e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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þ
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2008
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or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number 1-03560
P. H. Glatfelter
Company
(Exact name of registrant as
specified in its charter)
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Pennsylvania
(State or other jurisdiction
of
incorporation or organization)
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23-0628360
(IRS Employer Identification
No.)
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96 South George Street, Suite 500
York, Pennsylvania 17401
(Address of principal
executive offices)
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(717) 225-4711
(Registrants telephone
number, including area code)
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Securities registered pursuant to Section 12(b) of the
Act:
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Title of Class
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Name of Exchange on Which Registered
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Common Stock, par value $.01 per share
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New York Stock Exchange
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Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ.
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ.
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject
to such filing requirements for at least the past
90 days. Yes þ No o.
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained to the best
of registrants knowledge, in definitive proxy of
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
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 o
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Accelerated
filer þ
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Non-accelerated
filer o
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Smaller reporting
company o
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(Do
not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act) Yes o No þ.
Based on the closing price as of June 30, 2008, the
aggregate market value of Common Stock of the Registrant held by
non-affiliates was $606.2 million.
Common Stock outstanding on March 5, 2009 totaled
45,474,571 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by
reference in this Annual Report on
Form 10-K:
Proxy Statement to be dated on or about March 25, 2009
(Part III).
P. H. GLATFELTER
COMPANY
ANNUAL REPORT ON
FORM 10-K
For the Year Ended
DECEMBER 31,
2008
Table of Contents
PART I
Overview Glatfelter began operations in 1864
and today, we believe we are one of the worlds leading
manufacturers of specialty papers and engineered (paper based)
products. Headquartered in York, Pennsylvania, we own and
operate manufacturing facilities located in Pennsylvania, Ohio,
Germany, the United Kingdom, France and the Philippines.
We serve customers in numerous markets, including book
publishing, carbonless and forms, envelope and converting,
engineered products, food and beverage, composite laminates and
other highly technical niche markets. Many of the markets in
which we operate are characterized by higher-value-added
products and, in some cases, by higher growth prospects and
lower cyclicality than commodity paper markets. Examples of some
of our key product offerings include papers for:
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trade book publishing;
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carbonless products;
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tea bag and coffee pods/pads and filters;
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specialized envelopes;
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playing cards;
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pressure-sensitive postage stamps;
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metallized papers for labels and packaging; and
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digital imaging applications.
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Acquisitions Over the past several years we
completed the acquisitions summarized in the following table:
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Est
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Primary
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Purchase
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Annual
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Paper
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Dollars in millions
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Date
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Price
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Revenue
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Products
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Business Location
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Lydney, England
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Mar 06
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$
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65.0
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$
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75.0
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Tea bag &
coffee papers
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Chillicothe, Ohio
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Apr 06
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83.3
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440.0
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Carbonless
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Caerphilly, Wales
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Nov 07
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12.6
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53.4
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Metallized
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These strategic acquisitions significantly increased our
revenues and provide us with additional operating scale,
opportunities for increased production capacity, and an
expansion of our geographic reach.
Our Business Units We manage our business as
two distinct units: the North America-based Specialty Papers
business unit and the Europe-based Composite Fibers business
unit. The following table summarizes consolidated net sales and
the relative net sales contribution of each of our business
units for the past three years:
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Dollars in thousands
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2008
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2007
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2006
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Net sales
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$
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1,263,850
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$
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1,148,323
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$
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986,411
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Business unit composition
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Specialty Papers
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66.0
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%
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69.9
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%
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70.3
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%
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Composite Fibers
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34.0
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30.1
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29.7
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Total
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100.0
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%
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100.0
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%
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100.0
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%
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Net tons sold by each business unit for the past three years
were as follows:
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2008
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2007
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2006
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Specialty Papers
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743,755
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726,657
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653,734
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Composite Fibers
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85,599
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72,855
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68,148
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Other
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Total
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829,354
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799,512
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721,892
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Specialty Papers Our North
America-based Specialty Papers business unit focuses on
producing papers for the following markets:
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Book publishing papers for the production of high quality
hardbound books and other book publishing needs;
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Carbonless and forms papers for credit card receipts,
multi-part forms, security papers and other end-user
applications;
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Envelope and converting papers for the direct mail
market, shopping bags, and other converting
applications; and
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Engineered products for digital imaging, transfer,
casting, release, postal, playing card and other niche specialty
applications.
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The markets in which Specialty Papers competes has undergone
significant and rapid consolidation over the past several years
resulting in fewer, more globally focused producers. Over 80% of
the North American market share is now served by five paper
companies, of which Glatfelter is one. Specialty Papers
revenue composition by market consisted of the following for the
years indicated:
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In thousands
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2008
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2007
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2006
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Carbonless & forms
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$
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338,067
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$
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345,785
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$
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266,647
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Book publishing
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201,040
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185,343
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166,605
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Envelope & converting
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138,293
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116,797
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103,042
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Engineered products
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149,372
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136,785
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137,007
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Other
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7,127
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17,583
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20,359
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Total
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$
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833,899
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$
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802,293
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$
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693,660
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-1-
GLATFELTER
We believe we are one of the leading suppliers of book
publishing papers in the United States and the second leading
carbonless paper producer. The market for carbonless papers is
declining approximately 8% to 10% per year. However, we have
been successful in executing our strategy to replace this lost
volume with book publishing papers, envelope &
converting papers, forms and other products. Specialty Papers
also produces paper that is converted into specialized envelopes
in a wide array of colors, finishes and capabilities. These
markets are generally more mature and declining. However, we
compete on our customer service capabilities and have grown our
market share each of the last three years.
Specialty Papers highly technical engineered products
include those designed for multiple end uses, such as papers for
pressure-sensitive postage stamps, greeting and playing cards,
conical cups, digital imaging applications and for release paper
applications. Such products comprise an array of distinct
business niches that are in a continuous state of evolution.
Many of these products are utilized by demanding, specialized
customer and end-user applications. Some of our products are new
and high growth while others are more mature and further along
in the product life cycle. Because many of these products are
technically complex and involve substantial customer-supplier
development collaboration, they typically command higher per ton
prices and generally exhibit greater pricing stability relative
to commodity grade paper products.
Composite Fibers Our Composite Fibers
business unit, based in Gernsbach, Germany, serves customers
globally and focuses on higher-value-added products in the
following markets:
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Food & Beverage paper used for tea bags and
coffee pods/pads and filters;
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Composite Laminates papers used in production of
decorative laminates for furniture and flooring;
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Metallized products used in the labeling of beer bottles,
innerliners, gift wrap, self-adhesive labels and other consumer
products applications; and
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Technical Specialties is a diverse line of paper products
used in batteries, medical masks and other highly engineered
applications.
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We believe this business unit maintains a market leadership
position in the tea bag and coffee pods/pads and filters market
and the composite laminates market. Since the completion of the
Caerphilly acquisition, we have the second largest market share
for metallized products globally. Composite Fibers revenue
composition by market consisted of the following for the years
indicated:
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In thousands
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2008
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2007
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2006
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Food & beverage
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$
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252,545
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$
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218,961
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$
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180,258
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Metallized
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85,719
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45,426
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40,078
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Composite laminates
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58,705
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52,972
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50,734
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Technical specialties and other
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32,983
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28,671
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21,681
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Total
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$
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429,952
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$
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346,030
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$
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292,751
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Our focus on products made from abaca pulp has made us the
worlds largest producer of tea bag and coffee pods/pads
and filter papers. Many of this units papers are
technically sophisticated. Most of the papers produced in the
Composite Fibers business unit, except for metallized papers,
are extremely lightweight and require very specialized fibers.
Our engineering capabilities, specifically designed papermaking
equipment and customer orientation position us well to compete
in these global markets.
Additional financial information for each of our business units
is included in Item 7 Managements
Discussion and Analysis of Financial Condition and Results of
Operations and in Item 8 Financial Statements
and Supplementary Data, Note 21.
Our Competitive Strengths Since commencing
operations over 140 years ago, we believe that Glatfelter
has developed into one of the worlds leading manufacturers
of specialty papers and engineered products. We believe that the
following competitive strengths have contributed to our success:
Leading market positions in higher-value, niche
segments. We have focused our resources to
achieve market-leading positions in certain higher-value, niche
segments. Our products include various highly specialized paper
products designed for technically demanding end uses.
Consequently, many of our products achieve premium pricing
relative to that of commodity paper grades. In 2008 and 2007,
approximately 81% of our sales were derived from these
higher-value, niche products. The specialized nature of these
products generally provides greater pricing stability relative
to commodity paper products.
Customer-centric business
focus. We offer a unique and diverse product line
that can be customized to serve the individual needs of our
customers. Our customer focus allows us to develop close
relationships with our key customers and to be adaptable in our
product development, manufacturing, sales and marketing
practices. We believe that this approach has led to the
development of excellent customer relationships, defensible
market positions, and increased pricing stability relative to
commodity paper producers. Additionally, our
-2-
GLATFELTER
customer-centric focus has been a key driver to our success in
new product development.
Significant investment in product
development. In order to keep up with our
customers ever-changing needs, we continually enhance our
product offerings through significant investment in product
development. In each of the past three years, we invested
approximately $8.0 million in product development
activities. We derive a significant portion of our revenue from
products developed, enhanced or improved as a result of these
activities. Revenue generated from products developed, enhanced
or improved within the five previous years as a result of these
activities represented approximately 54% of net sales in each of
the past three years ended December 31, 2008.
Integrated and flexible
production. As a nearly fully integrated
producer, we are able to mitigate changes in the costs of
certain raw materials and energy. In Specialty Papers, our
Spring Grove and Chillicothe facilities are vertically
integrated operations producing in excess of 85% of the annual
pulp required for their paper production. Our Spring Grove and
Chillicothe facilities also generate 100% of the steam and
substantially all of the electricity required for their
operations. Our Specialty Papers mills also provide us with a
flexible operating platform allowing us to shift certain
production from one machine or mill to another should demand
levels change.
In Composite Fibers, our Philippine mill processes abaca fiber
to produce abaca pulp, a key raw material used by this business
unit. The Philippine mill produces approximately 70% of the
annual abaca pulp required for Composite Fibers production
requirements.
Our Business Strategy Our vision is to become
the global supplier of choice in specialty papers and engineered
products. We are continuously developing and refining our
strategies to strengthen our business and position it for the
future. Execution of our strategies is dependent on our customer
relationships, technology, operational flexibility and our new
product development efforts. Components of our strategy include:
Specialty Papers The North American
uncoated free sheet market has been challenged by a supply and
demand imbalance, particularly for commodity-like products.
While the industry has narrowed the supply-demand gap by
eliminating capacity, the imbalance continues. To be successful
in the current market environment, our strategy is focused on:
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employing a low-cost approach to our manufacturing activities
and continuously implementing cost reduction initiatives;
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improving business processes and deploying continuous
improvement capabilities to maintain market leadership positions
in customer service; and
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optimizing our products mix by growing book publishing,
envelope, forms and engineered products and utilizing new
product development capabilities to replace declining carbonless
volumes.
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Composite Fibers A core component of
this business units long-term strategy is to capture
world-wide growth in its core markets of food &
beverage, composite laminates and metallized papers. Composite
Fibers strategy also includes enhancing product mix across all
of its markets by utilizing new product development
capabilities. In addition, the Composite Fibers business unit is
focused on cost reduction initiatives including, among others,
work-force efficiencies and improved supply chain management.
Balance Sheet We are focused on prudent
financial management and the maintenance of a conservative
capital structure. We are committed to maintaining a strong
balance sheet and preserving our flexibility so that we may
pursue strategic opportunities, including strategic
acquisitions, that will benefit our shareholders.
Timberland Strategy In 2006, we
initiated a strategy to sell substantially all of our
timberlands. At the time the strategy was announced, we expected
proceeds from the sales to generate approximately
$150 million to $200 million on a pre-tax basis by the
end of 2010. Through the end of 2008, we have sold approximately
48,000 acres of timberland for an aggregate proceeds of
$121 million. As a result of conditions in the overall real
estate and credit markets, we do not expect to complete a
significant amount of additional sales in the near term.
