Edgar Filing: GLATFELTER P H CO

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

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended September 30, 2014

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

For the transition period from to

LOGO

96 South George Street, Suite 520

York, Pennsylvania 17401

(Address of principal executive offices)

(717) 225-4711

(Registrant’s telephone number, including area code)

N/A

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

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

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

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

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

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

P. H. GLATFELTER COMPANY AND

SUBSIDIARIES

REPORT ON FORM 10-Q

For the QUARTERLY PERIOD ENDED

September 30, 2014

Table of Contents


		Page
PART I – FINANCIAL INFORMATION

Item 1	Financial Statements
	Condensed Consolidated Statements of Income for the three months and nine months ended September 30, 2014 and 2013 (unaudited)		2
	Condensed Consolidated Statements of Comprehensive Income for the three months and nine months ended September 30, 2014 and 2013 (unaudited)		3
	Condensed Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013 (unaudited)		4
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013 (unaudited)		5
	Notes to Condensed Consolidated Financial Statements (unaudited)		6

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		29

Item 3	Quantitative and Qualitative Disclosures About Market Risks		40

Item 4	Controls and Procedures		40

PART II – OTHER INFORMATION

Item 6	Exhibits		41

SIGNATURES			41

PART I

Item 1 – Financial Statements

P. H. GLATFELTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)


	Three months ended September 30						Nine months ended September 30
In thousands, except per share	2014			2013			2014			2013

Net sales	$	465,092		$	456,648		$	1,366,154		$	1,287,804
Energy and related sales, net		860			1,196			6,912			2,721

Total revenues		465,952			457,844			1,373,066			1,290,525
Costs of products sold		385,439			391,805			1,196,076			1,126,271

Gross profit		80,513			66,039			176,990			164,254
Selling, general and administrative expenses		37,886			34,480			103,751			102,495
Gains on dispositions of plant, equipment and timberlands, net		(1,590	)		(282	)		(3,881	)		(374	)

Operating income		44,217			31,841			77,120			62,133
Non-operating income (expense)
Interest expense		(4,671	)		(4,788	)		(14,245	)		(13,143	)
Interest income		30			92			143			240
Other, net		(167	)		(34	)		105			388

Total non-operating expense		(4,808	)		(4,730	)		(13,997	)		(12,515	)

Income before income taxes		39,409			27,111			63,123			49,618
Income tax provision (benefit)		9,037			(7,008	)		13,434			(1,063	)

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


Earnings per share
Basic	$	0.71		$	0.79		$	1.15		$	1.18
Diluted		0.69			0.77			1.13			1.15

Cash dividends declared per common share	$	0.11		$	0.10		$	0.33		$	0.30

Weighted average shares outstanding
Basic		43,049			43,251			43,233			43,118
Diluted		43,841			44,328			44,111			44,213

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

- 2 -

GLATFELTER

9.30.14 Form 10-Q

P. H. GLATFELTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)


	Three months ended September 30						Nine months ended September 30
In thousands	2014			2013			2014			2013

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

Foreign currency translation adjustments		(33,450	)		14,263			(33,255	)		6,033
Net change in:
Deferred gains (losses) on cash flow hedges, net of taxes of $(593), $62, $(974) and $28, respectively		1,475			(154	)		2,476			(108	)
Unrecognized retirement obligations, net of taxes of $(1,463), $(2,293), $(4,391) and $(6,869), respectively		2,398			3,794			7,193			11,394

Other comprehensive income (loss)		(29,577	)		17,903			(23,586	)		17,319

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

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

- 3 -

GLATFELTER

9.30.14 Form 10-Q

P. H. GLATFELTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)


	September 30			December 31
In thousands	2014			2013

Assets
Cash and cash equivalents	$	53,655		$	122,882
Accounts receivable, net		195,316			167,830
Inventories		248,055			236,310
Prepaid expenses and other current assets		56,657			59,560

Total current assets		553,683			586,582

Plant, equipment and timberlands, net		691,640			723,340
Goodwill		87,772			95,948
Intangible assets		80,533			96,081

Other assets		183,116			176,459

Total assets	$	1,596,744		$	1,678,410


Liabilities and Shareholders’ Equity
Current portion of long-term debt	$	3,810		$	—
Accounts payable		128,568			161,242
Dividends payable		4,761			4,363
Environmental liabilities		125			125
Other current liabilities		114,676			122,637

Total current liabilities		251,940			288,367

Long-term debt		406,360			442,325

Deferred income taxes		130,677			141,020

Other long-term liabilities		119,587			122,222

Total liabilities		908,564			993,934

Commitments and contingencies		—			—

Shareholders’ equity
Common stock		544			544
Capital in excess of par value		54,085			53,940
Retained earnings		904,733			869,329
Accumulated other comprehensive loss		(98,943	)		(75,357	)

		860,419			848,456
Less cost of common stock in treasury		(172,239	)		(163,980	)

