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
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)
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Commission
file number |
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Exact name of registrant as specified in its charter |
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IRS Employer
Identification No. |
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State or other jurisdiction of incorporation or
organization |
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1-03560 |
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P. H. Glatfelter Company |
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23-0628360 |
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Pennsylvania |
N/A
(Former name or former address, if changed since last report)
Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for at the past 90 days. Yes þ No ¨.
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes þ No ¨.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company.
See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
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þ |
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Accelerated filer |
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¨ |
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Non-accelerated filer |
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¨ (Do not check if a smaller reporting company). |
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Small reporting company |
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¨ |
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
PART I
Item 1 Financial Statements
P. H.
GLATFELTER COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
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Three months ended September 30 |
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Nine months ended September 30 |
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In thousands, except per share |
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2014 |
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2013 |
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2014 |
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2013 |
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Net sales |
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$ |
465,092 |
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$ |
456,648 |
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$ |
1,366,154 |
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$ |
1,287,804 |
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Energy and related sales, net |
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860 |
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1,196 |
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6,912 |
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2,721 |
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Total revenues |
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465,952 |
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457,844 |
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1,373,066 |
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1,290,525 |
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Costs of products sold |
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385,439 |
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391,805 |
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1,196,076 |
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1,126,271 |
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Gross profit |
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80,513 |
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66,039 |
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176,990 |
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164,254 |
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Selling, general and administrative expenses |
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37,886 |
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34,480 |
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103,751 |
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102,495 |
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Gains on dispositions of plant, equipment and timberlands, net |
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(1,590 |
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(282 |
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(3,881 |
) |
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(374 |
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Operating income |
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44,217 |
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31,841 |
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77,120 |
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62,133 |
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Non-operating income (expense) |
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Interest expense |
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(4,671 |
) |
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(4,788 |
) |
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(14,245 |
) |
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(13,143 |
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Interest income |
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30 |
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92 |
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143 |
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240 |
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Other, net |
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(167 |
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(34 |
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105 |
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388 |
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Total non-operating expense |
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(4,808 |
) |
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(4,730 |
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(13,997 |
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(12,515 |
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Income before income taxes |
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39,409 |
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27,111 |
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63,123 |
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49,618 |
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Income tax provision (benefit) |
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9,037 |
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(7,008 |
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13,434 |
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(1,063 |
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Net income |
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$ |
30,372 |
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$ |
34,119 |
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$ |
49,689 |
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$ |
50,681 |
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Earnings per share |
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Basic |
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$ |
0.71 |
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$ |
0.79 |
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$ |
1.15 |
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$ |
1.18 |
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Diluted |
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0.69 |
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0.77 |
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1.13 |
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1.15 |
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Cash dividends declared per common share |
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$ |
0.11 |
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$ |
0.10 |
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$ |
0.33 |
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$ |
0.30 |
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Weighted average shares outstanding |
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Basic |
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43,049 |
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43,251 |
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43,233 |
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43,118 |
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Diluted |
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43,841 |
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44,328 |
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44,111 |
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44,213 |
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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)
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Three months ended September 30 |
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Nine months ended September 30 |
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In thousands |
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2014 |
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2013 |
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2014 |
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2013 |
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Net income |
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$ |
30,372 |
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$ |
34,119 |
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$ |
49,689 |
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$ |
50,681 |
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Foreign currency translation adjustments |
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(33,450 |
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14,263 |
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(33,255 |
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6,033 |
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Net change in: |
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Deferred gains (losses) on cash flow hedges, net of taxes of $(593), $62, $(974) and $28, respectively |
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1,475 |
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(154 |
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2,476 |
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(108 |
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Unrecognized retirement obligations, net of taxes of $(1,463), $(2,293), $(4,391) and $(6,869), respectively |
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2,398 |
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3,794 |
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7,193 |
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11,394 |
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Other comprehensive income (loss) |
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(29,577 |
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17,903 |
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(23,586 |
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17,319 |
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Comprehensive income |
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$ |
795 |
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$ |
52,022 |
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$ |
26,103 |
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$ |
68,000 |
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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)
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September 30 |
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December 31 |
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In thousands |
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2014 |
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2013 |
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Assets |
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Cash and cash equivalents |
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$ |
53,655 |
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$ |
122,882 |
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Accounts receivable, net |
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195,316 |
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167,830 |
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Inventories |