Although proceeds have been used to reduce debt obligations, the
sale of timberland will require us to replace company owned
timberland as a source of fiber with more costly purchased
woods. We believe the interest expense reduction and the
financial flexibility for investment opportunity offer a greater
return than the additional higher cost for raw fiber.
-3-
GLATFELTER
Raw Material and Energy The following table
provides an overview of the estimated amount of principal raw
materials (PRM) expected to be used in 2009 by each
of our manufacturing facilities:
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Estimated Annual
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Quantity (short
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Percent of PRM
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tons)
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Purchased
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Specialty Papers
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Spring Grove
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Pulpwood
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1,088,000
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86
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Wood and other pulps
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37,000
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100
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Chillicothe
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Pulpwood
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1,045,000
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100
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Wood and other pulps
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58,000
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100
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Composite Fibers
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Wood and other pulps
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35,120
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100
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Abaca pulp
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12,650
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30
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Synthetic fiber
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8,700
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100
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Metallized base stock
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32,800
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100
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Abaca fiber
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17,000
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100
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Our Spring Grove, Pennsylvania and Chillicothe, Ohio mills are
vertically integrated operations producing in excess of 85% of
the combined annual pulp required for paper production. The
principal raw material used to produce this pulp is pulpwood, of
which both hardwoods and softwoods are used. Hardwoods are
available within a relatively short distance of our mills.
Softwoods are obtained from a variety of locations including the
states of Pennsylvania, Maryland, Delaware, Virginia, Kentucky,
Tennessee and South Carolina. To protect our sources of
pulpwood, we actively promote conservation and forest management
among suppliers and woodland owners. In addition to sourcing the
pulpwood in the open market, we have long-term supply contracts
that provide access to timber at market prices.
In addition to integrated pulp making, both the Spring Grove and
Chillicothe facilities generate 100% of the steam and 100% and
80%, respectively, of their electricity needs. Principal fuel
sources vary by facility and include over 600,000 tons of coal,
870,000 MMBTUs of natural gas, as well as recycled pulping
chemicals, bark, wood waste, and fuel oil. Spring Groves
coal needs are met under a contract that expires at the end of
2009 and Chillicothes coal needs are supplied under two
contracts that expire in the fourth quarter of 2010.
The Spring Grove facility produces more electricity than it
requires. Excess electricity is sold to the local power company
under a long-term co-generation contract expiring in April 2010.
Gross energy sales were $19.8 million, $19.6 million,
and $19.1 million in 2008, 2007 and 2006, respectively. The
continuation of this revenue stream at these levels is dependent
on our ability to negotiate an electricity sales agreement at
pricing at or above current contracted levels for periods beyond
2010. Our current electricity contract provides for pricing
which is approximately 20% above current forward prices. In
addition, our cost of coal is under a long-term supply contract
that is currently below market. This coal contract expires at
the end of 2009. The current market price for coal is
approximately 30% to 35% above our current fixed-price contract.
This cost, as well as the costs incurred for natural gas and
other fuels used to generate electricity, has a major impact on
the net revenue and overall profitability of the Specialty Paper
business unit.
The Gernsbach, Scaër and Lydney facilities generate all of
the steam required for their operations. The Gernsbach facility
generated approximately 16% of its 2008 electricity needs and
purchased the balance. The Scaër and Lydney facilities
purchased 100% of their 2008 electric power requirements.
Natural gas was used to produce substantially all internally
generated energy at the Gernsbach, Scaër and Lydney
facilities during 2008.
Our Philippines mill processes abaca fiber to produce a
specialized pulp. This abaca pulp production provides a unique
advantage by supplying a key raw material used by our Composite
Fibers business unit. The supply of abaca fiber was somewhat
constrained in 2008. As a result, the Composite Fibers business
unit slowed its paper machines and used substitute grades of
abaca and substitute fibers to meet customer demands. In
addition, events may arise from the relatively unstable
political and economic environment in which the Philippine
facility operates that could interrupt the production of abaca
pulp. Management periodically evaluates the availability of
abaca pulp for our Composite Fibers business unit. Any extended
interruption of the Philippine operation could have a material
impact on our consolidated financial position
and/or
results of operations. We target to have approximately one month
of fiber supply in stock and one month of fiber supply at sea
available to us. In addition, we have established contingency
plans for alternative sources of abaca pulp. However, the cost
of obtaining abaca pulp from such alternative sources, if
available, would likely be much higher.
Based on information currently available, we believe that we
will continue to have ready access, for the foreseeable future,
to all principal raw materials used in the production of our
products. However, as discussed in the preceding paragraph, the
supply of abaca fiber has been constrained and has adversely
impacted pricing. The cost of our raw materials is subject to
significant change, including, but not limited to, the costs of
wood, pulp products, certain commodity chemicals and energy.
Concentration of Customers In the past three
years, no single customer represented more than 10% of our
consolidated net sales.
-4-
GLATFELTER
Competition Our industry is highly
competitive. We compete on the basis of product quality,
customer service, product development, price and distribution.
We offer our products throughout the United States and globally
in approximately 85 countries. Competition in the markets in
which we participate comes from companies of various sizes, some
of which have greater financial and other capital resources than
we do.
There are a number of companies in the United States that
manufacture printing and converting papers. We believe we are
one of the leading producers of book publishing papers and
compete in these markets with, among others, Domtar and Fraser.
In the envelope sector we compete with, among others,
International Paper, Domtar and Blue Ridge. In the carbonless
paper and forms market, we compete with Appleton Papers and, to
a lesser extent, Nekoosa Papers, Inc. In our Specialty
Papers engineered products markets and for the Composite
Fibers business units markets, competition is product line
specific as the necessity for technical expertise and
specialized manufacturing equipment limits the number of
companies offering multiple product lines. We compete with
specialty divisions of large companies such as, among others,
Ahlstrom, International Paper, MeadWestvaco, Sappi and Stora
Enso. Service, product performance, technological advances and
product pricing are important competitive factors with respect
to all our products. We believe our reputation in these areas
continues to be excellent.
Capital Expenditures Our business is capital
intensive and requires extensive expenditures for new and
enhanced equipment. These capital investments are necessary for
environmental compliance, normal upgrades or replacements,
business strategy and research and development. For 2009, we
expect capital expenditures to total approximately
$35 million.
Environmental Matters We are subject to loss
contingencies resulting from regulation by various federal,
state, local and foreign governmental authorities with respect
to the environmental impact of our mills. To comply with
environmental laws and regulations, we have incurred substantial
capital and operating expenditures in past years. For a
discussion of environmental matters, see Item 8
Financial Statements and Supplementary Data
Note 20.
Employees The following table summarizes our
workforce as of December 31, 2008:
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Contract Period
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Location
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Hourly
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Salaried
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Total
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Union
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Start
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End
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U.S
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Corporate/Spring Grove
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610
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380
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990
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United Steelworkers of
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Feb. 2008
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Jan. 2011
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America (USW) & Office and
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Professional
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Chillicothe/Fremont
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1,124
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333
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1,457
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Employees International Union
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Aug. 2006
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Aug. 2009
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International
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Gernsbach
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355
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204
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559
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Industriegewerkschaft
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Dec. 2008
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Dec. 2009
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Bergbau, Chemie, Energie-IG
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BCE
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Scaër
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73
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48
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121
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Confederation Generale des
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Mar. 2008
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Feb. 2009
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(1)
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Travailleurs & Force
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Ouvriere
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Lydney
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69
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220
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289
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Unite the Union
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Feb. 2008
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Jan. 2009
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(1)
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Caerphilly
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102
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32
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134
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General Maintenance & Boilers
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Aug. 2008
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Dec. 2009
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Philippines
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55
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28
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83
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Newtech Pulp Workers Union & Federation of Democratic Labor
Org.
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Sept. 2007
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Sept. 2012
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Total worldwide employees
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2,388
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1,245
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3,633
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(1)
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Employees of these facilities are
covered by one-year labor agreements. Negotiations to renew the
agreements are underway. The terms and conditions of the
existing agreements will remain in effect until new agreements
are reached.
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We consider the overall relationship with our employees to be
satisfactory.
Available Information On our investor
relations page of our Corporate website at www.glatfelter.com we
make available free of charge our Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q
and Current Reports on
Form 8-K
and other related information as soon as reasonably practical
after they are filed with the Securities and Exchange
Commission. In addition, our website includes a Corporate
Governance page consisting of, among others, our Governance
Principles and Code of Business Conduct, Board of Directors and
Executive Officers, Audit, Compensation, Finance and Nominating
Committees of the Board of Directors and their respective
Charters, Code of Business Ethics for the CEO and Senior
Financial Officers of Glatfelter, our whistle-blower
policy and other related material. We intend to satisfy the
disclosure requirement for any future amendments to, or waivers
from, our Code of Business Conduct or Code of Business Ethics
for the CEO and Senior Financial Officers by posting such
information on our website. We will
-5-
GLATFELTER
provide a copy of the Code of Business Conduct or Code of
Business Ethics for the CEO and Senior Financial Officers,
without charge, to any person who requests one, by calling
(717) 225-2724.
Risks Related to
Our Business
Our business
and financial performance may be adversely affected by the
adverse global economic environment or downturns in the target
markets that we serve.
Demand for our products in the markets we serve is primarily
driven by demand for our customers products, which is
often affected by general economic conditions. Downturns in our
target markets could result in decreased demand for our
products. In particular, our businesses will be adversely
affected by the current global economic downturn and by softness
in targeted markets. Our results could be adversely affected if
economic conditions further weaken or fail to improve. Also,
there may be periods during which demand for our products is
insufficient to enable us to operate our production facilities
in an economical manner. The economic impact may cause customer
insolvencies which may result in their inability to satisfy
their financial obligations to us. These conditions are beyond
our ability to control and may have a significant impact on our
sales and results of operations.
In addition to fluctuations in demand for our products in the
markets we serve, the markets for our paper products are also
significantly affected by changes in industry capacity and
output levels. There have been periods of supply/demand
imbalance in the pulp and paper industry, which have caused pulp
and paper prices to be volatile. The timing and magnitude of
price increases or decreases in the pulp and paper market have
generally varied by region and by product type. A sustained
period of weak demand or excess supply would likely adversely
affect pulp and paper prices. This could have a material adverse
affect on our operating and financial results.
The impairment
of financial institutions may adversely affect us.
We, our customers and our vendors, have transactions and
borrowing arrangements with U.S. and foreign commercial
banks, and other financial institutions, some of whom may be
exposed to ratings downgrade, bankruptcy, liquidity, default or
similar risks, especially in connection with recent financial
market turmoil. A ratings downgrade, bankruptcy, receivership,
default or similar event involving such institutions may
adversely affect the counterpartys performance under
letters of credit, limit our access to capital, impact the
ability of our suppliers to provide us with raw materials needed
for our production, impact our customers ability to meet
obligations to us, or adversely affect our liquidity position,
future business and results of operations.
The cost of
raw materials and energy used to manufacture our products could
increase and the availability of certain raw materials could
become more constrained.
We require access to sufficient and reasonably priced quantities
of pulpwood, purchased pulps, pulp substitutes, abaca fiber and
certain other raw materials. Our Spring Grove and Chillicothe
locations are vertically integrated manufacturing facilities
that generate in excess of 85% of their annual pulp
requirements. However, as a result of selling timberlands over
the past two years, purchased timber will represent a larger
source of the total pulpwood used in our operations.
Our Philippine mill purchases abaca fiber to produce abaca pulp,
which we use to manufacture our tea bag and coffee pods/pads and
filter paper products at our Gernsbach, Scaër and Lydney
facilities. However, the supply of abaca fiber has been
constrained due to severe weather related damage to the source
crop as well as selection by land owners of alternative uses of
land in lieu of fiber producing activities. As a result of
supply constraints, pricing pressure persists.
The cost of many of our production materials and costs,
including petroleum based chemicals and freight charges, are
influenced by the cost of oil. In addition, coal is a principal
source fuel for both the Spring Grove and Chillicothe
facilities. Natural gas is the principal source of fuel for our
Chillicothe and Composite Fibers business unit facilities.