Total shareholders’ equity		688,180			684,476

Total liabilities and shareholders’ equity	$	1,596,744		$	1,678,410

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

- 4 -

GLATFELTER

9.30.14 Form 10-Q

P. H. GLATFELTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Nine months ended September 30
In thousands	2014			2013
Operating activities
Net income	$	49,689		$	50,681
Adjustments to reconcile to net cash provided by operations:
Depreciation, depletion and amortization		53,547			50,028
Amortization of debt issue costs and original issue discount		985			977
Pension expense, net of unfunded benefits paid		4,575			9,646
Charge for impairment of intangible asset		3,262			—
Deferred income tax benefit		(4,434	)		(10,876	)
Gains on dispositions of plant, equipment and timberlands, net		(3,881	)		(374	)
Share-based compensation		5,811			5,523
Change in operating assets and liabilities
Accounts receivable		(35,528	)		(23,496	)
Inventories		(19,982	)		7,225
Prepaid and other current assets		(2,367	)		4,659
Accounts payable		(25,576	)		5,065
Accruals and other current liabilities		(6,214	)		2,218
Other		1,493			(5,583	)

Net cash provided by operating activities		21,380			95,693

Investing activities
Expenditures for purchases of plant, equipment and timberlands		(47,036	)		(86,089	)
Proceeds from disposals of plant, equipment and timberlands, net		4,051			379
Acquisition, net of cash acquired		—			(210,911	)
Other		(600	)		(325	)

Net cash used by investing activities		(43,585	)		(296,946	)

Financing activities
Net borrowings under (repayments of) revolving credit facility		(30,720	)		126,139
Payments of borrowing costs		—			(419	)
Proceeds from term loans		12,592			56,091
Repurchases of common stock		(12,180	)		—
Payments of dividends		(13,935	)		(12,603	)
Payments related to share-based compensation awards and other		(1,764	)		(2,332	)

Net cash (used) provided by financing activities		(46,007	)		166,876

Effect of exchange rate changes on cash		(1,015	)		333

Net decrease in cash and cash equivalents		(69,227	)		(34,044	)
Cash and cash equivalents at the beginning of period		122,882			97,679

Cash and cash equivalents at the end of period	$	53,655		$	63,635

Supplemental cash flow information
Cash paid for:
Interest, net of amounts capitalized	$	9,959		$	9,388
Income taxes, net		19,928			10,834

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

- 5 -

GLATFELTER

9.30.14 Form 10-Q

P. H. GLATFELTER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1.	ORGANIZATION

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

2.	ACCOUNTING POLICIES

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

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

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

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

3.	ACQUISITION

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

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

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

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

- 6 -

GLATFELTER

9.30.14 Form 10-Q

In thousands

As
originally
presented

Cumulative
adjustments

Adjusted

Assets

Cash and cash equivalents

12,227

—

12,227

Accounts receivable

23,870

—

23,870

Inventory

13,864

—

13,864

Prepaid and other current assets

6,674

1,386

8,060

Plant, equipment and timberlands

60,951

—

60,951

Intangible assets

87,596

—

87,596

Goodwill

76,256

(1,386

)

74,870

Total assets

281,438

—

281,438

Liabilities

Accounts payable

20,360

(107

)

20,253

Deferred tax liabilities

36,120

—

36,120

Other long term liabilities

1,820

107

1,927

Total liabilities

58,300

—

58,300

Total

223,138

—

223,138

less cash acquired

(12,227

)

—

(12,227

)

Total purchase price

210,911

—

210,911

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

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

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

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

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

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

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


In thousands, except per share	Nine months ended September 30, 2013
*Pro forma*
Net sales	$	1,344,623
Net income		63,709
Diluted earnings per share		1.44

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GLATFELTER

9.30.14 Form 10-Q

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

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


Dollars in thousands	Acres		Proceeds		Gain
2014
Timberlands		2,030	$	4,041	$	3,876
Other		n/a		10		5

Total			$	4,051	$	3,881


2013
Timberlands		172	$	287	$	282
Other		n/a		92		92

Total			$	379	$	374

5.	EARNINGS PER SHARE

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


	Three months ended September 30
In thousands, except per share	2014		2013
Net income	$	30,372	$	34,119

Weighted average common shares outstanding used in basic EPS		43,049		43,251
Common shares issuable upon exercise of dilutive stock options and PSAs / RSUs		792		1,077

Weighted average common shares outstanding and common share equivalents used in diluted EPS		43,841		44,328

Earnings per share
Basic	$	0.71	$	0.79
Diluted		0.69		0.77


	Nine months ended September 30
In thousands, except per share	2014		2013
Net income	$	49,689	$	50,681

Weighted average common shares outstanding used in basic EPS		43,233		43,118
Common shares issuable upon exercise of dilutive stock options and PSAs / RSUs		878		1,095

Weighted average common shares outstanding and common share equivalents used in diluted EPS		44,111		44,213


