glt-10q_20180331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended March 31, 2018

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

(Registrant's telephone number, including area code)

 

 

Commission file

number

 

Exact name of registrant as

specified in its charter

 

IRS Employer

Identification No.

 

State or other jurisdiction of

incorporation or organization

 

 

1-03560

 

P. H. Glatfelter Company

 

23-0628360

 

Pennsylvania

 

 

N/A

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

 

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

 

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

 

Large accelerated filer

 

Accelerated filer

Non-accelerated filer

(Do not check if a smaller reporting company)

Smaller reporting company

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

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

Common Stock outstanding on April 25, 2018 totaled 43,698,464 shares.

 

 

 


 

P. H. GLATFELTER COMPANY AND SUBSIDIARIES

REPORT ON FORM 10-Q

For the QUARTERLY PERIOD ENDED

March 31, 2018

Table of Contents

 

 

Page

 

Page

 

 

PART I - FINANCIAL INFORMATION

 

 

 

 

 

 

Item 1

Financial Statements

 

 

 

Condensed Consolidated Statements of Income for the three months ended March 31, 2018 and 2017 (unaudited)

 

2

 

Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2018 and 2017 (unaudited)

 

3

 

Condensed Consolidated Balance Sheets as of March 31, 2018 and December 31, 2017 (unaudited)

 

4

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017 (unaudited)

 

5

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

6

 

1.

Organization

 

6

 

2.

Accounting Policies

 

6

 

3.

Revenue

 

7

 

4.

Gain on Disposition of Plant, Equipment and Timberlands

 

8

 

5.

Earnings Per Share

 

8

 

6.

Accumulated Other Comprehensive Income

 

9

 

7.

Income Taxes

 

10

 

8.

Stock-based Compensation

 

11

 

9.

Retirement Plans and Other Post- Retirement Benefits

 

12

 

10.

Inventories

 

12

 

11.

Capitalized Interest

 

12

 

12.

Long-term Debt

 

12

 

13.

Fair Value of Financial Instruments

 

14

 

14.

Financial Derivatives and Hedging Activities

 

14

 

15.

Commitments, Contingencies and Legal Proceedings

 

16

 

16.

Segment Information

 

19

 

17.

Condensed Consolidating Financial Statements

 

20

 

 

 

 

Item 2

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

 

24

Item 3

Quantitative and Qualitative Disclosures About Market Risks

 

31

Item 4

Controls and Procedures

 

31

 

 

 

 

PART II – OTHER INFORMATION

 

32

 

 

 

 

Item 6

Exhibits

 

32

 

 

 

 

 

SIGNATURES

 

32

 

 

 

 


 

PART I

Item 1 – Financial Statements

P. H. GLATFELTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(unaudited)

 

 

 

Three months ended

March 31

 

In thousands, except per share

 

2018

 

 

2017

 

Net sales

 

$

410,647

 

 

$

390,713

 

Energy and related sales, net

 

 

1,428

 

 

 

1,129

 

Total revenues

 

 

412,075

 

 

 

391,842

 

Costs of products sold

 

 

363,169

 

 

 

336,213

 

Gross profit

 

 

48,906

 

 

 

55,629

 

Selling, general and administrative expenses

 

 

37,063

 

 

 

34,877

 

(Gains) losses on dispositions of plant, equipment and timberlands, net

 

 

(1,554

)

 

 

32

 

Operating income

 

 

13,397

 

 

 

20,720

 

Non-operating income (expense)

 

 

 

 

 

 

 

 

Interest expense

 

 

(5,195

)

 

 

(4,008

)

Interest income

 

 

54

 

 

 

113

 

Other, net

 

 

229

 

 

 

812

 

Total non-operating expense

 

 

(4,912

)

 

 

(3,083

)

Income before income taxes

 

 

8,485

 

 

 

17,637

 

Income tax provision

 

 

2,769

 

 

 

6,034

 

Net income

 

$

5,716

 

 

$

11,603

 

Earnings per share

 

 

 

 

 

 

 

 

Basic

 

$

0.13

 

 

$

0.27

 

Diluted

 

 

0.13

 

 

 

0.26

 

Cash dividends declared per common share

 

$

0.13

 

 

$

0.13

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

Basic

 

 

43,700

 

 

 

43,583

 

Diluted

 

 

44,567

 

 

 

44,493

 

 

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

 

 