Other input costs such as caustic, starch and others, have
exhibited extreme upward pricing pressure. In addition, our
vendors liquidity may be impacted by the economy creating
supply shortages.
We may not be able to pass increased raw materials or energy
costs on to our customers if the market will not bear the higher
price or where existing agreements with our customers limit
price increases. If price adjustments significantly trail
increases in raw materials or energy prices our operating
results could be adversely affected.
Our industry
is highly competitive and increased competition could reduce our
sales and profitability.
In recent years, the global paper industry in which we compete
has been adversely affected by paper
-6-
GLATFELTER
producing capacity exceeding the demand for products. As a
result, the uncoated free sheet industry has taken steps to
reduce underperforming capacity. However, slowing demand or
increased competition could force us to lower our prices or to
offer additional services at a higher cost to us, which could
reduce our gross margins and net income. The greater financial
resources of certain of our competitors may enable them to
commit larger amounts of capital in response to changing market
conditions. Certain competitors may also have the ability to
develop product or service innovations that could put us at a
competitive disadvantage.
Some of the factors that may adversely affect our ability to
compete in the markets in which we participate include:
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the entry of new competitors into the markets we serve,
including foreign producers;
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the willingness of commodity-based paper producers to enter our
specialty markets when they are unable to compete or when demand
softens in their traditional markets;
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the aggressiveness of our competitors pricing strategies,
which could force us to decrease prices in order to maintain
market share;
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our failure to anticipate and respond to changing customer
preferences;
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our inability to develop new, improved or enhanced
products; and
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our inability to maintain the cost efficiency of our facilities.
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If we cannot effectively compete in the markets in which we
operate, our sales and operating results would be adversely
affected.
We may not be
able to develop new products acceptable to our
customers.
Our business strategy is market focused and includes investments
in developing new products to meet the changing needs of our
customers and to maintain our market share. Our success will
depend in large part on our ability to develop and introduce new
and enhanced products that keep pace with introductions by our
competitors and changing customer preferences. If we fail to
anticipate or respond adequately to these factors, we may lose
opportunities for business with both current and potential
customers. The success of our new product offerings will depend
on several factors, including our ability to:
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anticipate and properly identify our customers needs and
industry trends;
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price our products competitively;
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develop and commercialize new products and applications in a
timely manner;
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differentiate our products from our competitors
products; and
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invest in research and development activities efficiently.
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Our inability to develop new products could adversely impact our
business and ultimately harm our profitability.
We are subject
to substantial costs and potential liability for environmental
matters.
We are subject to various environmental laws and regulations
that govern our operations, including discharges into the
environment, and the handling and disposal of hazardous
substances and wastes. We are also subject to laws and
regulations that impose liability and
clean-up
responsibility for releases of hazardous substances into the
environment. To comply with environmental laws and regulations,
we have incurred, and will continue to incur, substantial
capital and operating expenditures. We anticipate that
environmental regulation of our operations will continue to
become more burdensome and that capital and operating
expenditures necessary to comply with environmental regulations
will continue, and perhaps increase, in the future. Because
environmental regulations are not consistent worldwide, our
ability to compete globally may be adversely affected by capital
and operating expenditures required for environmental
compliance. In addition, we may incur obligations to remove or
mitigate any adverse effects on the environment, such as air and
water quality, resulting from mills we operate or have operated.
Potential obligations include compensation for the restoration
of natural resources, personal injury and property damages.
We have exposure to liability for remediation and other costs
related to the presence of polychlorinated biphenyls, or PCBs,
in the lower Fox River on which our former Neenah, Wisconsin
mill was located. We have financial reserves for environmental
matters but we cannot be certain that those reserves will be
adequate to provide for future obligations related to these
matters, that our share of costs
and/or
damages for these matters will not exceed our available
resources, or that such obligations will not have a long-term,
material adverse effect on our consolidated financial position,
liquidity or results of operations.
Our environmental issues are complicated and should be reviewed
in context; please see a more
-7-
GLATFELTER
detailed discussion of these matters in Item 8
Financial Statements and Supplementary Data
Note 20.
We have
operations in a potentially politically and economically
unstable location.
We own and operate a pulp mill in the Philippines where the
operating environment is unstable and subject to political
unrest. Our Philippine pulp mill produces abaca pulp, a
significant raw material used by our Composite Fibers business
unit. Our Philippine pulp mill is currently our main provider of
abaca pulp. There are limited suitable alternative sources of
readily available abaca pulp in the world. In the event of a
disruption in supply from our Philippine mill, there is no
guarantee that we could obtain adequate amounts of abaca pulp
from alternative sources at a reasonable price or at all. As a
consequence, any civil disturbance, unrest, political
instability or other event that causes a disruption in supply
could limit the availability of abaca pulp and would increase
our cost of obtaining abaca pulp. Such occurrences could
adversely impact our sales volumes, revenues and operating
results.
Our
international operations pose certain risks that may adversely
impact sales and earnings.
We have significant operations and assets located in Germany,
France, the United Kingdom, and the Philippines. Our
international sales and operations are subject to a number of
special risks, in addition to the risks in our domestic sales
and operations, including differing protections of intellectual
property, trade barriers, labor unrest, exchange controls,
regional economic uncertainty, differing (and possibly more
stringent) labor regulation, risk of governmental expropriation,
domestic and foreign customs and tariffs, differing regulatory
environments, difficulty in managing widespread operations and
political instability. These factors may adversely affect our
future profits. Also, in some foreign jurisdictions, we may be
subject to laws limiting the right and ability of entities
organized or operating therein to pay dividends or remit
earnings to affiliated companies unless specified conditions are
met. Any such limitations would restrict our flexibility in
using funds generated in those jurisdictions.
Foreign
currency exchange rate fluctuations could adversely affect our
results of operations.
We own and operate paper and pulp mills in Germany, France, the
United Kingdom and the Philippines. The majority of our business
is transacted in U.S. dollars, however, a substantial
portion of business is transacted in Euros, British Pound
Sterling and Canadian dollars. With respect to the Euro and
Canadian dollar, we generate substantially greater cash inflow
in these currencies than we do outflow. However, with respect to
the British Pound Sterling, we have greater outflows than
inflows of this currency. As a result of these positions, we are
exposed to changes in currency exchange rates.
Our ability to maintain our products price competitiveness
is reliant, in part, on the relative strength of the currency in
which the product is denominated compared to the currency of the
market into which it is sold and the functional currency of our
competitors. Changes in the rate of exchange of foreign
currencies in relation to the U.S. dollar, and other
currencies, may adversely impact our results of operations and
our ability to offer products in certain markets at acceptable
prices.
In the event
any of the above risk factors impact our business in a material
way or in combination during the same period, we may be unable
to generate sufficient cash flow to simultaneously fund our
operations, finance capital expenditures, satisfy obligations
and make dividend payments on our common stock.
In addition to debt service obligations, our business is capital
intensive and requires significant expenditures for equipment
maintenance, new or enhanced equipment, environmental
compliance, and research and development to support our business
strategies. We expect to meet all of our near and long-term cash
needs from a combination of operating cash flow, cash and cash
equivalents, our existing credit facility and other long-term
debt. If we are unable to generate sufficient cash flow from
these sources, we could be unable to meet our near and long-term
cash needs or make dividend payments.
Our leased corporate offices are located in York, Pennsylvania.
We own and operate paper mills located in Pennsylvania; Ohio;
the United Kingdom; Germany; and France. Our metallized paper
production facility located in Caerphilly, Wales leases the
building and land associated with its operations. We also own
and operate a pulp mill in the Philippines. Substantially all of
the equipment used in our papermaking and related operations, is
also owned. All of our properties, other than those that are
leased, are free from any material liens or encumbrances. We
consider all of our buildings to be in good structural condition
and well maintained and our properties to be suitable and
adequate for present operations.
-8-
GLATFELTER
The following table summarizes the estimated production capacity
of each of our facilities:
|
|
|
|
|
|
|
|
|
|
|
Estimated Annual Production
|
|
|
Capacity (short tons)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty Papers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spring Grove
|
|
|
332,000
|
|
|
|
Uncoated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,000
|
|
|
|
Coated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chillicothe
|
|
|
400,000
|
|
|
|
Uncoated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,500
|
|
|
|
Coated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Composite Fibers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gernsbach
|
|
|
40,000
|
|
|
|
Lightweight
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,800
|
|
|
|
Metallized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Scaër
|
|
|
6,000
|
|
|
|
Lightweight
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lydney
|
|
|
16,800
|
|
|
|
Lightweight
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Caerphilly
|
|
|
17,000
|
|
|
|
Metallized
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Philippines
|
|
|
13,000
|
|
|
|
Abaca pulp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Spring Grove facility includes five uncoated paper machines
that have been rebuilt and modernized from time to time with the
capacity to produce 332,000 tons. It has an off-line combi-blade
coater and a Specialty Coater (S-Coater), which
together yield a potential annual production capacity for coated
paper of approximately 68,000 tons. Since uncoated paper is
used in producing coated paper, this is not additional capacity.
We view the S-Coater as an important asset that allows us to
expand our engineered paper products business. The Spring Grove
facility also includes a pulpmill that has a production capacity
of approximately 650 tons of bleached pulp per day.
The Chillicothe facility operates four paper machines which
together yield a potential annual production capacity of
uncoated and carbonless paper of approximately 400,000 tons. In
addition, this location produces 7,500 tons per year of
other coated paper. This facility also includes a pulpmill that
has a production capacity of approximately 955 tons of bleached
pulp per day.
The Composite Fibers business units four facilities
operate a combined ten papermaking machines with the capacity to
produce approximately 60,700 tons of lightweight paper on an
annual basis. In addition, the business unit has the capacity to
produce an aggregate of 27,500 tons of metallized papers
from its lacquering and metallizing operations in Gernsbach,
Germany and Caerphilly, Wales.
Our Philippines facility consists of a pulpmill that supplies a
majority of the abaca pulp requirements of the Composite Fibers
paper mills.
We are involved in various lawsuits that we consider to be
ordinary and incidental to our business. The ultimate outcome of
these lawsuits cannot be predicted with certainty; however, we
do not expect such lawsuits individually or in the aggregate,
will have a material adverse effect on our consolidated
financial position, liquidity or results of operations.
For a discussion of commitments, legal proceedings and related
contingencies, see Item 8 Financial Statements
and Supplementary Data Note 20.
|
|
ITEM 4
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS.
|
Not Applicable no matters were submitted to a vote
of security holders during the fourth quarter of 2008.
EXECUTIVE
OFFICERS
The following table sets forth certain information with respect
to our executive officers as of March 5, 2009.
|
|
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Office with the Company
|
|
|
|
|
|
|
|
|
|
|
|
|
George H. Glatfelter II
|
|
|
57
|
|
|
Chairman and Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
Dante C. Parrini
|
|
|
44
|
|
|
Executive Vice President and Chief Operating Officer
|
|
|
|
|
|
|
|
|
|
|
|
John P. Jacunski
|
|
|
43
|
|
|
Senior Vice President and Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
Thomas G. Jackson
|
|
|
43
|
|
|
Vice President General Counsel and Corporate Secretary
|
|
|
|
|
|
|
|
|
|
|
|
Debabrata Mukherjee
|
|
|
39
|
|
|
Vice President and General Manager, Specialty Papers Business
Unit
|
|
|
|
|
|
|
|
|
|
|
|
Martin Rapp
|
|
|
49
|
|
|
Vice President and General Manager, Composite Fibers Business
Unit
|
|
|
|
|
|
|
|
|
|
|
|
Mark A. Sullivan
|
|
|
54
|
|
|
Vice President Global Supply Chain
|
|
|
|
|
|
|
|
|
|
|
|
William T. Yanavitch II
|
|
|
48
|
|
|
Vice President Human Resources and Administration
|
|
|
|
|
|
|
|
|
|
|
|
David C. Elder
|
|
|
40
|
|
|
Vice President and Corporate Controller
|
|
|
|
|
|
|
|
|
|
|
|
Officers are elected to serve at the pleasure of the Board of
Directors. Except in the case of officers elected to fill a new
position or a vacancy occurring at some other date, officers are
generally elected at the organizational meeting of the Board of
Directors held immediately after the annual meeting of
shareholders.