Earnings per share
Basic	$	1.15	$	1.18
Diluted		1.13		1.15

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


	September 30
	2014		2013
Three months ended		282		—
Nine months ended		282		—

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GLATFELTER

9.30.14 Form 10-Q

6.	ACCUMULATED OTHER COMPREHENSIVE INCOME

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


in thousands	Currency translation adjustments			Unrealized gain (loss) on cash flow hedges			Change in pensions			Change in other postretirement defined benefit plans			Total
Balance at July 1, 2014	$	15,336		$	60		$	(84,822	)	$	60		$	(69,366	)
Other comprehensive income before reclassifications (net of tax)		(33,450	)		1,379			—			—			(32,071	)
Amounts reclassified from accumulated other comprehensive income (net of tax)		—			96			2,363			35			2,494

Net current period other comprehensive income (loss)		(33,450	)		1,475			2,363			35			(29,577	)

Balance at September 30, 2014	$	(18,114	)	$	1,535		$	(82,459	)	$	95		$	(98,943	)

Balance at July 1, 2013	$	(7,914	)	$	(379	)	$	(152,056	)	$	(4,201	)	$	(164,550	)
Other comprehensive income before reclassifications (net of tax)		14,263			(434	)		—			—			13,829
Amounts reclassified from accumulated other comprehensive income (net of tax)		—			280			3,746			48			4,074

Net current period other comprehensive income (loss)		14,263			(154	)		3,746			48			17,903

Balance at September 30, 2013	$	6,349		$	(533	)	$	(148,310	)	$	(4,153	)	$	(146,647	)




Balance at January 1, 2014	$	15,141		$	(941	)	$	(89,547	)	$	(10	)	$	(75,357	)
Other comprehensive income before reclassifications (net of tax)		(33,255	)		1,594			—			—			(31,661	)
Amounts reclassified from accumulated other comprehensive income (net of tax)		—			882			7,088			105			8,075

Net current period other comprehensive income (loss)		(33,255	)		2,476			7,088			105			(23,586	)

Balance at September 30, 2014	$	(18,114	)	$	1,535		$	(82,459	)	$	95		$	(98,943	)

Balance at January 1, 2013	$	316		$	(425	)	$	(159,560	)	$	(4,297	)	$	(163,966	)
Other comprehensive income before reclassifications (net of tax)		6,033			(575	)		—			—			5,458
Amounts reclassified from accumulated other comprehensive income (net of tax)		—			467			11,250			144			11,861

Net current period other comprehensive income (loss)		6,033			(108	)		11,250			144			17,319

Balance at September 30, 2013	$	6,349		$	(533	)	$	(148,310	)	$	(4,153	)	$	(146,647	)

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GLATFELTER

9.30.14 Form 10-Q

Reclassifications out of accumulated other comprehensive income were as follows:


	Three months ended September 30						Nine months ended September 30
In thousands	2014			2013			2014			2013
Description													Line Item in Statements of Income
Cash flow hedges (Note 14)

(Gains) losses on cash flow hedges	$	137		$	384		$	1,227		$	641		Costs of products sold
Tax (benefit) expense		(41	)		(104	)		(345	)		(174	)	Income tax provision

Net of tax		96			280			882			467
Retirement plan obligations (Note 9)
Amortization of deferred benefit pension plan items
Prior service costs		621			572			1,864			1,838		Costs of products sold
		206			201			618			483		Selling, general and administrative
Actuarial losses		2,215			3,792			6,644			12,203		Costs of products sold
		762			1,445			2,287			3,508		Selling, general and administrative

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

Net of tax		2,363			3,746			7,088			11,250
Amortization of deferred benefit other plan items
Prior service costs		(59	)		(100	)		(178	)		(301	)	Costs of products sold
		(13	)		(25	)		(38	)		(74	)	Selling, general and administrative
Actuarial losses		106			155			319			465		Costs of products sold
		23			47			68			141		Selling, general and administrative

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

Net of tax		35			48			105			144

Total reclassifications, net of tax	$	2,494		$	4,074		$	8,075		$	11,861

7.	INCOME TAXES

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

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

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

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


	Open Tax Years
Jurisdiction	Examinations not yet initiated		Examination in progress

United States
Federal		2013		2011 - 2012
State		2009 - 2013		2011 - 2012
Canada (1)		2010 - 2013		2009
Germany (1)		2012 - 2013		2007 - 2011
France		2010, 2013		2011 - 2012
United Kingdom		2010 - 2013		N/A
Philippines		2012 - 2013		2011

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

- 10 -

GLATFELTER

9.30.14 Form 10-Q

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

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


	Nine months ended September 30
In millions	2014		2013
Interest expense	$	0.1	$	(0.1	)
Penalties		—		—

	September 30 2014		December 31 2013
Accrued interest payable	$	0.7	$	0.6

8.	STOCK-BASED COMPENSATION

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

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

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

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


Units	2014			2013

Balance at January 1,		1,001,814			847,679
Granted		173,206			210,856
Forfeited		(45,355	)		(40,991	)
Shares delivered		(239,394	)		(113,230	)

Balance at September 30,		890,271			904,314

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

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


	September 30
In thousands	2014		2013

Three months ended	$	854	$	892
Nine months ended		1,874		2,216

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

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GLATFELTER

9.30.14 Form 10-Q

The following table sets forth information related to outstanding SOSARS.