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248,055 |
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236,310 |
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Prepaid expenses and other current assets |
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56,657 |
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59,560 |
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Total current assets |
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553,683 |
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586,582 |
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Plant, equipment and timberlands, net |
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691,640 |
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723,340 |
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Goodwill |
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87,772 |
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95,948 |
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Intangible assets |
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80,533 |
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96,081 |
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Other assets |
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183,116 |
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176,459 |
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Total assets |
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$ |
1,596,744 |
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$ |
1,678,410 |
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Liabilities and Shareholders Equity |
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Current portion of long-term debt |
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$ |
3,810 |
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$ |
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Accounts payable |
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128,568 |
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161,242 |
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Dividends payable |
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4,761 |
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4,363 |
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Environmental liabilities |
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125 |
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125 |
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Other current liabilities |
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114,676 |
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122,637 |
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Total current liabilities |
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251,940 |
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288,367 |
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Long-term debt |
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406,360 |
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442,325 |
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Deferred income taxes |
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130,677 |
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141,020 |
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Other long-term liabilities |
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119,587 |
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122,222 |
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Total liabilities |
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908,564 |
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993,934 |
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Commitments and contingencies |
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Shareholders equity |
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Common stock |
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544 |
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544 |
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Capital in excess of par value |
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54,085 |
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53,940 |
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Retained earnings |
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904,733 |
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869,329 |
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Accumulated other comprehensive loss |
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(98,943 |
) |
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(75,357 |
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860,419 |
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848,456 |
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Less cost of common stock in treasury |
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(172,239 |
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(163,980 |
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Total shareholders equity |
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688,180 |
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684,476 |
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Total liabilities and shareholders equity |
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$ |
1,596,744 |
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$ |
1,678,410 |
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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)
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Nine months ended September 30 |
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In thousands |
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2014 |
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2013 |
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Operating activities |
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Net income |
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$ |
49,689 |
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$ |
50,681 |
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Adjustments to reconcile to net cash provided by operations: |
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Depreciation, depletion and amortization |
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53,547 |
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50,028 |
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Amortization of debt issue costs and original issue discount |
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985 |
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977 |
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Pension expense, net of unfunded benefits paid |
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4,575 |
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9,646 |
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Charge for impairment of intangible asset |
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3,262 |
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Deferred income tax benefit |
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(4,434 |
) |
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(10,876 |
) |
Gains on dispositions of plant, equipment and timberlands, net |
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(3,881 |
) |
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(374 |
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Share-based compensation |
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5,811 |
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5,523 |
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Change in operating assets and liabilities |
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Accounts receivable |
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(35,528 |
) |
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(23,496 |
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Inventories |
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(19,982 |
) |
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7,225 |
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Prepaid and other current assets |
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(2,367 |
) |
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4,659 |
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Accounts payable |
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(25,576 |
) |
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5,065 |
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Accruals and other current liabilities |
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(6,214 |
) |
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2,218 |
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Other |
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1,493 |
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(5,583 |
) |
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Net cash provided by operating activities |
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21,380 |
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95,693 |
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Investing activities |
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Expenditures for purchases of plant, equipment and timberlands |
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(47,036 |
) |
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(86,089 |
) |
Proceeds from disposals of plant, equipment and timberlands, net |
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4,051 |
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|
379 |
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Acquisition, net of cash acquired |
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(210,911 |
) |
Other |
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(600 |
) |
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(325 |
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Net cash used by investing activities |
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(43,585 |
) |
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(296,946 |
) |
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Financing activities |
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Net borrowings under (repayments of) revolving credit facility |
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(30,720 |
) |
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126,139 |
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Payments of borrowing costs |
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(419 |
) |
Proceeds from term loans |
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12,592 |
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|
56,091 |
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Repurchases of common stock |
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(12,180 |
) |
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Payments of dividends |
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(13,935 |
) |
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(12,603 |
) |
Payments related to share-based compensation awards and other |
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(1,764 |
) |
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(2,332 |
) |
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Net cash (used) provided by financing activities |
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(46,007 |
) |
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166,876 |
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Effect of exchange rate changes on cash |
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(1,015 |
) |
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|
333 |
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Net decrease in cash and cash equivalents |
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(69,227 |
) |
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(34,044 |
) |
Cash and cash equivalents at the beginning of period |
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|
122,882 |
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|
97,679 |
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Cash and cash equivalents at the end of period |
|
$ |
53,655 |
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|
$ |
63,635 |
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Supplemental cash flow information |
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Cash paid for: |
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Interest, net of amounts capitalized |
|
$ |
9,959 |
|
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$ |
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)
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.