- 2 -

GLATFELTER

03.31.18 Form 10-Q


 

P. H. GLATFELTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(unaudited)

 

 

 

Three months ended

March 31

 

 

In thousands

 

2018

 

 

2017

 

 

Net income

 

$

5,716

 

 

$

11,603

 

 

Foreign currency translation adjustments

 

 

12,747

 

 

 

6,065

 

 

Net change in:

 

 

 

 

 

 

 

 

 

Deferred losses on cash flow hedges, net of taxes

 

 

 

 

 

 

 

 

 

of $583 and $288, respectively

 

 

(1,802

)

 

 

(946

)

 

Unrecognized retirement obligations, net of taxes

 

 

 

 

 

 

 

 

 

of $(977) and $(1,248), respectively

 

 

3,075

 

 

 

2,074

 

 

Other comprehensive income

 

 

14,020

 

 

 

7,193

 

 

Comprehensive income

 

$

19,736

 

 

$

18,796

 

 

 

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

 

 

- 3 -

GLATFELTER

03.31.18 Form 10-Q


 

P. H. GLATFELTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

 

 

March 31

 

 

December 31

 

In thousands

2018

 

 

2017

 

Assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

117,277

 

 

$

116,219

 

Accounts receivable, net

 

183,258

 

 

 

174,154

 

Inventories

 

262,947

 

 

 

252,064

 

Prepaid expenses and other current assets

 

45,218

 

 

 

42,534

 

Total current assets

 

608,700

 

 

 

584,971

 

Plant, equipment and timberlands, net

 

870,734

 

 

 

865,743

 

Goodwill

 

84,977

 

 

 

82,744

 

Intangible assets, net

 

59,168

 

 

 

58,859

 

Other assets

 

141,033

 

 

 

138,478

 

Total assets

$

1,764,612

 

 

$

1,730,795

 

Liabilities and Shareholders' Equity

 

 

 

 

 

 

 

Current portion of long-term debt

$

11,607

 

 

$

11,298

 

Accounts payable

 

187,661

 

 

 

190,478

 

Dividends payable

 

5,689

 

 

 

5,678

 

Environmental liabilities

 

26,000

 

 

 

28,500

 

Other current liabilities

 

107,739

 

 

 

111,222

 

Total current liabilities

 

338,696

 

 

 

347,176

 

Long-term debt

 

494,131

 

 

 

470,098

 

Deferred income taxes

 

85,025

 

 

 

83,571

 

Other long-term liabilities

 

122,768

 

 

 

121,022

 

Total liabilities

 

1,040,620

 

 

 

1,021,867

 

Commitments and contingencies

 

 

 

 

 

Shareholders’ equity

 

 

 

 

 

 

 

Common stock

 

544

 

 

 

544

 

Capital in excess of par value

 

62,359

 

 

 

62,594

 

Retained earnings

 

970,736

 

 

 

948,411

 

Accumulated other comprehensive loss

 

(148,953

)

 

 

(140,675

)

 

 

884,686

 

 

 

870,874

 

Less cost of common stock in treasury

 

(160,694

)

 

 

(161,946

)

Total shareholders’ equity

 

723,992

 

 

 

708,928

 

Total liabilities and shareholders’ equity

$

1,764,612

 

 

$

1,730,795

 

 

 

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

- 4 -

GLATFELTER

03.31.18 Form 10-Q


 

P. H. GLATFELTER COMPANY AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

Three months ended

March 31

 

In thousands

2018

 

 

2017

 

Operating activities

 

 

 

 

 

 

 

Net income

$

5,716

 

 

$

11,603

 

Adjustments to reconcile to net cash provided by operations:

 

 

 

 

 

 

 

Depreciation, depletion and amortization

 

19,431

 

 

 

17,282

 

Amortization of debt issue costs and original issue discount

 

290

 

 

 

289

 

Pension expense, net of unfunded benefits paid

 

1,298

 

 

 

928

 

Deferred income tax provision (benefit)

 

(2,244

)

 

 

1,704

 

(Gains) losses on dispositions of plant, equipment and timberlands, net

 

(1,554

)

 

 

32

 

Share-based compensation

 

1,983

 

 

 

1,648

 

Change in operating assets and liabilities

 

 

 

 

 

 

 

Accounts receivable

 

(6,550

)

 

 

(11,462

)

Inventories

 

(7,795

)

 

 