George H. Glatfelter II is our Chairman and Chief
Executive Officer. From April 2000 to February 2001,
Mr. Glatfelter was Chairman, President and Chief Executive
Officer. From June 1998 to April 2000, he was Chief Executive
Officer and President.
Mr. Glatfelter serves as a director of Met-Pro Corporation.
Dante C. Parrini became Executive Vice President and
Chief Operating Officer in February 2005. Prior to this,
Mr. Parrini was Senior Vice President and General Manager,
a position he held since January 2003. From December 2000 until
January 2003, Mr. Parrini was Vice President
Sales and Marketing. From July 2000 to December 2000, he was
Vice President Sales and Marketing, Glatfelter
Division and Corporate Strategic Marketing.
-9-
GLATFELTER
John P. Jacunski became Senior Vice President &
Chief Financial Officer in July 2006. From October 2003 until
July 2006, he was Vice President and Corporate Controller.
Mr. Jacunski was previously Vice President and Chief
Financial Officer at WCI Steel, Inc. from June 1999 to October
2003. Prior to joining WCI, Mr. Jacunski was with KPMG, an
international accounting and consulting firm, where he served in
various capacities.
Thomas G. Jackson became Vice President, General Counsel
and Secretary in June 2008. Prior to this, Mr. Jackson was
Assistant General Counsel, Assistant Secretary and Director of
Compliance a position he held since May 2007. From
November 2006 until May 2007, Mr. Jackson was Assistant
General Counsel for the Company. Prior to joining our company,
Mr. Jackson was Director of Business Development at
C&D Technologies, Inc. from August 2005 to September 2006
and prior to that was Deputy General Counsel at C&D
Technologies from October 1999 to August 2005.
Debabrata Mukherjee was appointed Vice
President & General Manager Specialty
Papers Business Unit in April 2008. Dr. Mukherjee joined
our Company in 1998 and since then has held various operational,
sales and technical leadership positions within the Specialty
Papers Business Unit. From March 2006 through March 2008,
Dr. Mukherjee served as Division Vice President,
Engineered & Converting Products. From February 2004
thru February 2006. Dr. Mukherjee served as Director,
Engineered Products. Prior to joining Glatfelter,
Dr. Mukherjee served in various capacities with Felix
Schoeller, a German based global specialty paper manufacturer.
Martin Rapp joined Glatfelter in August 2006 and serves
as Vice President and General Manager Composite
Fibers Business Unit. Prior to this, Mr. Rapp was Vice
President and General Manager of Avery Dennisons Roll
Materials Business in Central and Eastern Europe since August
2002. From May 2000 until July 2002 Mr. Rapp was Partner
and Managing Director of BonnConsult.
Mark A. Sullivan was appointed Vice President, Global
Supply Chain in February 2005. Mr. Sullivan joined our
company in December 2003, as Chief Procurement Officer. His
experience includes a broad array of operations and supply chain
management responsibilities during 20 years with the DuPont
Company. He served with
T-Mobile USA
as an independent contractor during 2003, and Concur
Technologies from 1999 until 2002.
William T. Yanavitch II rejoined the Company in May
2005 as Vice President Human Resources and Administration.
Mr. Yanavitch served as Vice President Human Resources from
July 2000 until his resignation in January 2005 at which time he
became Corporate Human Resources Manager of Constellation Energy.
David C. Elder was appointed Vice President in March 2009
and has served as Corporate Controller and Chief Accounting
Officer since July 2006. Prior to joining us in January 2006,
Mr. Elder was Corporate Controller for YORK International
Corporation, a position he held since December 2003. Prior
thereto, he was the Director, Financial Planning and Analysis
for YORK International Corporation from August 2000 to December
2003.
PART II
|
|
ITEM 5
|
MARKET
FOR THE REGISTRANTS COMMON STOCK AND RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Common Stock Prices and Dividends Declared Information
The following table shows the high and low prices of our common
stock traded on the New York Stock Exchange under the symbol
GLT and the dividend declared per share for each
quarter during the past two years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter
|
|
High
|
|
Low
|
|
Dividend
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth
|
|
$
|
13.69
|
|
|
$
|
7.50
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third
|
|
|
15.76
|
|
|
|
12.51
|
|
|
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second
|
|
|
15.76
|
|
|
|
13.51
|
|
|
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
15.44
|
|
|
|
12.85
|
|
|
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fourth
|
|
$
|
17.23
|
|
|
$
|
14.00
|
|
|
$
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third
|
|
|
15.59
|
|
|
|
12.47
|
|
|
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Second
|
|
|
16.30
|
|
|
|
12.92
|
|
|
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
18.05
|
|
|
|
14.86
|
|
|
|
0.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 5, 2009, we had 1,561 shareholders of
record.
-10-
GLATFELTER
STOCK PERFORMANCE
GRAPH
The following graph compares the cumulative
5-year total
return of our common stock with the cumulative total returns of
both a peer group and a broad market index. The peer group
consists of AbitibiBowater, Inc., Neenah Paper, Inc.,
Schweitzer-Mauduit International and Wausau Paper Corp.
In addition, the chart includes a comparison to the Russell
2000, which we believe is an appropriate index for stocks such
as ours.
The graph assumes that the value of the investment in our common
stock, in each index, and in each of the peer groups (including
reinvestment of dividends) was $100 on December 31, 2003
and charts it through December 31, 2008.
|
|
ITEM 6
|
SELECTED
FINANCIAL DATA
|
Summary of Selected Consolidated Financial Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of or for the year ended
December 31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands, except per share
|
|
|
2008
|
|
|
2007
|
|
2006
|
|
2005
|
|
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
$
|
1,263,850
|
|
|
|
$
|
1,148,323
|
|
|
$
|
986,411
|
|
|
$
|
579,121
|
|
|
$
|
543,524
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy sales, net
|
|
|
|
9,364
|
|
|
|
|
9,445
|
|
|
|
10,726
|
|
|
|
10,078
|
|
|
|
9,953
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
|
1,273,214
|
|
|
|
|
1,157,768
|
|
|
|
997,137
|
|
|
|
589,199
|
|
|
|
553,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversal of (Shutdown and restructuring charges and unusual
items)
|
|
|
|
856
|
|
|
|
|
(35
|
)
|
|
|
(30,318
|
)
|
|
|
(1,564
|
)
|
|
|
(20,375
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on dispositions of plant, equipment and timberlands, net
|
|
|
|
18,468
|
|
|
|
|
78,685
|
|
|
|
17,394
|
|
|
|
22,053
|
|
|
|
58,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains from insurance recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
205
|
|
|
|
20,151
|
|
|
|
32,785
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
57,888
|
|
|
|
|
63,472
|
|
|
|
(12,236
|
)
|
|
|
38,609
|
|
|
|
56,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
1.28
|
|
|
|
|
1.41
|
|
|
|
(0.27
|
)
|
|
|
0.88
|
|
|
|
1.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
1.27
|
|
|
|
|
1.40
|
|
|
|
(0.27
|
)
|
|
|
0.87
|
|
|
|
1.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
|
1,057,309
|
|
|
|
|
1,287,067
|
|
|
|
1,225,643
|
|
|
|
1,044,977
|
|
|
|
1,052,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
|
313,285
|
|
|
|
|
313,185
|
|
|
|
397,613
|
|
|
|
207,073
|
|
|
|
211,227
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
342,707
|
|
|
|
|
476,068
|
|
|
|
388,368
|
|
|
|
432,312
|
|
|
|
420,370
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared per common share
|
|
|
|
0.36
|
|
|
|
|
0.36
|
|
|
|
0.36
|
|
|
|
0.36
|
|
|
|
0.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares outstanding
|
|
|
|
45,434
|
|
|
|
|
45,141
|
|
|
|
44,821
|
|
|
|
44,132
|
|
|
|
43,950
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
52,469
|
|
|
|
|
28,960
|
|
|
|
44,460
|
|
|
|
31,024
|
|
|
|
18,587
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
60,611
|
|
|
|
|
56,001
|
|
|
|
50,021
|
|
|
|
50,647
|
|
|
|
51,598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tons sold
|
|
|
|
829,354
|
|
|
|
|
799,512
|
|
|
|
721,892
|
|
|
|
498,593
|
|
|
|
470,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of employees
|
|
|
|
3,633
|
|
|
|
|
3,854
|
|
|
|
3,704
|
|
|
|
1,958
|
|
|
|
1,988
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-11-
GLATFELTER
|
|
ITEM 7
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
Forward-Looking Statements This Annual Report
on
Form 10-K
includes forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. All statements
other than statements of historical fact, including statements
regarding industry prospects and future consolidated financial
position or results of operations, made in this Report on
Form 10-K
are forward looking. We use words such as
anticipates, believes,
expects, future, intends and
similar expressions to identify forward-looking statements.
Forward-looking statements reflect managements current
expectations and are inherently uncertain. Our actual results
may differ significantly from such expectations. The following
discussion includes forward-looking statements regarding
expectations of, among others, net sales, costs of products
sold, non-cash pension income, environmental costs, capital
expenditures and liquidity, all of which are inherently
difficult to predict. Although we make such statements based on
assumptions that we believe to be reasonable, there can be no
assurance that actual results will not differ materially from
our expectations. Accordingly, we identify the following
important factors, among others, which could cause our results
to differ from any results that might be projected, forecasted
or estimated in any such forward-looking statements:
|
|
i.
|
changes in the cost or availability of raw materials we use, in
particular pulpwood, market pulp, pulp substitutes, caustic soda
and abaca fiber;
|
|
ii.
|
changes in energy-related costs and commodity raw materials with
an energy component;
|
|
iii.
|
variations in demand, including the impact of any unplanned
market-related downtime, and the pricing of our products;
|
|
iv.
|
our ability to develop new, high value-added Specialty Papers
and Composite Fibers products;
|
|
v.
|
our ability to renew our electricity sales agreement at
acceptable margins in relation to our current coal supply
contract;
|
|
vi.
|
the impact of competition, changes in industry paper production
capacity, including the construction of new mills, the closing
of mills and incremental changes due to capital expenditures or
productivity increases;
|
|
vii.
|
the impairment of financial institutions as a result of the
current credit market conditions and any resulting impact on us,
our customers, or our vendors;
|
|
viii.
|
the gain or loss of significant customers
and/or
on-going viability of such customers;
|
|
ix.
|
cost and other effects of environmental compliance, cleanup,
damages, remediation or restoration, or personal injury or
property damages related thereto, such as the costs of natural
resource restoration or damages related to the presence of
polychlorinated biphenyls (PCBs) in the lower Fox
River on which our former Neenah mill was located;
|
|
x.
|
risks associated with our international operations, including
local economic and political environments and fluctuations in
currency exchange rates;
|
|
xi.
|
geopolitical events, including war and terrorism;
|
|
xii.
|
enactment of adverse state, federal or foreign tax or other
legislation or changes in government policy or regulation;
|
|
xiii.
|
adverse results in litigation; and
|
|
xiv.
|
our ability to finance, consummate and integrate future
acquisitions.
|
Introduction We manufacture, both domestically
and internationally, a wide array of specialty papers and
engineered products. Substantially all of our revenue is earned
from the sale of our products to customers in numerous markets,
including book publishing, envelope and converting, carbonless
papers and forms, food and beverage, decorative laminates for
furniture and flooring, and other highly technical niche markets.
Overview Our results of operations for 2008
when compared with 2007 reflect improved pricing conditions and
increased shipping volumes in each of our business units.
However, each of our business units results in the
comparison was adversely impacted by significantly higher input
costs that offset, to a large degree, the benefits from higher
selling prices.
Specialty Papers operating income in 2008 increased
approximately 45% compared to 2007 largely due to initiatives
taken to improve the operational effectiveness and overall
profitability of the Chillicothe facility.
Net sales in our Composite Fibers business unit increased 24%
primarily due to the 2007 Caerphilly acquisition, foreign
currency translation and higher selling prices. However,
operating income decreased 3.5% in 2008 compared to 2007.