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.
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 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 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 being depreciated on a straight-line basis
with estimated remaining lives ranging from 5 years to 30 years. Intangible assets are being amortized on a straight-line basis over an average estimated remaining life of 17 years reflecting the expected future value.
In connection with the Dresden acquisition we recorded $74.9 million of goodwill and $87.6 million of intangible assets. The goodwill
arising from the acquisition largely relates to strategic benefits, product and market diversification, assembled workforce, and similar factors. For tax purposes, none of the goodwill is deductible. Intangible assets consisted of $9.8 million of
non-amortizing tradename, and the remainder consists of technology and customer relationships.
Our results of operations
include the results of Dresden prospectively since the acquisition was completed on April 30, 2013. All such results reported herein are included as part of the Composite Fibers business unit. Revenue of Dresden included in our consolidated
results of operations for the third quarter and first nine months of 2014 totaled $38.8 million and $118.4 million, respectively, and operating income for the same periods of 2014 totaled $6.5 million and $23.6 million, respectively.
The table below summarizes pro forma financial information as if the acquisition and related financing transaction occurred as of
January 1, 2013:
This unaudited pro forma financial information above is not necessarily indicative of what the
operating results would have been had the acquisition been completed at the beginning of the respective period nor is it indicative of future results.
|
|
|
|
|
In thousands, except per share |
|
Nine months ended September 30, 2013 |
|
Pro forma |
|
|
|
|
Net sales |
|
$ |
1,344,623 |
|
Net income |
|
|
63,709 |
|
Diluted earnings per share |
|
|
1.44 |
|
- 7 -
GLATFELTER
9.30.14 Form 10-Q
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the details of basic and diluted earnings per share (EPS):
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30 |
|
In thousands, except per share |
|
2014 |
|
|
2013 |
|
Net income |
|
$ |
30,372 |
|
|
$ |
34,119 |
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding used in basic EPS |
|
|
43,049 |
|
|
|
43,251 |
|
Common shares issuable upon exercise of dilutive stock options and PSAs / RSUs |
|
|
792 |
|
|
|
1,077 |
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding and common share equivalents used in diluted EPS |
|
|
43,841 |
|
|
|
44,328 |
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.71 |
|
|
$ |
0.79 |
|
Diluted |
|
|
0.69 |
|
|
|
0.77 |
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30 |
|
In thousands, except per share |
|
2014 |
|
|
2013 |
|
Net income |
|
$ |
49,689 |
|
|
$ |
50,681 |
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding used in basic EPS |
|
|
43,233 |
|
|
|
43,118 |
|
Common shares issuable upon exercise of dilutive stock options and PSAs / RSUs |
|
|
878 |
|
|
|
1,095 |
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding and common share equivalents used in diluted EPS |
|
|
44,111 |
|
|
|
44,213 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share |
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.15 |
|
|
$ |
1.18 |
|
Diluted |
|
|
1.13 |
|
|
|
1.15 |
|
The following table sets forth potential common shares outstanding for stock options and restricted
stock units that were not included in the computation of diluted EPS for the period indicated, because their effect would be anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
September 30 |
|
|
|
2014 |
|
|
2013 |
|
Three months ended |
|
|
282 |
|
|
|
|
|
Nine months ended |
|
|
282 |
|
|
|
|
|
- 8 -
GLATFELTER
9.30.14 Form 10-Q
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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 9 -
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
- 11 -
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 |
|
|
|
|
|
|
|
|
|
|
- 12 -
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 Dresdens business in Russia and Ukraine and this regions political instability. The charge is recorded in the accompanying condensed consolidated statements of
income under the caption selling, general and administrative expenses.