	2014					2013
SOSARS	Shares			Wtd Avg Exercise Price		Shares			Wtd Avg Exercise Price
Outstanding at January 1,		1,977,133		$	13.91		2,121,454		$	12.93
Granted		281,881			29.22		361,923			18.36
Exercised		(26,245	)		15.67		(435,562	)		12.63
Canceled / forfeited		(29,842	)		19.36		(73,901	)		16.25

Outstanding at September 30,		2,202,927		$	15.77		1,973,914		$	13.87


SOSAR Grants
Weighted average grant date fair value per share	$	9.81				$	5.64
Aggregate grant date fair value (in thousands)	$	2,764				$	2,042
Black-Scholes assumptions
Dividend yield		1.48	%				2.18	%
Risk free rate of return		1.74	%				0.99	%
Volatility		37.59	%				39.62	%
Expected life		6 yrs					6 yrs

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


	September 30
In thousands	2014		2013

Three months ended	$	577	$	398
Nine months ended		1,585		1,198

9.	RETIREMENT PLANS AND OTHER POST-RETIREMENT BENEFITS

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


	Three months ended September 30
In thousands	2014			2013
Pension Benefits
Service cost	$	2,602		$	2,897
Interest cost		6,216			5,504
Expected return on plan assets		(10,969	)		(10,857	)
Amortization of prior service cost		827			773
Amortization of unrecognized loss		2,977			5,237

Net periodic benefit cost	$	1,653		$	3,554

Other Benefits
Service cost	$	614		$	789
Interest cost		597			545
Amortization of prior service cost		(72	)		(125	)
Amortization of unrecognized loss		129			202

Net periodic benefit cost	$	1,268		$	1,411


	Nine months ended September 30
In thousands	2014			2013
Pension Benefits
Service cost	$	7,810		$	8,693
Interest cost		18,696			16,504
Expected return on plan assets		(32,907	)		(32,570	)
Amortization of prior service cost		2,482			2,321
Amortization of unrecognized loss		8,931			15,711

Net periodic benefit cost	$	5,012		$	10,659

Other Benefits
Service cost	$	1,844		$	2,367
Interest cost		1,793			1,635
Amortization of prior service cost		(216	)		(375	)
Amortization of unrecognized loss		387			606

Net periodic benefit cost	$	3,808		$	4,233

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GLATFELTER

9.30.14 Form 10-Q

10.

ASSET IMPAIRMENT CHARGE

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

11.

INVENTORIES

Inventories, net of reserves, were as follows:


	September 30		December 31
In thousands	2014		2013
Raw materials	$	59,410	$	59,440
In-process and finished		118,620		109,578
Supplies		70,025		67,292

Total	$	248,055	$	236,310

12.

LONG-TERM DEBT

Long-term debt is summarized as follows:


	September 30			December 31
In thousands	2014			2013
Revolving credit facility, due Nov. 2016	$	93,810		$	133,540
5.375% Notes, due Oct. 2020		250,000			250,000
2.40% Term Loan, due Jun. 2022		12,592			—
2.05% Term Loan, due Mar. 2023		53,768			58,785

Total long-term debt		410,170			442,325
Less current portion		(3,810	)		—

Long-term debt, net of current portion	$	406,360		$	442,325

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

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

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

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

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

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

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

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GLATFELTER

9.30.14 Form 10-Q

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

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

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

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

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

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

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

13.

ASSET RETIREMENT OBLIGATION

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


In thousands	2014			2013
Balance at January 1,	$	5,032		$	8,882
Accretion		115			234
Payments		(767	)		(2,719	)
Gain		(128	)		(1,255	)

Balance at September 30,	$	4,252		$	5,142

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


	September 30		December 31
In thousands	2014		2013
Other current liabilities	$	2,905	$	915
Other long-term liabilities		1,347		4,117

Total	$	4,252	$	5,032

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GLATFELTER

9.30.14 Form 10-Q

14.

FAIR VALUE OF FINANCIAL INSTRUMENTS

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


	September 30, 2014				December 31, 2013
In thousands	Carrying Value		Fair Value		Carrying Value		Fair Value
Fixed-rate bonds	$	250,000	$	257,033	$	250,000	$	254,533
2.40% Term loan	$	12,592	$	12,910		—		—
2.05% Term loan		53,768		54,025		58,785		57,952
Variable rate debt		93,810		93,810		133,540		133,540

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

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

15.