(9,907

)

Prepaid and other current assets

 

(3,192

)

 

 

1,670

 

Accounts payable

 

4,111

 

 

 

2,903

 

Accruals and other current liabilities

 

(5,286

)

 

 

(8,874

)

Other

 

1,451

 

 

 

(255

)

Net cash provided by operating activities

 

7,659

 

 

 

7,561

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investing activities

 

 

 

 

 

 

 

Expenditures for purchases of plant, equipment and timberlands

 

(26,568

)

 

 

(36,783

)

Proceeds from disposals of plant, equipment and timberlands, net

 

1,695

 

 

 

 

Other

 

(28

)

 

 

 

Net cash used by investing activities

 

(24,901

)

 

 

(36,783

)

 

 

 

 

 

 

 

 

Financing activities

 

 

 

 

 

 

 

Net borrowings under revolving credit facility

 

25,388

 

 

 

38,236

 

Repayment of term loans

 

(2,902

)

 

 

(2,190

)

Payments of dividends

 

(5,679

)

 

 

(5,455

)

Payments related to share-based compensation awards and other

 

(965

)

 

 

(112

)

Net cash provided by financing activities

 

15,842

 

 

 

30,479

 

Effect of exchange rate changes on cash

 

2,458

 

 

 

526

 

Net increase in cash and cash equivalents

 

1,058

 

 

 

1,783

 

Cash and cash equivalents at the beginning of period

 

116,219

 

 

 

55,444

 

Cash and cash equivalents at the end of period

$

117,277

 

 

$

57,227

 

 

 

 

 

 

 

 

 

Supplemental cash flow information

 

 

 

 

 

 

 

Cash paid for:

 

 

 

 

 

 

 

Interest, net of amounts capitalized

$

1,496

 

 

$

293

 

Income taxes, net

 

2,956

 

 

 

2,194

 

 

 

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

 

- 5 -

GLATFELTER

03.31.18 Form 10-Q


 

P. H. GLATFELTER COMPANY AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

 

 

1.

ORGANIZATION

P. H. Glatfelter Company and subsidiaries (“Glatfelter”) is a manufacturer of specialty papers and fiber-based engineered materials. Headquartered in York, PA, U.S. operations include facilities in Fort Smith, AR, Spring Grove, PA and Chillicothe and Fremont, OH. International operations include facilities in Canada, Germany, France, the United Kingdom and the Philippines, and sales and distribution offices in the U.S., Russia and China. The terms “we,” “us,” “our,” “the Company,” or “Glatfelter,” refer to P. H. Glatfelter Company and subsidiaries unless the context indicates otherwise. Our products are marketed worldwide, either through wholesale paper merchants, brokers and agents, or directly to customers.

 

 

2.

ACCOUNTING POLICIES

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

We prepared these financial statements in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles” or “GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission pertaining to interim financial statements. In our opinion, the financial statements reflect all normal, recurring adjustments needed to present fairly our results for the interim periods. When preparing these financial statements, we have assumed that you have read the audited consolidated financial statements included in our 2017 Annual Report on Form 10-K.

Reclassification   As a result of adopting the provisions of Accounting Standards Update (“ASU”) No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Cost we reclassified certain amounts of periodic benefit expense for previously reported periods from Cost of products sold and Selling, general and administrative expense to Non Operating Expense.  As a result of applying the ASU, Costs of products sold for the first quarter of 2017 was increased by $1.3 million and Selling, general and administrative expenses were reduced by $0.2 million and the offsetting net reclassification reduced Non-operating expense by $1.1 million.

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.

Revenue Recognition  We adopted ASU No. 2014-09, Revenue from Contracts with Customers in the first quarter of 2018. This ASU clarifies the principles for recognizing revenue and establishes expanded disclosure requirements; however, the adoption of ASU No. 2014-09 had no impact on the timing or amount of revenue recognized for any period presented.  Refer to Note 3 for additional information about the disaggregation of our net sales.

Our revenue is earned primarily from the manufacture and sale of specialty papers and engineered materials (“product sales”).  Revenue is earned pursuant to contracts, supply agreements and other arrangements with a wide variety of customers. Our performance obligation is to produce a specified product according to technical specifications and, in substantially all instances, to deliver the product. Revenue from product sales is earned at a point in time. We recognize revenue on product sales when we have satisfied our performance obligation and control of the product has passed to the customer thereby entitling us to payment. With respect to substantially all arrangements for product sales, this is deemed to occur when title transfers in accordance with specified shipping terms.