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 |
|
|
|
|
|
|
|
|
|
|
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 banks base rate which is equal to the greater of i) the prime rate; ii) the federal funds rate plus
50 basis points plus an applicable spread ranging from 25 basis points to 125 basis points based on our corporate credit ratings determined by Standard & Poors Rating Services and
Moodys Investor Service, Inc. (the Corporate Credit Rating); or iii) the daily Euro-rate plus 100 basis points; or (b) the daily Euro-rate plus an applicable margin ranging from 125 basis points to 225 basis points based on
the Corporate Credit Rating. For non-US dollar denominated borrowings, interest is based on (b) above.
The Revolving
Credit Facility contains a number of customary covenants for financings of this type that, among other things, restrict our ability to dispose of or create liens on assets, incur additional indebtedness, repay other indebtedness, limits certain
intercompany financing arrangements, make acquisitions and engage in mergers or consolidations. We are also required to comply with specified financial tests and ratios including: i) maximum net debt to earnings before interest, taxes, depreciation
and amortization (EBITDA) ratio (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.
- 13 -
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 |
|
|
|
|
|
|
|
|
|
|
- 14 -
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
InstrumentsCash 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.
- 15 -
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.
- 16 -
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
counterpartys obligations exceed our obligation to them. Our policy is to enter into contracts only with financial institutions which meet certain minimum credit ratings.
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-Pacifics
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 courts 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 Appvions 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 NCRs 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 courts 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 courts 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 mills 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 mills 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 partys 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
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. 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.
- 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 years presentation.
Condensed Consolidating Statements of Income and Comprehensive Income for the
three months ended September 30, 2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands |
|
Parent Company |
|
|
Guarantors |
|
|
Non Guarantors |
|
|
Adjustments/ Eliminations |
|
|
Consolidated |
|
Net sales |
|
$ |
236,182 |
|
|
$ |
7 |
|
|
$ |
228,910 |
|
|
$ |
(7 |
) |
|
$ |
465,092 |
|
Energy and related sales, net |
|
|
860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
237,042 |
|
|
|
7 |
|
|
|
228,910 |
|
|
|
(7 |
) |
|
|
465,952 |
|
Costs of products sold |
|
|
196,888 |
|
|
|
7 |
|
|
|
188,551 |
|
|
|
(7 |
) |
|
|
385,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
40,154 |
|
|
|
|
|
|
|
40,359 |
|
|
|
|
|
|
|
80,513 |
|