The results of operations in 2007 include $26 million of
pre-tax charges related to our estimated costs associated with
the Fox River environmental matter. The results also include
approximately $5.7 million of income tax benefits recorded
as a result of a change in the German corporate income tax rate.
-12-
GLATFELTER
As part of our strategy to monetize the value of our
timberlands, we completed sales of these assets generating
proceeds of $19.3 million and $84.4 million in 2008
and 2007 respectively. We also monetized a $43.2 million
note received in 2007 as consideration for the sale of
timberlands by pledging this asset to secure a
$36.7 million borrowing. Proceeds from the new borrowing
were used to reduce outstanding debt.
RESULTS OF
OPERATIONS
2008 versus
2007
The following table sets forth summarized results of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
In thousands, except per share
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
$
|
1,263,850
|
|
|
|
$
|
1,148,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
177,782
|
|
|
|
|
156,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
99,209
|
|
|
|
|
118,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
57,888
|
|
|
|
|
63,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per diluted share
|
|
|
|
1.27
|
|
|
|
|
1.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The consolidated results of operations for the years ended
December 31, 2008 and 2007 include the following
non-routine items:
|
|
|
|
|
|
|
|
|
|
|
|
|
After-tax
|
|
|
|
|
In thousands, except per share
|
|
Income (loss)
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on sale of timberlands
|
|
$
|
10,984
|
|
|
$
|
0.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversal of shutdown and restructuring charges
|
|
|
517
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition integration costs
|
|
|
(889
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on sale of timberlands
|
|
$
|
44,052
|
|
|
$
|
0.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Environmental remediation
|
|
|
(15,979
|
)
|
|
|
(0.35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition integration costs
|
|
|
(1,569
|
)
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These items increased earnings by $10.6 million, or $0.23
per diluted share in 2008. Comparatively, the items identified
above increased earnings in 2007 by $26.5 million, or $0.59
per diluted share.
Business Units Results of individual business
units are presented based on our management accounting practices
and management structure. There is no comprehensive,
authoritative body of guidance for management accounting
equivalent to accounting principles generally accepted in the
United States of America; therefore, the financial results of
individual business units are not necessarily comparable with
similar information for any other company. The management
accounting process uses assumptions and allocations to measure
performance of the business units. Methodologies are refined
from time to time as management accounting practices are
enhanced and businesses change. The costs incurred by support
areas not directly aligned with the business unit are allocated
primarily based on an estimated utilization of support area
services or are included in Other and Unallocated in
the table below.
Management evaluates results of operations of the business units
before non-cash pension income, charges related to the Fox River
environmental reserves, restructuring related charges, unusual
items, certain corporate level costs, effects of asset
dispositions and insurance recoveries because it believes this
is a more meaningful representation of the operating performance
of its core papermaking businesses, the profitability of
business units and the extent of cash flow generated from core
operations. Such amounts are presented under the caption
Other and Unallocated. This presentation is aligned
with the management and operating structure of our company. It
is also on this basis that the Companys performance is
evaluated internally and by the Companys Board of
Directors.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Unit Performance
|
|
|
Year Ended December 31
|
In thousands, except tons
|
|
|
Specialty Papers
|
|
Composite Fibers
|
|
Other and Unallocated
|
|
Total
|
|
|
|
|
|
|
2008
|
|
|
2007
|
|
2008
|
|
|
2007
|
|
2008
|
|
|
2007
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
$
|
833,899
|
|
|
|
$
|
802,293
|
|
|
$
|
429,952
|
|
|
|
$
|
346,030
|
|
|
$
|
(1
|
)
|
|
|
$
|
|
|
|
$
|
1,263,850
|
|
|
|
$
|
1,148,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy sales, net
|
|
|
|
9,364
|
|
|
|
|
9,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,364
|
|
|
|
|
9,445
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
|
843,263
|
|
|
|
|
811,738
|
|
|
|
429,952
|
|
|
|
|
346,030
|
|
|
$
|
(1
|
)
|
|
|
|
|
|
|
|
1,273,214
|
|
|
|
|
1,157,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
|
|
739,481
|
|
|
|
|
721,216
|
|
|
|
366,791
|
|
|
|
|
287,606
|
|
|
|
(10,840
|
)
|
|
|
|
(7,366
|
)
|
|
|
1,095,432
|
|
|
|
|
1,001,456
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
103,782
|
|
|
|
|
90,522
|
|
|
|
63,161
|
|
|
|
|
58,424
|
|
|
|
10,839
|
|
|
|
|
7,366
|
|
|
|
177,782
|
|
|
|
|
156,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
|
|
|
|
54,596
|
|
|
|
|
56,561
|
|
|
|
38,206
|
|
|
|
|
32,541
|
|
|
|
5,095
|
|
|
|
|
27,042
|
|
|
|
97,897
|
|
|
|
|
116,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shutdown and restructuring charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(856
|
)
|
|
|
|
35
|
|
|
|
(856
|
)
|
|
|
|
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on dispositions of plant, equipment and timberlands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,468
|
)
|
|
|
|
(78,685
|
)
|
|
|
(18,468
|
)
|
|
|
|
(78,685
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income
|
|
|
|
49,186
|
|
|
|
|
33,961
|
|
|
|
24,955
|
|
|
|
|
25,883
|
|
|
|
25,068
|
|
|
|
|
58,974
|
|
|
|
99,209
|
|
|
|
|
118,818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non operating income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,183
|
)
|
|
|
|
(24,884
|
)
|
|
|
(18,183
|
)
|
|
|
|
(24,884
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
$
|
49,186
|
|
|
|
$
|
33,961
|
|
|
$
|
24,955
|
|
|
|
$
|
25,883
|
|
|
$
|
6,885
|
|
|
|
$
|
34,090
|
|
|
$
|
81,026
|
|
|
|
$
|
93,934
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net tons sold
|
|
|
|
743,755
|
|
|
|
|
726,657
|
|
|
|
85,599
|
|
|
|
|
72,855
|
|
|
|
|
|
|
|
|
|
|
|
|
829,354
|
|
|
|
|
799,512
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
$
|
35,010
|
|
|
|
$
|
34,882
|
|
|
$
|
25,601
|
|
|
|
$
|
21,119
|
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
60,611
|
|
|
|
$
|
56,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
20,878
|
|
|
|
|
17,395
|
|
|
|
31,591
|
|
|
|
|
11,565
|
|
|
|
|
|
|
|
|
|
|
|
|
52,469
|
|
|
|
|
28,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-13-
GLATFELTER
Sales and Costs
of Products Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
|
In thousands
|
|
|
2008
|
|
|
2007
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
$
|
1,263,850
|
|
|
|
$
|
1,148,323
|
|
|
$
|
115,527
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy sales net
|
|
|
|
9,364
|
|
|
|
|
9,445
|
|
|
|
(81
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
|
1,273,214
|
|
|
|
|
1,157,768
|
|
|
|
115,446
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of products sold
|
|
|
|
1,095,432
|
|
|
|
|
1,001,456
|
|
|
|
93,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
$
|
177,782
|
|
|
|
$
|
156,312
|
|
|
$
|
21,470
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit as a percent of Net sales
|
|
|
|
14.1
|
%
|
|
|
|
13.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the contribution to consolidated
net sales by each business unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of total
|
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Unit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty Papers
|
|
|
|
66.0
|
%
|
|
|
|
69.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Composite Fibers
|
|
|
|
34.0
|
|
|
|
|
30.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
100.0
|
%
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales totaled $1,263.9 million for
the year ended December 31, 2008, an increase of
$115.5 million, or 10.1%, compared to the previous year.
In the Specialty Papers business unit, net sales for 2008
increased $31.6 million to $833.9 million and
operating income totaled $49.2 million, an increase of
$15.2 million over the previous year. The improved
operating income is primarily due to progress achieved in
executing Chillicothes profit improvement initiatives and
improved operating efficiencies. Higher average selling prices
contributed $36.4 million of the increase in net sales and
volumes shipped increased 2.4%. These price and volume increases
were partially offset by expected mix changes between carbonless
papers and uncoated papers, as well as lower sales of scrap
paper. The benefits of higher average selling prices were offset
by $37.7 million of higher costs, largely driven by fiber
and energy. Unplanned operating downtime at the Spring Grove and
Chillicothe facilities also reduced operating results by
$4.3 million in 2008 compared to 2007.
In Composite Fibers, net sales were $430.0 million for
2008, an increase of $83.9 million from the previous year.
The completion of the November 30, 2007 Caerphilly
acquisition accounted for $40.9 million of the increase in
net sales, the translation of foreign currencies benefited net
sales by $14.4 million and higher average selling prices
contributed $16.3 million. Total volumes shipped by this
business unit increased 17.5%, including a 4.3% increase in
Food & Beverage paper product shipments. Shipments of
Composite Laminates were down 1.5% primarily due to the weak
housing and related markets.
Energy and raw material costs in the Composite Fibers business
unit were $17.1 million higher than a year ago, increasing
at a rate faster than average selling prices. Operating income
for Composite Fibers declined $0.9 million in the
comparison and totaled $25.0 million for 2008. During 2008,
this units results were adversely impacted by an aggregate
of $6.2 million due to operating issues, market related
downtime and accelerated depreciation related to completed or
planned machine upgrades.
Non-Cash Pension Income Non-cash pension
income resulted from the over-funded status of our pension
plans. The following summarizes non-cash pension income for 2008
compared to 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
|
In
thousands
|
|
|
2008
|
|
|
2007
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of products sold
|
|
|
$
|
11,067
|
|
|
|
$
|
8,846
|
|
|
$
|
2,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A expense
|
|
|
|
4,995
|
|
|
|
|
4,050
|
|
|
|
945
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
16,062
|
|
|
|
$
|
12,896
|
|
|
$
|
3,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of pension income recognized each year is determined
using various actuarial assumptions and certain other factors,
including the fair value of our pension assets as of the
beginning of the year. As discussed in Item 8
Financial Statements and Supplementary Data
Note 11, the fair value of the plans assets has
declined approximately 34% since the beginning of 2008.
Accordingly, during 2009 we expect to recognize net pension
expense totaling approximately $6 million, pre-tax.
Selling, general and administrative
(SG&A) expenses decreased
$18.2 million in the year-to-year comparison and totaled
$97.9 million in 2008 compared to $116.1 million a
year ago. The decrease was primarily due to a $26.0 million
charge for the Fox River environmental matter in 2007 partially
offset by the inclusion in 2008 of a full years result for
the Caerphilly acquisition.
Gain on Sales of Plant, Equipment and
Timberlands During 2008 and 2007, we completed
sales of timberlands which are included in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in
thousands
|
|
|
Acres
|
|
|
Proceeds
|
|
Gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timberlands
|
|
|
|
4,561
|
|
|
|
$
|
19,279
|
|
|
$
|
18,649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
(181
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
$
|
19,279
|
|
|
$
|
18,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timberlands
|
|
|
|
37,448
|
|
|
|
$
|
84,409
|
|
|
$
|
78,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
n/a
|
|
|
|
|
377
|
|
|
|
(273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
$
|
84,786
|
|
|
$
|
78,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with each of the asset sales set forth above, we
received cash proceeds with the exception of the sale of
approximately 26,000 acres of timberland completed in
November 2007. As consideration for the timberland sold in this
transaction, we received a $43.2 million,
20-year
interest-bearing note due from the
-14-
GLATFELTER
buyer, Glawson Investments Corp. (Glawson), a
Georgia corporation, and GIC Investments LLC, a Delaware limited
liability company owned by Glawson. The note receivable is fully
secured by a letter of credit issued by The Royal Bank of
Scotland plc. In January 2008, we monetized this note receivable
by pledging it as collateral for a new $36.7 million term
note payable.
Income taxes During 2008, we recorded income
tax expense totaling $23.1 million on pre tax income of
$81.0 million. The comparable amounts in 2007 were income
taxes of $30.5 million on a taxable income of
$93.9 million. The effective rate in 2007 included a
$5.7 million deferred income tax benefit related to the
reduction of German corporate income tax rates passed into law
July 2007. Overall, the decline in the effective tax rate from
2007 to 2008 was primarily due to higher gains from timberland
sales in the prior year which are taxed at a higher rate.