The prices are fixed at the time the sales arrangement is entered into and payment terms are customary for similar arrangements in our industry. Many of our agreements include customary provisions for volume rebates, discounts and similar incentives. In addition, we are obligated for products that fail to meet agreed upon specification. Provisions for such items are estimated and recorded as sales deductions in the period in which the related revenue is recognized.

Revenue from power sales and renewable energy credits is recorded under the caption “Energy and related sales, net” in the condensed consolidated statements of income and is recognized upon fulfillment of our performance obligation which is generally upon meeting capacity commitments or delivery of REC certificates. Revenue from energy sales is recognized when electricity is delivered to the customer. Prices for power sales and renewable energy credits are fixed at the time of sale and payment is generally due within normal terms and conditions customary for the industry.

- 6 -

GLATFELTER

03.31.18 Form 10-Q


 

Certain costs associated with the production of electricity, such as fuel, labor, depreciation and maintenance are netted against energy sales for presentation on the condensed consolidated statements of income.

Recently Issued Accounting Pronouncements   In February 2018, the FASB issued ASU No. 2018-02, “Reclassification of Certain Tax Effects From Accumulated Other Comprehensive Income. (“ASU No. 2018-02”).”  In December 2017, Tax Cuts and Jobs Act (“TCJA”) was passed into law and, among other provisions, reduced the statutory federal tax rate from 35% to 21%.  The change in the tax rate impacted the carrying value of deferred tax assets and liabilities.  ASU No. 2018-02 allows a reclassification from accumulated other comprehensive income (“AOCI”) to retained earnings for stranded tax effects resulting from the TCJA.  We elected to adopt ASU No. 2018-02 in the first quarter of 2018, and we reclassified $22.3 million of net deferred tax benefits from AOCI to retained earnings.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This ASU will require organizations such as us that lease assets to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. The new guidance will be effective for annual periods beginning after December 15, 2018, and interim periods therein. Early adoption is permitted. We are in the process of assessing the impact this standard will have on us and expect to follow a modified retrospective method provided for under the standard.

In June 2016, the FASB issued ASU No. 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments that changes the impairment model for most financial instruments, including trade receivables from an incurred loss method to a new forward-looking approach, based on expected losses. Under the new guidance, an allowance is recognized based on an estimate of expected credit losses. This standard is effective for us in the first quarter of 2020 and must be adopted using a modified retrospective transition approach. We are currently assessing the impact this standard may have on our results of operations and financial position.

In August 2017, the FASB issued ASU No. 2017-12, "Derivatives and Hedging (Topic 815), Targeted Improvements to Accounting for Hedging Activities" (“ASU No. 2017-12”), which simplifies the application of hedge accounting and more closely aligns hedge accounting with an entity’s risk management strategies. ASU No. 2017-12 also amends the manner in which hedge effectiveness may be performed and changes the presentation of hedge ineffectiveness in the financial statements. ASU No. 2017-12 is effective for us beginning January 1, 2019, with early adoption permitted. ASU No. 2017-12 requires a cumulative-effect adjustment for certain items upon adoption. We are

currently evaluating the impact the adoption of ASU No. 2017-12 will have on our consolidated financial statements.

 

3.

REVENUE

The following tables set forth disaggregated information pertaining to our net sales:

 

 

 

Three months ended

March 31

 

 

In thousands

 

2018

 

 

2017

 

 

Composite Fibers

 

 

 

 

 

 

 

 

 

Food & beverage

 

$

70,397

 

 

$

62,602

 

 

Wallcovering

 

 

28,132

 

 

 

22,455

 

 

Technical specialties

 

 

20,958

 

 

 

17,707

 

 

Composite laminates

 

 

9,398

 

 

 

8,839

 

 

Metallized

 

 

12,713

 

 

 

13,500

 

 

 

 

 

141,598

 

 

 

125,103

 

 

 

 

 

 

 

 

 

 

 

 

Advanced Airlaid Materials

 

 

 

 

 

 

 

 

 

Feminine hygiene

 

 

48,473

 

 

 

42,424

 

 

Specialty wipes

 

 

7,767

 

 

 

6,050

 

 

Adult incontinence

 

 

4,432

 

 

 

3,644

 

 

Home care

 