FINANCIAL DERIVATIVES AND HEDGING ACTIVITIES

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

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

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

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

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


In thousands	September 30 2014		December 31 2013
Derivative	Buy Notional
Sell / Buy
Euro / U.S. dollar		22,631		27,105
U.S. dollar / Canadian dollar		8,124		13,077
Euro / Philippine peso		439,675		—
British Pound / Philippine peso		243,310		—
Euro / British Pound		3,358		—

These contracts have maturities of twelve months or less.

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

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


In thousands	September 30 2014			December 31 2013
Derivative	Sell (Buy) Notional
Sell / Buy
U.S. dollar / British Pound		11,000			6,000
Euro / British Pound		(9,000	)		(8,000	)
Euro / British Pound		2,000			5,000
Canadian dollar / U.S. dollar		2,000			2,000
U.S. dollar / Euro		—			2,000
Euro / U.S. dollar		—			9,000

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

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GLATFELTER

9.30.14 Form 10-Q

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


In thousands	September 30 2014		December 31 2013		September 30 2014		December 31 2013
Balance sheet caption	Prepaid Expenses and Other Current Assets				Other Current Liabilities
*Designated as hedging:*
Forward foreign currency exchange contracts	$	2,106	$	—	$	166	$	1,163
*Not designated as hedging:*
Forward foreign currency exchange contracts	$	10	$	36	$	73	$	46

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

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


	Three months ended September 30						Nine months ended September 30
In thousands	2014			2013			2014			2013
*Designated as hedging:*
Forward foreign currency exchange contracts:
Effective portion – cost of products sold	$	(137	)	$	(384	)	$	(1,227	)	$	(641	)
Ineffective portion – other – net		81			49			181			74
*Not designated as hedging*:
Forward foreign currency exchange contracts:
Other – net	$	595		$	(348	)	$	1,792		$	(794	)

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

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

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

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GLATFELTER

9.30.14 Form 10-Q

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


In thousands	2014			2013
Balance at January 1,	$	(1,296	)	$	(599	)
Deferred (losses) gains on cash flow hedges		2,223			(778	)
Reclassified to earnings		1,227			641

Balance at September 30,	$	2,154		$	(736	)

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

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

16.

SHARE REPURCHASES

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


	shares		(thousands)
Authorized amount		n/a	$	50,000
Repurchases		755,310		(16,627	)

Remaining authorization			$	33,373

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

17.

COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS

Fox River – Neenah, Wisconsin

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

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

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

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

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

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

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

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

- 17 -

GLATFELTER

9.30.14 Form 10-Q

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

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

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

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

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

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

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

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

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

- 18 -

GLATFELTER

9.30.14 Form 10-Q

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

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

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

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

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

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

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

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

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

- 19 -

GLATFELTER

9.30.14 Form 10-Q

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

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

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

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

- 20 -

GLATFELTER

9.30.14 Form 10-Q

18.

SEGMENT INFORMATION

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


Three months ended September 30 Dollars in millions	Composite Fibers				Advanced Airlaid Materials				Specialty Papers				Other and Unallocated						Total
	2014		2013		2014		2013		2014		2013		2014			2013			2014			2013
Net sales	$	154.5	$	161.5	$	74.4	$	69.5	$	236.2	$	225.7	$	—		$	—		$	465.1		$	456.6
Energy and related sales, net		—		—		—		—		0.9		1.2		—			—			0.9			1.2

Total revenue		154.5		161.5		74.4		69.5		237.1		226.9		—			—			466.0			457.8
Cost of products sold		123.7		129.5		64.7		63.7		195.2		196.4		1.8			2.3			385.4			391.8

Gross profit (loss)		30.8		31.9		9.7		5.8		41.9		30.5		(1.8	)		(2.3	)		80.5			66.0
SG&A		12.6		13.0		2.2		1.9		14.1		12.5		9.0			7.1			37.9			34.5
Gains on dispositions of plant, equipment and timberlands, net		—		—		—		—		—		—		(1.6	)		(0.3	)		(1.6	)		(0.3	)

Total operating income (loss)		18.1		18.9		7.5		3.9		27.8		18.1		(9.2	)		(9.1	)		44.2			31.8
Non-operating expense		—		—		—		—		—		—		(4.8	)		(4.7	)		(4.8	)		(4.7	)

Income (loss) before income taxes	$	18.1	$	18.9	$	7.5	$	3.9	$	27.8	$	18.1	$	(14.0	)	$	(13.8	)	$	39.4		$	27.1


Supplementary Data
Net tons sold (thousands)		40.1		40.3		26.3		24.8		208.4		203.6		—			—			274.7			268.7
Depreciation, depletion and amortization	$	7.4	$	7.1	$	2.3	$	2.2	$	6.5	$	8.3	$	0.5		$	0.4		$	16.7		$	18.0
Capital expenditures		5.4		12.8		1.3		0.8		9.7		11.1		0.5			0.7			16.9			25.3