Selling, general and administrative expenses |
|
|
19,352 |
|
|
|
306 |
|
|
|
18,228 |
|
|
|
|
|
|
|
37,886 |
|
Gains on dispositions of plant, equipment and timberlands, net |
|
|
(1,590 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,590 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
22,392 |
|
|
|
(306 |
) |
|
|
22,131 |
|
|
|
|
|
|
|
44,217 |
|
Other non-operating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(4,790 |
) |
|
|
|
|
|
|
(90,098 |
) |
|
|
90,217 |
|
|
|
(4,671 |
) |
Interest income |
|
|
152 |
|
|
|
89,951 |
|
|
|
145 |
|
|
|
(90,218 |
) |
|
|
30 |
|
Other, net |
|
|
14,491 |
|
|
|
90,952 |
|
|
|
202 |
|
|
|
(105,812 |
) |
|
|
(167 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other non-operating income (expense) |
|
|
9,853 |
|
|
|
180,903 |
|
|
|
(89,751 |
) |
|
|
(105,813 |
) |
|
|
(4,808 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
32,245 |
|
|
|
180,597 |
|
|
|
(67,620 |
) |
|
|
(105,813 |
) |
|
|
39,409 |
|
Income tax provision |
|
|
1,873 |
|
|
|
470 |
|
|
|
6,694 |
|
|
|
|
|
|
|
9,037 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
30,372 |
|
|
|
180,127 |
|
|
|
(74,314 |
) |
|
|
(105,813 |
) |
|
|
30,372 |
|
Other comprehensive income (loss) |
|
|
(29,577 |
) |
|
|
(25,844 |
) |
|
|
16,924 |
|
|
|
8,920 |
|
|
|
(29,577 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
795 |
|
|
$ |
154,283 |
|
|
$ |
(57,390 |
) |
|
|
96,893 |
|
|
$ |
795 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 22 -
GLATFELTER
9.30.14 Form 10-Q
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 |
|
|
$ |
28 |
|
|
$ |
686,277 |
|
|
$ |
(28 |
) |
|
$ |
1,366,154 |
|
Energy and related sales net |
|
|
6,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,912 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
686,789 |
|
|
|
28 |
|
|
|
686,277 |
|
|
|
(28 |
) |
|
|
1,373,066 |
|
Costs of products sold |
|
|
629,360 |
|
|
|
28 |
|
|
|
566,716 |
|
|
|
(28 |
) |
|
|
1,196,076 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
57,429 |
|
|
|
|
|
|
|
119,561 |
|
|
|
|
|
|
|
176,990 |
|
Selling, general and administrative expenses |
|
|
53,699 |
|
|
|
462 |
|
|
|
49,590 |
|
|
|
|
|
|
|
103,751 |
|
Gains on dispositions of plant, equipment and timberlands, net |
|
|
(2,565 |
) |
|
|
(1,316 |
) |
|
|
|
|
|
|
|
|
|
|
(3,881 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
6,295 |
|
|
|
854 |
|
|
|
69,971 |
|
|
|
|
|
|
|
77,120 |
|
Other non-operating income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
(14,284 |
) |
|
|
|
|
|
|
(95,643 |
) |
|
|
95,682 |
|
|
|
(14,245 |
) |
Interest income |
|
|
468 |
|
|
|
95,165 |
|
|
|
193 |
|
|
|
(95,683 |
) |
|
|
143 |
|
Other, net |
|
|
54,789 |
|
|
|
90,973 |
|
|
|
1,673 |
|
|
|
(147,330 |
) |
|
|
105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other non-operating income (expense) |
|
|
40,973 |
|
|
|
186,138 |
|
|
|
(93,777 |
) |
|
|
(147,331 |
) |
|
|
(13,997 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
47,268 |
|
|
|
186,992 |
|
|
|
(23,806 |
) |
|
|
(147,331 |
) |
|
|
63,123 |
|
Income tax provision (benefit) |
|
|
(2,421 |
) |
|
|
2,098 |
|
|
|
13,757 |
|
|
|
|
|
|
|
13,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
49,689 |
|
|
|
184,894 |
|
|
|
(37,563 |
) |
|
|
(147,331 |
) |
|
|
49,689 |
|
Other comprehensive income (loss) |
|
|
(23,586 |
) |
|
|
(26,392 |
) |
|
|
18,907 |
|
|
|
7,485 |
|
|
|