 

4,027

 

 

 

2,758

 

 

Other

 

 

4,910

 

 

 

4,962

 

 

 

 

 

69,609

 

 

 

59,838

 

 

 

 

 

 

 

 

 

 

 

 

Specialty Papers

 

 

 

 

 

 

 

 

 

Carbonless & forms

 

 

71,870

 

 

 

77,072

 

 

Engineered products

 

 

49,951

 

 

 

48,162

 

 

Envelope & converting

 

 

37,905

 

 

 

42,857

 

 

Book publishing

 

 

38,558

 

 

 

37,173

 

 

Other

 

 

1,156

 

 

 

508

 

 

 

 

 

199,440

 

 

 

205,772

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

410,647

 

 

$

390,713

 

 

 

- 7 -

GLATFELTER

03.31.18 Form 10-Q


 

 

 

Three months ended

March 31

 

 

In thousands

 

2018

 

 

2017

 

 

Composite Fibers

 

 

 

 

 

 

 

 

 

Europe, Middle East and Africa

 

$

94,782

 

 

$

83,547

 

 

Americas

 

 

24,048

 

 

 

23,059

 

 

Asia Pacific

 

 

22,768

 

 

 

18,497

 

 

 

 

 

141,598

 

 

 

125,103

 

 

 

 

 

 

 

 

 

 

 

 

Advanced Airlaid Materials

 

 

 

 

 

 

 

 

 

Europe, Middle East and Africa

 

 

36,228

 

 

 

29,729

 

 

Americas

 

 

32,815

 

 

 

29,921

 

 

Asia Pacific

 

 

566

 

 

 

188

 

 

 

 

 

69,609

 

 

 

59,838

 

 

 

 

 

 

 

 

 

 

 

 

Specialty Papers

 

 

 

 

 

 

 

 

 

Americas

 

 

197,829

 

 

 

204,774

 

 

Other

 

 

1,611

 

 

 

998

 

 

 

 

 

199,440

 

 

 

205,772

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL

 

$

410,647

 

 

$

390,713

 

 

 

 

4.

GAINS (LOSSES) ON DISPOSITION OF PLANT, EQUIPMENT AND TIMBERLANDS

 

During the three months ended March 31, 2018 and 2017 we completed the following sales of assets:

 

Dollars in thousands

 

Acres

 

 

Proceeds

 

 

Gain (loss)

 

 

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

Timberlands

 

 

426

 

 

$

1,156

 

 

$

1,115

 

 

Other

 

n/a

 

 

 

539

 

 

 

439

 

 

Total

 

 

 

 

 

$

1,695

 

 

$

1,554

 

 

2017

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

n/a

 

 

$

-

 

 

$

(32

)

 

Total

 

 

 

 

 

$

-

 

 

$

(32

)

 

 

 

5.

EARNINGS PER SHARE

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

 

 

Three months ended

March 31

 

In thousands, except per share

2018

 

 

 

2017

 

Net income

$

5,716

 

 

 

$

11,603

 

Weighted average common shares

 

 

 

 

 

 

 

 

outstanding used in basic EPS

 

43,700

 

 

 

 

43,583

 

Common shares issuable upon

 

 

 

 

 

 

 

 

exercise of dilutive stock options

 

 

 

 

 

 

 

 

and PSAs / RSUs

 

867

 

 

 

 

910

 

Weighted average common shares

 

 

 

 

 

 

 

 

outstanding and common share

 

 

 

 

 

 

 

 

equivalents used in diluted EPS

 

44,567

 

 

 

 

44,493

 

Earnings per share

 

 

 

 

 

 

 

 

Basic

$

0.13

 

 

 

$

0.27

 

Diluted

 

0.13

 

 

 

 

0.26

 

 

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

 

 

March 31

 

In thousands

2018

 

 

 

2017

 

Three months ended

 

587

 

 

 

 

592

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- 8 -

GLATFELTER

03.31.18 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 ended March 31, 2018 and 2017.