Nine months ended September 30 Dollars in millions	Composite Fibers				Advanced Airlaid Materials				Specialty Papers				Other and Unallocated						Total
	2014		2013		2014		2013		2014		2013		2014			2013			2014			2013
Net sales	$	470.1	$	415.9	$	216.2	$	202.2	$	679.9	$	669.8	$	—		$	—		$	1,366.2		$	1,287.8
Energy and related sales, net		—		—		—		—		6.9		2.7		—			—			6.9			2.7

Total revenue		470.1		415.9		216.2		202.2		686.8		672.5		—			—			1,373.1			1,290.5
Cost of products sold		376.7		334.5		189.9		182.0		624.3		599.7		5.2			10.0			1,196.1			1,126.3

Gross profit (loss)		93.4		81.3		26.3		20.1		62.5		72.8		(5.2	)		(10.0	)		177.0			164.3
SG&A		38.8		34.4		6.8		6.4		39.5		40.3		18.7			21.3			103.8			102.5
Gains on dispositions of plant, equipment and timberlands, net		—		—		—		—		—		—		(3.9	)		(0.4	)		(3.9	)		(0.4	)

Total operating income (loss)		54.6		46.9		19.5		13.7		23.0		32.5		(20.0	)		(31.0	)		77.1			62.1
Non-operating expense		—		—		—		—		—		—		(14.0	)		(12.5	)		(14.0	)		(12.5	)

Income (loss) before income taxes	$	54.6	$	46.9	$	19.5	$	13.7	$	23.0	$	32.5	$	(34.0	)	$	(43.5	)	$	63.1		$	49.6


Supplementary Data
Net tons sold (thousands)		119.5		97.9		76.0		72.4		601.3		601.6		—			—			796.8			771.9
Depreciation, depletion and amortization	$	22.7	$	17.7	$	6.9	$	6.6	$	22.6	$	24.9	$	1.3		$	0.8		$	53.5		$	50.0
Capital expenditures		16.7		49.0		4.1		4.8		24.5		27.9		1.7			4.4			47.0			86.1

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

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

- 21 -

GLATFELTER

9.30.14 Form 10-Q

19.

CONDENSED CONSOLIDATING FINANCIAL STATEMENTS

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

Condensed Consolidating Statements of Income and Comprehensive Income for the

three months ended September 30, 2014

In thousands

Parent
Company

Guarantors

Non
Guarantors

Adjustments/
Eliminations

Consolidated

Net sales

236,182

228,910

)

465,092

Energy and related sales, net

860

—

860

Total revenues

237,042

228,910

)

465,952

Costs of products sold

196,888

188,551

)

385,439

Gross profit

40,154

—

40,359

—

80,513

Selling, general and administrative expenses

19,352

306

18,228

—

37,886

Gains on dispositions of plant, equipment and timberlands, net

(1,590

)

—

(1,590

)

Operating income (loss)

22,392

(306

)

22,131

—

44,217

Other non-operating income (expense)

Interest expense

(4,790

)

—

(90,098

)

90,217

(4,671

)

Interest income

152

89,951

145

(90,218

)

Other, net

14,491

90,952

202

(105,812

)

(167

)

Total other non-operating income (expense)

9,853

180,903

(89,751

)

(105,813

)

(4,808

)

Income (loss) before income taxes

32,245

180,597

(67,620

)

(105,813

)

39,409

Income tax provision

1,873

470

6,694

—

9,037

Net income (loss)

30,372

180,127

(74,314

)

(105,813

)

30,372

Other comprehensive income (loss)

(29,577

)

(25,844

)

16,924

8,920

(29,577

)

Comprehensive income (loss)

795

154,283

(57,390

)

96,893

795

- 22 -

GLATFELTER

9.30.14 Form 10-Q

Condensed Consolidating Statements of Income and Comprehensive Income for the

three months ended September 30, 2013


In thousands	Parent Company			Guarantors			Non Guarantors			Adjustments/ Eliminations			Consolidated
Net sales	$	225,690		$	3		$	230,958		$	(3	)	$	456,648
Energy and related sales, net		1,196			—			—			—			1,196

Total revenues		226,886			3			230,958			(3	)		457,844
Costs of products sold		199,596			3			192,209			(3	)		391,805

Gross profit		27,290			—			38,749			—			66,039
Selling, general and administrative expenses		16,203			190			18,087			—			34,480
(Gains) loss on dispositions of plant, equipment and timberlands, net		(285	)		—			3			—			(282	)

Operating income (loss)		11,372			(190	)		20,659			—			31,841
Other non-operating income (expense)
Interest expense		(4,721	)		—			(2,537	)		2,470			(4,788	)
Interest income		183			2,376			3			(2,470	)		92
Other, net		18,341			103			(587	)		(17,891	)		(34	)