Foreign Currency We own and operate paper and
pulp mills in Germany, France, the United Kingdom and the
Philippines. The functional currency in Germany and France is
the Euro, in the UK it is the British Pound Sterling, and in the
Philippines it is the Peso. During 2008, Euro functional
currency operations generated approximately 20.6% of our sales
and 19.9% of operating expenses and British Pound Sterling
operations represented 10.6% of net sales and 11.2% of operating
expenses. The translation of the results from international
operations into U.S. dollars is subject to changes in
foreign currency exchange rates. The table below summarizes the
translation impact on reported results that changes in currency
exchange rates had on our
non-U.S. based
operations from the conversion of these operations results:
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
In
thousands
|
|
December 31
|
|
|
|
|
|
Favorable
|
|
|
|
|
(unfavorable)
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
14,360
|
|
|
|
|
|
|
|
|
|
|
Costs of products sold
|
|
|
(10,435
|
)
|
|
|
|
|
|
|
|
|
|
SG&A expenses
|
|
|
(855
|
)
|
|
|
|
|
|
|
|
|
|
Income taxes and other
|
|
|
(1,033
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
2,037
|
|
|
|
|
|
|
|
|
|
|
The above table only presents the financial reporting impact of
foreign currency translations. It does not present the impact of
certain competitive advantages or disadvantages of operating or
competing in multi-currency markets.
RESULTS OF
OPERATIONS
2007 versus
2006
The following table sets forth summarized results of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
In
thousands, except per share
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
$
|
1,148,323
|
|
|
|
$
|
986,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
156,312
|
|
|
|
|
105,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
118,818
|
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
|
63,472
|
|
|
|
|
(12,236
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) per diluted share
|
|
|
|
1.40
|
|
|
|
|
(0.27
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The consolidated results of operations for the years ended
December 31, 2007 and 2006 include the following
significant items:
|
|
|
|
|
|
|
|
|
|
|
|
|
After-tax
|
|
|
|
|
In
thousands, except per share
|
|
Income (loss)
|
|
Diluted EPS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on sale of timberlands
|
|
$
|
44,052
|
|
|
$
|
0.97
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Environmental remediation
|
|
|
(15,979
|
)
|
|
|
(0.35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition integration costs
|
|
|
(1,569
|
)
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on sale of timberlands
|
|
|
8,812
|
|
|
|
0.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shutdown and restructuring charges
|
|
|
(35,212
|
)
|
|
|
(0.79
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition integration costs
|
|
|
(8,647
|
)
|
|
|
(0.19
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt redemption premium
|
|
|
(1,820
|
)
|
|
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance recoveries
|
|
|
130
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These items increased earnings by $26.5 million, or $0.59
per diluted share in 2007. Comparatively, the items identified
above decreased earnings in 2006 by $36.7 million, or $0.82
per diluted share.
-15-
GLATFELTER
Business Units The following table sets forth
profitability information by business unit and the composition
of consolidated income from continuing operations before income
taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
|
|
|
|
|
|
|
|
In thousands, except tons
|
|
|
Specialty Papers
|
|
Composite Fibers
|
|
Other and Unallocated
|
|
Total
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
2007
|
|
|
2006
|
|
2007
|
|
|
2006
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
$
|
802,293
|
|
|
|
$
|
693,660
|
|
|
$
|
346,030
|
|
|
|
$
|
292,751
|
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
1,148,323
|
|
|
|
$
|
986,411
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy sales, net
|
|
|
|
9,445
|
|
|
|
|
10,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,445
|
|
|
|
|
10,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
|
811,738
|
|
|
|
|
704,386
|
|
|
|
346,030
|
|
|
|
|
292,751
|
|
|
|
|
|
|
|
|
|
|
|
|
1,157,768
|
|
|
|
|
997,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of products sold
|
|
|
|
721,216
|
|
|
|
|
635,143
|
|
|
|
287,606
|
|
|
|
|
246,797
|
|
|
|
(7,366
|
)
|
|
|
|
9,903
|
|
|
|
1,001,456
|
|
|
|
|
891,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
90,522
|
|
|
|
|
69,243
|
|
|
|
58,424
|
|
|
|
|
45,954
|
|
|
|
7,366
|
|
|
|
|
(9,903
|
)
|
|
|
156,312
|
|
|
|
|
105,294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A
|
|
|
|
56,561
|
|
|
|
|
50,285
|
|
|
|
32,541
|
|
|
|
|
28,458
|
|
|
|
27,042
|
|
|
|
|
13,738
|
|
|
|
116,144
|
|
|
|
|
92,481
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35
|
|
|
|
|
30,318
|
|
|
|
35
|
|
|
|
|
30,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gains on dispositions of plant, equipment and timberlands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(78,685
|
)
|
|
|
|
(17,394
|
)
|
|
|
(78,685
|
)
|
|
|
|
(17,394
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on insurance recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(205
|
)
|
|
|
|
|
|
|
|
(205
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating income (loss)
|
|
|
|
33,961
|
|
|
|
|
18,958
|
|
|
|
25,883
|
|
|
|
|
17,496
|
|
|
|
58,974
|
|
|
|
|
(36,360
|
)
|
|
|
118,818
|
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonoperating income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24,884
|
)
|
|
|
|
(22,322
|
)
|
|
|
(24,884
|
)
|
|
|
|
(22,322
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
$
|
33,961
|
|
|
|
$
|
18,958
|
|
|
$
|
25,883
|
|
|
|
$
|
17,496
|
|
|
$
|
34,090
|
|
|
|
$
|
(58,682
|
)
|
|
$
|
93,934
|
|
|
|
$
|
(22,228
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net tons sold
|
|
|
|
726,657
|
|
|
|
|
653,734
|
|
|
|
72,855
|
|
|
|
|
68,148
|
|
|
|
|
|
|
|
|
10
|
|
|
|
799,512
|
|
|
|
|
721,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense
|
|
|
$
|
34,882
|
|
|
|
$
|
32,824
|
|
|
$
|
21,119
|
|
|
|
$
|
17,197
|
|
|
$
|
|
|
|
|
$
|
|
|
|
$
|
56,001
|
|
|
|
$
|
50,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
17,395
|
|
|
|
|
36,484
|
|
|
|
11,565
|
|
|
|
|
7,976
|
|
|
|
|
|
|
|
|
|
|
|
|
28,960
|
|
|
|
|
44,460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales and Costs
of Products Sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
|
In
thousands
|
|
|
2007
|
|
|
2006
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
$
|
1,148,323
|
|
|
|
$
|
986,411
|
|
|
$
|
161,912
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy sales net
|
|
|
|
9,445
|
|
|
|
|
10,726
|
|
|
|
(1,281
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
|
1,157,768
|
|
|
|
|
997,137
|
|
|
|
160,631
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of products sold
|
|
|
|
1,001,456
|
|
|
|
|
891,843
|
|
|
|
109,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
$
|
156,312
|
|
|
|
$
|
105,294
|
|
|
$
|
51,018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit as a percent of Net sales
|
|
|
|
13.6
|
%
|
|
|
|
10.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the contribution to consolidated
net sales by each business unit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percent of total
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Unit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty Papers
|
|
|
|
69.9
|
%
|
|
|
|
70.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Composite Fibers
|
|
|
|
30.1
|
|
|
|
|
29.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
100.0
|
%
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales totaled $1.1 billion in 2007,
an increase of $161.9 million, or 16.4%, compared to the
previous year.
In the Specialty Papers business unit, net sales increased
$108.6 million to $802.3 million and operating income
totaled $34.0 million, an increase of $15.0 million
over the previous year. The increase in net sales is
attributable to the Chillicothe acquisition that was completed
April 3, 2006 and an overall favorable pricing environment
that contributed a $16.1 million benefit in 2007 with
prices increasing in all product markets. Shipping volumes
increased 11% in the comparison. Specialty Papers
production costs increased in the comparison primarily due to
higher shipping volumes. Higher raw material prices largely
driven by energy and pulp, and wood material usage adversely
impacted production costs by $19.2 million. These adverse
factors were partially offset by improved material usage and
machine yields.
In Composite Fibers, net sales were $346.0 million in 2007,
an increase of $53.3 million from the prior year and
operating income totaled $25.9 million, an increase of
$8.4 million in the comparison. The completion of the
March 13, 2006 Lydney acquisition accounted for
approximately $17.5 million of the increase in net sales
and the translation of foreign currencies benefitted net sales
by $19.6 million. On a constant currency basis, average
selling prices increased on average 0.3% and volumes increased
approximately 7% with increases realized in food and beverage,
technical specialties and metallized product markets. Energy and
raw material costs in this business unit were $3.2 million
higher than a year ago.
The reported amounts of costs of products sold in 2006 included
a $25.4 million charge for inventory write-downs and
accelerated depreciation on property and equipment abandoned in
connection with the Neenah facility shutdown. In the preceding
Business Unit Performance table, this amount is included in the
Other and Unallocated column.
Non-Cash Pension Income Non-cash pension
income results from the net over-funded status of our pension
plans. The amount of pension income recognized each year is
determined using various actuarial assumptions and certain other
factors, including the fair value of our pension assets as of
the beginning of the year. The following summarizes non-cash
pension income, before
-16-
GLATFELTER
the curtailment charges recorded in connection with the Neenah
shutdown during 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
|
|
In thousands
|
|
|
2007
|
|
|
2006
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded as:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of products sold
|
|
|
$
|
8,846
|
|
|
|
$
|
15,480
|
|
|
$
|
(6,634
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SG&A expense
|
|
|
|
4,050
|
|
|
|
|
1,513
|
|
|
|
2,537
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
12,896
|
|
|
|
$
|
16,993
|
|
|
$
|
(4,097
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
(SG&A) expenses increased
$23.7 million in the year-to-year comparison and totaled
$116.1 million in 2007 compared to $92.5 million a
year ago. The increase was due to a $26.0 million charge
for the Fox River environmental matter and the inclusion of a
full years results for the Chillicothe and Lydney
acquisitions in the current periods results. These
unfavorable factors were partially offset in the comparison by
$12.2 million of lower acquisition integration costs.
Gain on Sales of Plant, Equipment and
Timberlands During 2007 and 2006 we completed
sales of timberlands. The following table summarizes these
transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollars in thousands
|
|
|
Acres
|
|
|
Proceeds
|
|
Gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timberlands
|
|
|
|
37,448
|
|
|
|
$
|
84,409
|
|
|
$
|
78,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
n/a
|
|
|
|
|
377
|
|
|
|
(273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
$
|
84,786
|
|
|
$
|
78,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timberlands
|
|
|
|
5,923
|
|
|
|
$
|
17,130
|
|
|
$
|
15,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
n/a
|
|
|
|
|
3,941
|
|
|
|
1,717
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
$
|
21,071
|
|
|
$
|
17,394
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In connection with each of the asset sales set forth above, we
received cash proceeds with the exception of the sale of
approximately 26,000 acres of timberland completed in
November 2007. As consideration for the timberland sold in this
transaction we received a $43.2 million,
20-year
interest-bearing note due from the buyer, Glawson Investments
Corp. (Glawson), a Georgia corporation, and GIC
Investments LLC, a Delaware limited liability company owned by
Glawson. The note receivable is fully secured by a letter of
credit issued by The Royal Bank of Scotland plc. In January
2008, we monetized this note receivable by pledging it as
collateral for a new $36.7 million term note payable.
Shutdown and Restructuring Charges Neenah
Facility Shutdown In connection with our
agreement to acquire the Chillicothe operations, we permanently
closed the Neenah, WI facility. Production at this facility
ceased effective June 30, 2006 and certain products
previously manufactured at the Neenah facility have been
transferred to Chillicothe. Results of operations in 2006
included charges totaling $54.4 million including the
$25.4 million charge to cost of goods discussed previously.
The remaining reserve as of December 31, 2006 associated
with this restructuring initiative totaled $2.8 million.