In thousands

Currency translation adjustments

 

 

Unrealized gain (loss) on cash flow hedges

 

 

Change in pensions

 

 

Change in other postretirement defined benefit plans

 

 

Total

 

Balance at January 1, 2018

$

(41,839

)

 

$

(4,092

)

 

$

(98,295

)

 

$

3,551

 

 

$

(140,675

)

Amount reclassified for adoption of ASU No. 2018-02

 

 

 

 

 

 

 

 

 

(23,297

)

 

 

999

 

 

 

(22,298

)

Balance as adjusted at January 1, 2018

 

(41,839

)

 

 

(4,092

)

 

 

(121,592

)

 

 

4,550

 

 

 

(162,973

)

Other comprehensive income

   before reclassifications  (net of tax)

 

12,747

 

 

 

(3,217

)

 

 

 

 

 

 

 

 

9,530

 

Amounts reclassified from accumulated

   other comprehensive income  (net of tax)

 

 

 

 

1,415

 

 

 

3,164

 

 

 

(89

)

 

 

4,490

 

Net current period other comprehensive

   income (loss)

 

12,747

 

 

 

(1,802

)

 

 

3,164

 

 

 

(89

)

 

 

14,020

 

Balance at March 31, 2018

$

(29,092

)

 

$

(5,894

)

 

$

(118,428

)

 

$

4,461

 

 

$

(148,953

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2017

$

(100,448

)

 

$

1,500

 

 

$

(110,656

)

 

$

4,998

 

 

$

(204,606

)

Other comprehensive income

   before reclassifications  (net of tax)

 

6,065

 

 

 

(255

)

 

 

 

 

 

 

 

 

5,810

 

Amounts reclassified from accumulated

   other comprehensive income  (net of tax)

 

 

 

 

(691

)

 

 

2,190

 

 

 

(116

)

 

 

1,383

 

Net current period other comprehensive

   income (loss)

 

6,065

 

 

 

(946

)

 

 

2,190

 

 

 

(116

)

 

 

7,193

 

Balance at March 31, 2017

$

(94,383

)

 

$

554

 

 

$

(108,466

)

 

$

4,882

 

 

$

(197,413

)

 

 

Reclassifications out of accumulated other comprehensive income and into the condensed consolidated statements of income were as follows:

 

 

Three months ended

March 31

 

 

 

In thousands

 

2018

 

 

2017

 

 

 

Description

 

 

 

 

 

 

 

 

 

Line Item in Statements of Income

Cash flow hedges (Note 13)

 

 

 

 

 

 

 

 

 

 

(Gains) losses on cash flow hedges

 

$

1,959

 

 

$

(931

)

 

Costs of products sold

Tax expense (benefit)

 

 

(544

)

 

 

240

 

 

Income tax provision

Net of tax

 

 

1,415

 

 

 

(691

)

 

 

Retirement plan obligations (Note 8)

 

 

 

 

 

 

 

 

 

 

Amortization of deferred benefit pension plans

 

 

 

 

 

 

 

 

 

 

Prior service costs

 

 

780

 

 

 

704

 

 

Other, net

Actuarial losses

 

 

3,390

 

 

 

2,822

 

 

Other, net

 

 

 

4,170

 

 

 

3,526

 

 

 

Tax benefit

 

 

(1,006

)

 

 

(1,336

)

 

Income tax provision

Net of tax

 

 

3,164

 

 

 

2,190

 

 

 

Amortization of deferred benefit other plans

 

 

 

 

 

 

 

 

 

 

Prior service costs

 

 

(45

)

 

 

(45

)

 

Other, net

Actuarial gains

 

 

(73

)

 

 

(143

)

 

Other, net

 

 

 

(118

)

 

 

(188

)

 

 

Tax expense

 

 

29

 

 

 

72

 

 

Income tax provision

Net of tax

 

 

(89

)

 

 

(116

)

 

 

Total reclassifications, net of tax

 

$

4,490

 

 

$

1,383

 

 

 

 

 

 

- 9 -

GLATFELTER

03.31.18 Form 10-Q


 

 

7.

INCOME TAXES

Effects of the Tax Cuts and Jobs Act

On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“TCJA”) was signed into U.S. law. Among other things, the TCJA reduces the U.S. federal corporate tax rate from 35% to 21% beginning in 2018 and requires companies to pay a one-time transition tax on previously unremitted earnings of non-U.S. subsidiaries that were previously tax deferred. ASC Topic 740, Accounting for Income Taxes, requires companies to recognize the effect of tax law changes in the period of enactment even though the effective date for most provisions is for tax years beginning after December 31, 2017.