Total other non-operating income (expense)		13,803			2,479			(3,121	)		(17,891	)		(4,730	)

Income before income taxes		25,175			2,289			17,538			(17,891	)		27,111
Income tax provision (benefit)		(8,944	)		(891	)		2,827			—			(7,008	)

Net income		34,119			3,180			14,711			(17,891	)		34,119
Other comprehensive income (loss)		17,903			6,400			(219	)		(6,181	)		17,903

Comprehensive income	$	52,022		$	9,580		$	14,492		$	(24,072	)	$	52,022

- 23 -

GLATFELTER

9.30.14 Form 10-Q

Condensed Consolidating Statements of Income and Comprehensive Income for the nine

months ended September 30, 2014

In thousands

Parent
Company

Guarantors

Non
Guarantors

Adjustments/
Eliminations

Consolidated

Net sales

679,877

686,277

(28

)

1,366,154

Energy and related sales – net

6,912

—

6,912

Total revenues

686,789

686,277

(28

)

1,373,066

Costs of products sold

629,360

566,716

(28

)

1,196,076

Gross profit

57,429

—

119,561

—

176,990

Selling, general and administrative expenses

53,699

462

49,590

—

103,751

Gains on dispositions of plant, equipment and timberlands, net

(2,565

)

(1,316

)

—

(3,881

)

Operating income

6,295

854

69,971

—

77,120

Other non-operating income (expense)

Interest expense

(14,284

)

—

(95,643

)

95,682

(14,245

)

Interest income

468

95,165

193

(95,683

)

143

Other, net

54,789

90,973

1,673

(147,330

)

105

Total other non-operating income (expense)

40,973

186,138

(93,777

)

(147,331

)

(13,997

)

Income (loss) before income taxes

47,268

186,992

(23,806

)

(147,331

)

63,123

Income tax provision (benefit)

(2,421

)

2,098

13,757

—

13,434

Net income (loss)

49,689

184,894

(37,563

)

(147,331

)

49,689

Other comprehensive income (loss)

(23,586

)

(26,392

)

18,907

7,485

(23,586

)

Comprehensive income (loss)

26,103

158,502

(18,656

)

(139,846

)

26,103

- 24 -

GLATFELTER

9.30.14 Form 10-Q

Condensed Consolidating Statements of Income and Comprehensive Income for the nine

months ended September 30, 2013


In thousands	Parent Company			Guarantors			Non Guarantors			Adjustments/ Eliminations			Consolidated
Net sales	$	669,792		$	15		$	618,012		$	(15	)	$	1,287,804
Energy and related sales, net		2,721			—			—			—			2,721

Total revenues		672,513			15			618,012			(15	)		1,290,525
Costs of products sold		609,524			15			516,747			(15	)		1,126,271

Gross profit		62,989			—			101,265			—			164,254
Selling, general and administrative expenses		54,256			293			47,946			—			102,495
Gains on dispositions of plant, equipment and timberlands, net		(374	)		—			—			—			(374	)

Operating income (loss)		9,107			(293	)		53,319			—			62,133
Other non-operating income (expense)
Interest expense		(14,141	)		—			(5,008	)		6,006			(13,143	)
Interest income		443			5,791			12			(6,006	)		240
Other, net		42,437			94			868			(43,011	)		388

Total other non-operating income (expense)		28,739			5,885			(4,128	)		(43,011	)		(12,515	)

Income before income taxes		37,846			5,592			49,191			(43,011	)		49,618
Income tax provision (benefit)		(12,835	)		419			11,353			—			(1,063	)

Net income		50,681			5,173			37,838			(43,011	)		50,681
Other comprehensive income		17,319			3,171			(5,078	)		1,907			17,319

Comprehensive income	$	68,000		$	8,344		$	32,760		$	(41,104	)	$	68,000

- 25 -

GLATFELTER

9.30.14 Form 10-Q

Condensed Consolidating Balance Sheet as of

September 30, 2014

In thousands

Parent
Company

Guarantors

Non
Guarantors

Adjustments/
Eliminations

Consolidated

Assets

Cash and cash equivalents

20,308

33,254

—

53,655

Other current assets

238,216

420,388

313,091

(471,667

)

500,028

Plant, equipment and timberlands, net

250,066

998

440,576

—

691,640

Other assets

1,007,426

304,088

191,166

(1,151,259

)

351,421

Total assets

1,516,016

725,567

978,087

(1,622,926

)

1,596,744

Liabilities and Shareholders’ Equity

Current liabilities

400,103

5,026

323,128

(476,317

)

251,940

Long-term debt

250,000

—

749,491

(593,131

)

406,360

Deferred income taxes

73,961

(628

)

70,076

(12,732

)

130,677

Other long-term liabilities

103,772

—

11,792

4,023

119,587

Total liabilities

827,836

4,398

1,154,487

(1,078,157

)

908,564

Shareholders’ equity

688,180

721,169

(176,400

)