During 2007, we made payments totaling $1.7 million; thus,
the remaining reserve balance was $1.1 million at
December 31, 2007.
Non-operating income (expense) During April
2006, we completed the placement of a $200 million bond
offering, the proceeds of which were used to redeem the then
outstanding $150 million notes scheduled to mature in July
2007. In connection with the early redemption, a charge of
$2.9 million, related to a redemption premium and the
write-off of unamortized debt issuance costs, was recorded in
Consolidated Statement of Income as Non-operating expense under
the caption
Other-net.
Income taxes During 2007, we recorded income
tax expense totaling $30.5 million on pre tax income of
$93.9 million. The comparable amounts in 2006 were income
tax benefits of $10.0 million on a pre-tax loss of
$22.2 million. For 2007, income tax expense is net of a
$5.7 million deferred income tax benefit related to the
reduction of German corporate income tax rates passed into law
July 2007.
Foreign Currency We own and operate paper and
pulp mills in Germany, France, the United Kingdom and the
Philippines. The functional currency in Germany and France is
the Euro, in the UK it is the British Pound Sterling, and in the
Philippines is the Peso. During 2007, Euro functional currency
operations generated approximately 19.9% of our sales and 18.8%
of operating expenses and British Pound Sterling operations
represented 7.6% of net sales and 7.8% of operating expenses.
The translation of the results from international operations
into U.S. dollars is subject to changes in foreign currency
exchange rates. The table below summarizes the translation
impact on reported results that changes in currency exchange
rates had on our
non-U.S. based
operations from the conversion of these operations results:
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
In
thousands
|
|
December 31
|
|
|
|
|
|
Favorable
|
|
|
|
|
(unfavorable)
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
19,563
|
|
|
|
|
|
|
|
|
|
|
Costs of products sold
|
|
|
(17,952
|
)
|
|
|
|
|
|
|
|
|
|
SG&A expenses
|
|
|
(1,927
|
)
|
|
|
|
|
|
|
|
|
|
Income taxes and other
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(237
|
)
|
|
|
|
|
|
|
|
|
|
The above table only presents the financial reporting impact of
foreign currency translations. It does not present the impact of
certain competitive advantages or
-17-
GLATFELTER
disadvantages of operating or competing in multi-currency
markets.
LIQUIDITY AND
CAPITAL RESOURCES
Our business is capital intensive and requires significant
expenditures for new or enhanced equipment, for environmental
compliance matters, to support our research and development
efforts and for our business strategy. In addition we have
mandatory debt service requirements of both principal and
interest. The following table summarizes cash flow information
for each of the years presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
In thousands
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
$
|
29,833
|
|
|
|
$
|
21,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash provided by (used for)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
53,425
|
|
|
|
|
100,332
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
(33,190
|
)
|
|
|
|
4,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
(12,879
|
)
|
|
|
|
(99,371
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
|
(4,955
|
)
|
|
|
|
2,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided
|
|
|
|
2,401
|
|
|
|
|
7,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
|
$
|
32,234
|
|
|
|
$
|
29,833
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash flow declined by $46.9 million in the
comparison as stronger overall gross profit was offset by higher
levels of working capital. Accounts receivable were higher
reflecting higher shipping volumes and selling prices. Overall
inventory levels were lower, however higher input costs and
replenishment of key raw materials at year end 2008 used
approximately $10.0 million. In addition, cash paid for
income taxes increased $17.4 million in 2008 compared to
2007 and we used approximately $13.0 million in connection
with the Fox River and Ecusta environmental matters.
Net cash used for investing activities increased in the
comparison primarily due to a $23.5 million increase in
capital expenditures, which includes an investment of
approximately $11 million to upgrade the capabilities of
one of our inclined wire paper machines in Germany. In addition,
the increase in net cash used for investing activities reflects
$22.3 million less in proceeds from timberland sales in
2008 than in 2007. In 2009, capital expenditures are expected to
be reduced to approximately $35 million reflecting our
decision, in light of current economic conditions, to delay most
discretionary spending.
During 2008 and 2007, cash dividends paid on common stock
totaled approximately $16.5 million and $16.4 million,
respectively. Our Board of Directors determines what, if any,
dividends will be paid to our shareholders. Dividend payment
decisions are based upon then-existing factors and conditions
and, therefore, historical trends of dividend payments are not
necessarily indicative of future payments.
During 2008, net debt, defined as total debt less term notes
secured by letters of credit and less cash balances, declined
$39.0 million to $210.4 million as proceeds from
operations and timberland sales were used to reduce debt
outstanding. Our Term loan, due in April 2011 has mandatory
quarterly repayment requirements approximating $3.4 million
per quarter in 2009.
During 2008, $13 million of required principal payments
were made under our Term Loan. In 2009, we are required to make
$13.8 million of quarterly principal repayments. The
following table sets forth our outstanding long-term
indebtedness:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
In thousands
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revolving credit facility, due April 2011
|
|
|
$
|
6,724
|
|
|
|
$
|
35,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term loan, due April 2011
|
|
|
|
30,000
|
|
|
|
|
43,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
71/8% Notes,
due May 2016
|
|
|
|
200,000
|
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Term Loan, due January 2013
|
|
|
|
36,695
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable, due March 2013
|
|
|
|
34,000
|
|
|
|
|
34,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt
|
|
|
|
307,419
|
|
|
|
|
312,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less current portion
|
|
|
|
(13,759
|
)
|
|
|
|
(11,008
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, excluding current portion
|
|
|
$
|
293,660
|
|
|
|
$
|
301,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The significant terms of the debt instruments are more fully
discussed in
Item 8-
Financial Statements and Supplementary Data
Note 17.
In January 2008, we monetized a note received as consideration
from the sale of timberlands. In this transaction, we entered
into a new $36.7 million term loan agreement (the
2008 Term Loan) with a financial institution. The
2008 Term Loan matures in five years, bears interest at a
six-month reserve adjusted LIBOR plus a margin rate of 1.20% per
annum. This is secured by, among other assets, a
$43.2 million note received from the buyers of certain
timberland sold in November 2007. For a more complete
description of the 2008 Term Loan, refer to Note 17.
In January 2009, we used $6.5 million to satisfy a
commitment we had to fund certain Fox River remediation
activities. For complete details of this obligation, refer to
Item 8 Financial Statements, Note 20.
We are subject to loss contingencies resulting from regulation
by various federal, state, local and foreign governmental
authorities with respect to the environmental impact of mills we
operate, or have operated. To comply with environmental laws and
regulations, we have incurred substantial capital and operating
expenditures in past years. We anticipate that environmental
regulation of our operations will continue to be burdensome and
that capital and operating expenditures necessary to comply with
environmental regulations will continue, and perhaps increase,
in the future. In addition, we may incur obligations to remove
or mitigate any adverse effects on the environment resulting
from our
-18-
GLATFELTER
operations, including the restoration of natural resources and
liability for personal injury and for damages to property and
natural resources. See Item 8 Financial
Statements and Supplementary Data Note 20 for a
summary of significant environmental matters.
We expect to meet all of our near and long-term cash needs from
a combination of operating cash flow, cash and cash equivalents,
and our existing credit facilities. However, as discussed in
Item 8 Financial Statements and Supplementary
Data Note 20, an unfavorable outcome of various
environmental matters could have a material adverse impact on
our consolidated financial position, liquidity
and/or
results of operations.
Our credit agreement, as amended, contains a number of customary
compliance covenants. In addition, the
71/8% Notes
contain a cross default provision that in the event of a default
under the credit agreement, the
71/8% Notes
would become currently due. As of December 31, 2008, we met
all of the requirements of our debt covenants.
Off-Balance-Sheet Arrangements As of
December 31, 2008 and 2007, we had not entered into any
off-balance-sheet arrangements. Financial derivative instruments
to which we are a party and guarantees of indebtedness, which
solely consist of obligations of subsidiaries and a partnership,
are reflected in the condensed consolidated balance sheets
included herein in Item 8 Financial Statements
and Supplementary Data.
Contractual Obligations The following table sets forth
contractual obligations as of December 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due During the Year
|
|
|
|
|
Ended December 31,
|
|
|
|
|
|
|
2010 to
|
|
2012 to
|
|
2014 and
|
|
|
In millions
|
|
Total
|
|
2009
|
|
2011
|
|
2013
|
|
beyond
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term
debt(1)
|
|
$
|
422
|
|
|
$
|
31
|
|
|
$
|
56
|
|
|
$
|
102
|
|
|
$
|
233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
leases(2)
|
|
|
22
|
|
|
|
7
|
|
|
|
5
|
|
|
|
2
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
obligations(3)
|
|
|
178
|
|
|
|
130
|
|
|
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other long term
obligations(4),(5)
|
|
|
104
|
|
|
|
11
|
|
|
|
19
|
|
|
|
18
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
726
|
|
|
$
|
179
|
|
|
$
|
128
|
|
|
$
|
122
|
|
|
$
|
297
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Represents principal and interest
payments due on long-term debt. We have $200.0 million of
debt maturing in May 2016 and bearing a fixed rate of interest
at
71/8%,
payable semiannually, a $36.7 million note maturing in
January 2013 bearing interest at six-month reserve adjusted
LIBOR plus a margin rate of 1.20% per annum, and a
$34.0 million note maturing in March 2013 and bearing a
fixed rate of interest of 3.10%. In addition, at
December 31, 2008, $6.7 million was outstanding under
our revolving credit facility and $30 million was
outstanding under a term loan. Both the revolving credit
facility and the term loan bear a variable interest rate (3.03%
and 2.34%, respectively, as of December 31, 2008) and
mature in April 2011.
|
|
(2)
|
|
Represents rental agreements for
various land buildings, and computer and office equipment.
|
|
(3)
|
|
Represents open purchase order
commitments and other obligations, primarily for raw material
forward purchases and pulpwood contracts with minimum annual
purchase obligations. In certain situations, prices are subject
to variations based on market prices. In such situations, the
information above is based on prices in effect at
December 31, 2008 or expectations based on historical
experience and/or current market conditions.
|
|
(4)
|
|
Primarily represents expected
benefits to be paid pursuant to medical retirement plans and
nonqualified pension plans over the next ten years and expected
costs of asset retirement obligations.
|
|
(5)
|
|
Since we are unable to reasonably
estimate the timing of ultimate payment, the amounts set forth
above do not include any payments that may be made related to
uncertain tax positions, including potential interest, accounted
for in accordance with FASB Interpretation No. 48. As
discussed in more detail in Item 8 Financial
Statements, Note 9, Income Taxes, such amounts
totaled $29.2 million at December 31, 2008.
|
-19-
GLATFELTER
Critical Accounting Policies and Estimates The
preceding discussion and analysis of our consolidated financial
position and results of operations is based upon our
consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
United States of America. The preparation of these consolidated
financial statements requires us to make estimates and
assumptions that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosures of
contingent assets and liabilities. On an on-going basis, we
evaluate our estimates, including those related to inventories,
long-lived assets, pension and post-retirement obligations,
environmental liabilities and income taxes. We base our
estimates on historical experience and on various other
assumptions that we believe are reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results
may differ from these estimates.
We believe the following represent the most significant and
subjective estimates used in the preparation of our consolidated
financial statements.
Inventory Reserves We maintain reserves for
excess and obsolete inventories to reflect our inventory at the
lower of its stated cost or market value. Our estimate for
excess and obsolete inventory is based upon our assumptions
about future demand and market conditions. If actual conditions
are less favorable than those we have projected, we may need to
increase our reserves for excess and obsolete inventories. Any
increases in our reserves will adversely impact our results of
operations. The establishment of a reserve for excess and
obsolete inventory establishes a new cost basis in the
inventory. Such reserves are not reduced until the product is
sold. If we are able to sell such inventory, any related
reserves would be reversed in the period of sale.
Long-lived Assets We evaluate the
recoverability of our long-lived assets, including plant,
equipment, timberlands and intangible assets periodically or
whenever events or changes in circumstances indicate that the
carrying amounts may not be recoverable. Our evaluations include
analyses based on the cash flows generated by the underlying
assets, profitability information, including estimated future
operating results, trends or other determinants of fair value.