Given the significance of the legislation, the U.S. Securities and Exchange Commission (the "SEC") staff issued Staff Accounting Bulletin No. 118 (“SAB 118”), which allows registrants to record provisional amounts during a one year “measurement period” similar to that used when accounting for business combinations.  However, the measurement period is deemed to have ended earlier when the registrant has obtained, prepared, and analyzed the information necessary to finalize its accounting.  During the measurement period, impacts of the law are expected to be recorded at the time a reasonable estimate for all or a portion of the effects can be made, and provisional amounts can be recognized and adjusted as information becomes available, prepared, or analyzed.

Our accounting for certain elements of the TCJA was incomplete as of December 31, 2017 and remains incomplete as of March 31, 2018.  However, we were able to make reasonable estimates of the effects and therefore, recorded provisional estimates for these items.

During early 2018, the Internal Revenue Service issued additional guidance affecting the computation of our 2017 federal income tax liability.  As a result of this and additional analysis, we revised our prior estimates and recorded $0.2 million of additional tax benefits.  The ultimate impact of the TCJA may differ from current estimates, and such differences could be material, due to changes in interpretations or assumptions.

While the TCJA provides for a territorial tax system, beginning in 2018, it includes the global intangible low-taxed income (“GILTI”) provision.  We elected to account for GILTI tax in the period in which it is incurred. The GILTI provisions require entities to include in its U.S. income tax return foreign subsidiary earnings in excess of an allowable return on the foreign subsidiary’s tangible assets.

For the three months ended March 31, 2018, our effective tax rate increased by approximately 10% as a result of the GILTI provisions due to our utilization of U.S. federal tax loss carryforward, which restricts our ability to recognize the associated foreign tax credits and a deduction of up to 50% of the GILTI income. Since we are using U.S. federal tax loss

carryforwards, there is no impact to cash taxes related to the GILTI provisions.

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 March 31, 2018 and December 31, 2017, we had $27.8 million and $26.9 million of gross unrecognized tax benefits. As of March 31, 2018, if such benefits were to be recognized, approximately $17.6 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

2014 - 2017

 

 

N/A

 

State

2013 - 2017

 

 

2014 – 2016

 

Canada(1)

2010-2013; 2017

 

 

2014 – 2016

 

Germany(1)

2016 - 2017

 

 

2011 – 2015

 

France

2015 - 2017

 

 

2012

 

United Kingdom

2016 - 2017

 

 

N/A

 

Philippines

2015, 2017

 

 

2016

 

 

(1)

includes provincial or similar local jurisdictions, as applicable

The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities, which often result in proposed assessments. Management performs a comprehensive review of its global tax positions on a quarterly basis and accrues amounts for uncertain tax positions. Based on these reviews and the result of discussions and resolutions of matters with certain tax authorities and the closure of tax years subject to tax audit, reserves are adjusted as necessary. However, future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period the assessments are determined or resolved or as such statutes are closed. Due to potential for resolution of federal, state and foreign examinations, and the 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 $4.9 million. Substantially all of this range relates to tax positions taken in Germany and the U.S.

- 10 -

GLATFELTER

03.31.18 Form 10-Q


 

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:

 

 

Three months ended

March 31

 

In millions

2018

 

 

 

2017

 

Interest expense (income)

$

0.1

 

 

 

$

0.1

 

Penalties

 

 

 

 

 

 

 

 

March 31

 

 

 

December 31

 

 

2018

 

 

 

2017

 

Accrued interest payable

$

0.9

 

 

 

$

0.8

 

 

 

 

 

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 to members of management and vesting is based on achievement of cumulative financial performance targets covering a two year period followed by an additional one-year service period. 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. In addition, beginning in 2018, PSA awards include a modifier based on the three-year total shareholder return relative to a broad market index. For RSUs the grant date fair value of the awards, or 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. For PSAs, the grant date fair value is estimated using a lattice model.  The significant inputs include the stock price, volatility, dividend yield, and risk free rate of return.  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

2018

 

 

 

2017

 

Balance at January 1,

 

929,386

 

 

 

 

679,038

 

Granted

 

312,555

 

 

 

 

290,880

 

Forfeited

 

(70,719

)

 

 

 

(90,801

)

Shares delivered

 

(69,372

)

 

 

 

 

Balance at March 31,

 

1,101,850

 

 

 

 

879,117

 

 

The amount granted in 2018 and 2017 includes 181,653 and 157,064, respectively, of PSAs exclusive of reinvested dividends.

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

 

 

March 31