(544,769

)

688,180

Total liabilities and shareholders’ equity

1,516,016

725,567

978,087

(1,622,926

)

1,596,744

Condensed Consolidating Balance Sheet as of

December 31, 2013


In thousands	Parent Company		Guarantors			Non Guarantors		Adjustments/ Eliminations			Consolidated

Assets
Cash and cash equivalents	$	56,216	$	501		$	66,165	$	—		$	122,882
Other current assets		208,814		327,152			253,779		(326,045	)		463,700
Plant, equipment and timberlands, net		247,243		1,054			475,043		—			723,340
Other assets		973,748		236,411			214,301		(1,055,972	)		368,488

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


Liabilities and Shareholders’ Equity
Current liabilities	$	375,535	$	2,855		$	247,855	$	(337,878	)	$	288,367
Long-term debt		250,000		—			513,120		(320,795	)		442,325
Deferred income taxes		70,989		(283	)		78,633		(8,319	)		141,020
Other long-term liabilities		105,021		—			13,792		3,409			122,222

Total liabilities		801,545		2,572			853,400		(663,583	)		993,934
Shareholders’ equity		684,476		562,546			155,888		(718,434	)		684,476

Total liabilities and shareholders’ equity	$	1,486,021	$	565,118		$	1,009,288	$	(1,382,017	)	$	1,678,410

- 26 -

GLATFELTER

9.30.14 Form 10-Q

Condensed Consolidating Statement of Cash Flows for the nine

months ended September 30, 2014


In thousands	Parent Company			Guarantors			Non Guarantors			Adjustments/ Eliminations			Consolidated
Net cash provided (used) by
Operating activities	$	712		$	3,368		$	17,300		$	—		$	21,380
Investing activities
Expenditures for purchases of plant, equipment and timberlands		(26,368	)		—			(20,668	)		—			(47,036	)
Proceeds from disposal plant, equipment and timberlands, net		2,687			1,355			9			—			4,051
Repayments from intercompany loans		—			10,409			—			(10,409	)		—
Advances of intercompany loans		—			(15,540	)		—			15,540			—
Other		(600	)		—			—			—			(600	)

Total investing activities		(24,281	)		(3,776	)		(20,659	)		5,131			(43,585	)
Financing activities
Net repayments of indebtedness		—			—			(18,128	)		—			(18,128	)
Payment of dividends to shareholders		(13,935	)		—			—			—			(13,935	)
Repurchases of common stock		(12,180	)		—			—			—			(12,180	)
Repayments of intercompany loans		—			—			(10,409	)		10,409			—
Borrowings of intercompany loans		15,540			—			—			(15,540	)		—
Payments related to share-based comp- ensation awards and other		(1,764	)		—			—			—			(1,764	)

Total financing activities		(12,339	)		—			(28,537	)		(5,131	)		(46,007	)
Effect of exchange rate on cash		—			—			(1,015	)		—			(1,015	)

Net decrease in cash		(35,908	)		(408	)		(32,911	)		—			(69,227	)
Cash at the beginning of period		56,216			501			66,165			—			122,882

Cash at the end of period	$	20,308		$	93		$	33,254		$	—		$	53,655

- 27 -

GLATFELTER

9.30.14 Form 10-Q

Condensed Consolidating Statement of Cash Flows for the nine

months ended September 30, 2013


In thousands	Parent Company			Guarantors			Non Guarantors			Adjustments/ Eliminations			Consolidated

Net cash provided (used) by
Operating activities	$	30,380		$	10,857		$	54,247		$	209		$	95,693
Investing activities
Expenditures for purchases of plant, equipment and timberlands		(32,075	)		—			(53,805	)		(209	)		(86,089	)
Proceeds from disposal plant, equipment and timberlands, net		379			—			—			—			379
Repayments from intercompany loans		—			15,100			—			(15,100	)		—
Advances of intercompany loans		—			(30,066	)		—			30,066			—
Intercompany capital contributed		—			(91	)		—			91			—
Acquisitions, net of cash acquired		—			—			(210,911	)		—			(210,911	)
Other		(325	)		—			—			—			(325	)

Total investing activities		(32,021	)		(15,057	)		(264,716	)		14,848			(296,946	)
Financing activities
Net proceeds from indebtedness		—			—			182,230			—			182,230
Payments of note offering costs		(160	)		—			(259	)		—			(419	)
Payment of dividends to shareholders		(12,603	)		—			—			—			(12,603	)
Repayments of intercompany loans		(1,100	)		—			(14,000	)		15,100			—
Borrowings of intercompany loans		8,570			—			21,496			(30,066	)		—
Intercompany capital received		—			—			91			(91	)		—
Proceeds from stock options exercised and other		(2,332	)		—			—			—			(2,332	)

Total financing activities		(7,625	)		—			189,558			(15,057	)		166,876
Effect of exchange rate on cash		—			—			333