 |
|
Energy sales |
|
$ |
8,189 |
|
|
$ |
5,284 |
|
|
$ |
10,992 |
|
Costs to produce |
|
|
(6,784 |
) |
|
|
(4,187 |
) |
|
|
(9,319 |
) |
Net energy sales |
|
|
1,405 |
|
|
|
1,097 |
|
|
|
1,673 |
|
Renewable energy credits |
|
|
1,748 |
|
|
|
5,903 |
|
|
|
7,671 |
|
Total energy and related sales, net |
|
$ |
3,153 |
|
|
$ |
7,000 |
|
|
$ |
9,344 |
|
5. |
GAIN ON DISPOSITIONS OF PLANT, EQUIPMENT AND TIMBERLANDS |
During 2013, 2012 and 2011, we completed the following sales of assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands |
|
|
Acres |
|
|
|
Proceeds |
|
|
|
Gain |
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
Timberlands |
|
|
876 |
|
|
$ |
1,445 |
|
|
$ |
1,410 |
|
Other |
|
|
n/a |
|
|
|
502 |
|
|
|
316 |
|
Total |
|
|
|
|
|
$ |
1,947 |
|
|
$ |
1,726 |
|
2012 |
|
|
|
|
|
|
|
|
|
|
|
|
Timberlands |
|
|
4,830 |
|
|
$ |
9,494 |
|
|
$ |
9,203 |
|
Other |
|
|
n/a |
|
|
|
778 |
|
|
|
612 |
|
Total |
|
|
|
|
|
$ |
10,272 |
|
|
$ |
9,815 |
|
2011 |
|
|
|
|
|
|
|
|
|
|
|
|
Timberlands |
|
|
942 |
|
|
$ |
3,821 |
|
|
$ |
3,590 |
|
Other |
|
|
n/a |
|
|
|
670 |
|
|
|
360 |
|
Total |
|
|
|
|
|
$ |
4,491 |
|
|
$ |
3,950 |
|
The following table sets forth the details of basic and diluted earnings per share (EPS):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31 |
|
In thousands, except per share |
|
|
2013 |
|
|
|
2012 |
|
|
|
2011 |
|
Net income |
|
$ |
67,158 |
|
|
$ |
59,379 |
|
|
$ |
42,694 |
|
Weighted average common shares outstanding used in basic EPS |
|
|
43,158 |
|
|
|
42,851 |
|
|
|
45,228 |
|
Common shares issuable upon exercise of dilutive stock options and PSAs / RSUs |
|
|
1,141 |
|
|
|
821 |
|
|
|
566 |
|
Weighted average common shares outstanding and common share equivalents used in diluted EPS |
|
|
44,299 |
|
|
|
43,672 |
|
|
|
45,794 |
|
Earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.56 |
|
|
$ |
1.39 |
|
|
$ |
0.94 |
|
Diluted |
|
|
1.52 |
|
|
|
1.36 |
|
|
|
0.93 |
|
The following table sets forth the 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31 |
|
|
|
|
2013 |
|
|
|
2012 |
|
|
|
2011 |
|
Potential common shares |
|
|
7 |
|
|
|
8 |
|
|
|
891 |
|
GLATFELTER 2013 FORM
10-K 39
7. |
ACCUMULATED OTHER COMPREHENSIVE INCOME |
The following table sets forth details of the changes in accumulated other comprehensive income (losses) for the three years
ended December 31, 2013, 2012 and 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in thousands |
|
|
Currency Translation Adjustments |
|
|
|
Unrealized
gain (loss) on
cash flow hedges |
|
|
|
Pension Plans |
|
|
|
Other postretirement benefit plans |
|
|
|
Total |
|
Balance at January 1, 2011 |
|
$ |
(883 |
) |
|
$ |
|
|
|
$ |
(114,333 |
) |
|
$ |
(6,031 |
) |
|
$ |
(121,247 |
) |
Other comprehensive income before reclassifications (net of tax) |
|
|
(10,160 |
) |
|
|
1,308 |
|
|
|
(48,452 |
) |
|
|
2,361 |
|
|
|
(54,943 |
) |
Amounts reclassified from accumulated other comprehensive income (net of tax) |
|
|
|
|
|
|
(123 |
) |
|
|
9,783 |
|
|
|
(211 |
) |
|
|
9,449 |
|
Net current period other comprehensive income (loss) |
|
|
(10,160 |
) |
|
|
1,185 |
|
|
|
(38,669 |
) |
|
|
2,150 |
|
|
|
(45,494 |
) |
Balance at December 31, 2011 |
|
|
(11,043 |
) |
|
|
1,185 |
|
|
|
(153,002 |
) |
|
|
(3,881 |
) |
|
|
(166,741 |
) |
|
|
|
|
|
|
Other comprehensive income before reclassifications (net of tax) |
|
|
11,358 |
|
|
|
(39 |
) |
|
|
(18,657 |
) |
|
|
(244 |
) |
|
|
(7,582 |
) |
Amounts reclassified from accumulated other comprehensive income (net of tax) |
|
|
|
|
|
|
(1,570 |
) |
|
|
12,099 |
|
|
|
(172 |
) |
|
|
10,357 |
|
Net current period other comprehensive income (loss) |
|
|
11,358 |
|
|
|
(1,609 |
) |
|
|
(6,558 |
) |
|
|
(416 |
) |
|
|
2,775 |
|
Balance at December 31, 2012 |
|
|
315 |
|
|
|
(424 |
) |
|
|
(159,560 |
) |
|
|
(4,297 |
) |
|
|
(163,966 |
) |
|
|
|
|
|
|
Other comprehensive income before reclassifications (net of tax) |
|
|
14,826 |
|
|
|
(1,198 |
) |
|
|
54,906 |
|
|
|
4,187 |
|
|
|
72,721 |
|
Amounts reclassified from accumulated other comprehensive income (net of tax) |
|
|
|
|
|
|
681 |
|
|
|
15,107 |
|
|
|
100 |
|
|
|
15,888 |
|
Net current period other comprehensive income (loss) |
|
|
|