(23,586 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
26,103 |
|
|
$ |
158,502 |
|
|
$ |
(18,656 |
) |
|
$ |
(139,846 |
) |
|
$ |
26,103 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 24 -
GLATFELTER
9.30.14 Form 10-Q
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 |
|
|
$ |
93 |
|
|
$ |
33,254 |
|
|
$ |
|
|
|
$ |
53,655 |
|
Other current assets |
|
|
238,216 |
|
|
|
420,388 |
|
|
|
313,091 |
|
|
|
(471,667 |
) |
|
|
500,028 |
|
Plant, equipment and timberlands, net |
|
|
250,066 |
|
|
|
998 |
|
|
|
440,576 |
|
|
|
|
|
|
|
691,640 |
|
Other assets |
|
|
1,007,426 |
|
|
|
304,088 |
|
|
|
191,166 |
|
|
|
(1,151,259 |
) |
|
|
351,421 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,516,016 |
|
|
$ |
725,567 |
|
|
$ |
978,087 |
|
|
$ |
(1,622,926 |
) |
|
$ |
1,596,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
400,103 |
|
|
$ |
5,026 |
|
|
$ |
323,128 |
|
|
$ |
(476,317 |
) |
|
$ |
251,940 |
|
Long-term debt |
|
|
250,000 |
|
|
|
|
|
|
|
749,491 |
|
|
|
(593,131 |
) |
|
|
406,360 |
|
Deferred income taxes |
|
|
73,961 |
|
|
|
(628 |
) |
|
|
70,076 |
|
|
|
(12,732 |
) |
|
|
130,677 |
|
Other long-term liabilities |
|
|
103,772 |
|
|
|
|
|
|
|
11,792 |
|
|
|
4,023 |
|
|
|
119,587 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
827,836 |
|
|
|
4,398 |
|
|
|
1,154,487 |
|
|
|
(1,078,157 |
) |
|
|
908,564 |
|
Shareholders equity |
|
|
688,180 |
|
|
|
721,169 |
|
|
|
(176,400 |
) |
|
|
(544,769 |
) |
|
|
688,180 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
1,516,016 |
|
|
$ |
725,567 |
|
|
$ |
978,087 |
|
|
$ |
(1,622,926 |
) |
|
$ |
1,596,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Balance Sheet as of
December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In thousands |
|
Parent Company |
|
|
Guarantors |
|
|
Non Guarantors |
|
|
Adjustments/ Eliminations |
|
|
Consolidated |
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
56,216 |
|
|
$ |
501 |
|
|
$ |
66,165 |
|
|
$ |
|
|
|
$ |
122,882 |
|
Other current assets |
|
|
208,814 |
|
|
|
327,152 |
|
|
|
253,779 |
|
|
|
(326,045 |
) |
|
|
463,700 |
|
Plant, equipment and timberlands, net |
|
|
247,243 |
|
|
|
1,054 |
|
|
|
475,043 |
|
|
|
|
|
|
|
723,340 |
|
Other assets |
|
|
973,748 |
|
|
|
236,411 |
|
|
|
214,301 |
|
|
|
(1,055,972 |
) |
|
|
368,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,486,021 |
|
|
$ |
565,118 |
|
|
$ |
1,009,288 |
|
|
$ |
(1,382,017 |
) |
|
$ |
1,678,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
$ |
375,535 |
|
|
$ |
2,855 |
|
|
$ |
247,855 |
|
|
$ |
(337,878 |
) |
|
$ |
288,367 |
|
Long-term debt |
|
|
250,000 |
|
|
|
|
|
|
|
513,120 |
|
|
|
(320,795 |
) |
|
|
442,325 |
|
Deferred income taxes |
|
|
70,989 |
|
|
|
(283 |
) |
|
|
78,633 |
|
|
|
(8,319 |
) |
|
|
141,020 |
|
Other long-term liabilities |
|
|
105,021 |
|
|
|
|
|
|
|
13,792 |
|
|
|
3,409 |
|
|
|
122,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
801,545 |
|
|
|
2,572 |
|
|
|
853,400 |
|
|
|
(663,583 |
) |
|
|
993,934 |
|
Shareholders equity |
|
|
684,476 |
|
|
|
562,546 |
|
|
|
155,888 |
|
|
|
(718,434 |
) |
|
|
684,476 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
1,486,021 |
|
|
$ |
565,118 |
|
|
$ |
1,009,288 |
|
|
$ |
(1,382,017 |
) |
|
$ |
1,678,410 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 26 -
GLATFELTER
9.30.14 Form 10-Q
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 |
|
|
|
|