If the value of an asset determined by these evaluations is less
than its carrying amount, a loss is recognized for the
difference between the fair value and the carrying value of the
asset. Future adverse changes in market conditions or poor
operating results of the related business may indicate an
inability to recover the carrying value of the assets, thereby
possibly requiring an impairment charge in the future.
Pension and Other Post-Retirement
Obligations Accounting for defined-benefit
pension plans, and any curtailments thereof, requires various
assumptions, including, but not limited to, discount rates,
expected long-term rates of return on plan assets and future
compensation growth rates. Accounting for our retiree medical
plans, and any curtailments thereof, also requires various
assumptions, which include, but are not limited to, discount
rates and annual rates of increase in the per capita costs of
health care benefits. We evaluate these assumptions at least
once each year or as facts and circumstances dictate and we make
changes as conditions warrant. Changes to these assumptions will
increase or decrease our reported income, which will result in
changes to the recorded benefit plan assets and liabilities.
Environmental Liabilities We maintain accruals
for losses associated with environmental obligations when it is
probable that a liability has been incurred and the amount of
the liability can be reasonably estimated based on existing
legislation and remediation technologies. These accruals are
adjusted periodically as assessment and remediation actions
continue
and/or
further legal or technical information develops. Such
undiscounted liabilities are exclusive of any insurance or other
claims against third parties. Recoveries of environmental
remediation costs from other parties, including insurance
carriers, are recorded as assets when their receipt is assured
beyond a reasonable doubt.
Income Taxes We record the estimated future
tax effects of temporary differences between the tax bases of
assets and liabilities and amounts reported in our balance
sheets, as well as operating loss and tax credit carry forwards.
These deferred tax assets and liabilities are measured using
enacted tax rates and laws that will be in effect when such
amounts are expected to reverse or be utilized. We regularly
review our deferred tax assets for recoverability based on
historical taxable income, projected future taxable income, the
expected timing of the reversals of existing temporary
differences and tax planning strategies. If we are unable to
generate sufficient future taxable income, or if there is a
material change in the actual effective tax rates or time period
within which the underlying temporary differences become taxable
or deductible, we could be required to increase the valuation
allowance against our deferred tax assets, which may result in a
substantial increase in our effective tax rate and a material
adverse impact on our reported results.
Significant judgment is required in determining our worldwide
provision for income taxes and recording the related assets and
liabilities. In the ordinary course of our business, there are
many transactions and calculations
-20-
GLATFELTER
where the ultimate tax determination is less than certain. We
and our subsidiaries are examined by various Federal, State and
foreign tax authorities. We regularly assess the potential
outcomes of these examinations and any future examinations for
the current or prior years in determining the adequacy of our
provision for income taxes. We continually assess the likelihood
and amount of potential adjustments and adjust the income tax
provision, the current liability and deferred taxes in the
period in which the facts that give rise to a revision become
known.
Other significant accounting policies, not involving the same
level of uncertainties as those discussed above, are
nevertheless important to an understanding of the Consolidated
Financial Statements. Refer to Item 8 Financial
Statements and Supplementary Data Notes to
Consolidated Financial Statements for additional accounting
policies.
|
|
ITEM 7A
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At December 31,
|
|
|
|
|
|
Year Ended December 31
|
|
|
2008
|
|
|
|
|
|
|
Dollars in
thousands
|
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
|
Carrying Value
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average principal outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At fixed interest rates Bond
|
|
|
$
|
200,000
|
|
|
$
|
200,000
|
|
|
$
|
200,000
|
|
|
$
|
200,000
|
|
|
$
|
200,000
|
|
|
|
$
|
200,000
|
|
|
$
|
167,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At fixed interest rates Note payable
|
|
|
|
34,000
|
|
|
|
34,000
|
|
|
|
34,000
|
|
|
|
34,000
|
|
|
|
7,825
|
|
|
|
|
34,000
|
|
|
|
36,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At variable interest rates
|
|
|
|
66,539
|
|
|
|
52,780
|
|
|
|
40,004
|
|
|
|
36,695
|
|
|
|
1,407
|
|
|
|
|
73,419
|
|
|
|
75,202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
307,419
|
|
|
$
|
279,093
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average interest rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed interest rate debt Bond
|
|
|
|
7.13
|
%
|
|
|
7.13
|
%
|
|
|
7.13
|
%
|
|
|
7.13
|
%
|
|
|
7.13
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed interest rate debt Note payable
|
|
|
|
3.10
|
|
|
|
3.10
|
|
|
|
3.10
|
|
|
|
3.10
|
|
|
|
3.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Variable interest rate debt
|
|
|
|
3.06
|
|
|
|
3.25
|
|
|
|
3.46
|
|
|
|
3.52
|
|
|
|
3.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The table above presents average principal outstanding and
related interest rates for the next five years. Fair values
included herein have been determined based upon rates currently
available to us for debt with similar terms and remaining
maturities.
Our market risk exposure primarily results from changes in
interest rates and currency exchange rates. At December 31,
2008, we had long-term debt outstanding of $307.4 million,
of which $73.4 million or 24% was at variable interest
rates. Variable-rate debt outstanding represents borrowings
under our revolving credit facility and term loans that incur
interest based on the domestic prime rate or a Eurocurrency
rate, at our option, plus a margin. At December 31, 2008,
the weighted-average interest rate paid was approximately 3.1%.
A hypothetical 100 basis point increase or decrease in the
interest rate on variable rate debt would increase or decrease
annual interest expense by $0.7 million.
We are subject to certain risks associated with changes in
foreign currency exchange rates to the extent our operations are
conducted in currencies other than the U.S. Dollar. During
2008, Euro functional currency operations generated
approximately 20.6% of our sales and 19.9% of operating expenses
and British Pound Sterling operations represented 10.6% of net
sales and 11.2% of operating expenses.
-21-
GLATFELTER
|
|
ITEM 8
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
MANAGEMENTS
REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management of P. H. Glatfelter Company (the Company)
is responsible for establishing and maintaining adequate
internal control over financial reporting. The Companys
internal control over financial reporting is a process designed
under the supervision of the chief executive and chief financial
officers to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of the
Companys financial statements for external reporting
purposes in accordance with accounting principles generally
accepted in the United States.
As of December 31, 2008, management conducted an assessment
of the effectiveness of the Companys internal control over
financial reporting based on the framework established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). Management has determined that the
Companys internal control over financial reporting as of
December 31, 2008 is effective to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of the Companys financial statements for
external reporting purposes in accordance with accounting
principles generally accepted in the United States.
The Companys internal control over financial reporting
includes policies and procedures that pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect transactions and dispositions of assets; provide
reasonable assurances that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the
United States, and that receipts and expenditures are being made
only in accordance with authorizations of management; and
provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the
Companys assets that could have a material effect on our
financial statements.
The Companys internal control over financial reporting as
of December 31, 2008, has been audited by
Deloitte & Touche LLP, an independent registered
public accounting firm, as stated in their report appearing
herein, which expresses an unqualified opinion on the
effectiveness of the Companys internal control over
financial reporting as of December 31, 2008.
The Companys management, including the chief executive
officer and chief financial officer, does not expect that our
internal control over financial reporting will prevent or detect
all errors and all frauds. A control system, no matter how well
designed and operated, can provide only reasonable, not
absolute, assurance that the control systems objectives
will be met. The design of a control system must reflect the
fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Further,
because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that
misstatements due to error or fraud will not occur or that all
control issues and instances of fraud, if any, within the
Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty
and that breakdowns can occur because of simple error or
mistake. Controls can also be circumvented by the individual
acts of some persons, by collusion of two or more people, or by
management override of the controls. The design of any system of
controls is based, in part, on certain assumptions about the
likelihood of future events, and there can be no assurance that
any design will succeed in achieving its stated goals under all
potential future conditions. Projections of any evaluation of
controls effectiveness to future periods are subject to risks.
Over time, controls may become inadequate because of changes in
conditions or deterioration in the degree of compliance with
policies or procedures.
-22-
GLATFELTER
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of P. H. Glatfelter
Company
We have audited the internal control over financial reporting of
P.H. Glatfelter Company and subsidiaries (the
Company) as of December 31, 2008, based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Companys
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Managements Report on
Internal Control Over Financial Reporting. Our responsibility is
to express an opinion on the Companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2008, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement
schedule as of and for the year ended December 31, 2008 of
the Company and our report dated March 11, 2009 expressed
an unqualified opinion on those financial statements and
financial statement schedule.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
March 11, 2009
-23-
GLATFELTER
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of P.H. Glatfelter
Company
We have audited the accompanying consolidated balance sheets of
P.H. Glatfelter Company and subsidiaries (the
Company) as of December 31, 2008 and 2007, and
the related consolidated statements of income,
shareholders equity, and cash flows for each of the three
years in the period ended December 31, 2008. Our audits
also included the financial statement schedule listed in the
Index at Item 15. These financial statements and financial
statement schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on the
financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of P.H.
Glatfelter Company and subsidiaries as of December 31, 2008
and 2007, and the results of their operations and their cash
flows for each of the three years in the period ended
December 31, 2008, in conformity with accounting principles
generally accepted in the United States of America. Also, in our
opinion, the financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the
information set forth therein.
As discussed in Note 11 to the consolidated financial
statements, the Company adopted Statement of Financial
Accounting Standards No. 158, Employers
Accounting for Defined Benefit Pension and Other Postretirement
Plans an amendment of FASB Statements No. 87,
88, 106, and 132(R), as of December 31, 2006.
As discussed in Note 2 to the consolidated financial
statements, the Company adopted Financial Accounting Standards
Board Interpretation No. 48, Accounting for
Uncertainty in Income Taxes an interpretation of
FASB No. 109 as of January 1, 2007.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2008, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated March 11, 2009, expressed
an unqualified opinion on the Companys internal control
over financial reporting.
DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
March 11, 2009
-24-
GLATFELTER
P. H. GLATFELTER
COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
In thousands, except per share
|
|
|
2008
|
|
|
2007
|
|
2006
|
|
|
|
Net sales
|
|
|
$
|
1,263,850
|
|
|
|
$
|
1,148,323
|
|
|
$
|
986,411
|
|
|
|
Energy sales net
|
|
|
|
9,364
|
|
|
|
|
9,445
|
|
|
|
10,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
|
1,273,214
|
|
|
|
|
1,157,768
|
|
|
|
997,137
|
|
|
|
Costs of products sold
|
|
|
|
1,095,432
|
|
|
|
|
1,001,456
|
|
|
|
891,843
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
177,782
|
|
|
|
|
156,312
|
|
|
|
105,294
|
|
|
|
Selling, general and administrative expenses
|
|
|
|
97,897
|
|
|
|
|
116,144
|
|
|
|
92,481
|
|
|
|
(Reversals of) Shutdown and restructuring charges
|
|
|
|
(856
|
)
|
|
|
|
35
|
|
|
|
30,318
|
|
|
|
Gains on disposition of plant, equipment and timberlands, net
|
|
|
|
(18,468
|
)
|
|
|
|
(78,685
|
)
|
|
|
(17,394
|
)
|
|
|
Insurance recoveries
|
|
|
|
|
|
|
|
|
|
|
|
|
(205
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
|
99,209
|
|
|
|
|
118,818
|
|
|
|
94
|
|
|
|
Other nonoperating income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
|
(23,160
|
)
|
|
|
|
(29,022
|
)
|
|
|
(24,453
|
)
|
|
|
Interest income
|
|
|
|
4,975
|
|
|
|
|
3,933
|
|
|
|
3,132
|
|
|
|
Other net
|
|
|
|
2
|
|
|
|
|
205
|
|
|
|
(1,001
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other nonoperating expense
|
|
|
|
(18,183
|
)
|
|
|
|
(24,884
|
)
|
|
|
(22,322
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
|
81,026
|
|
|
|
|
93,934
|
|
|
|
(22,228
|
)
|
|
|
Income tax provision (benefit)
|
|
|
|
23,138
|
|
|
|
|
30,462
|
|
|
|
(9,992
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
$
|
57,888
|
|
|
|
$
|
63,472
|
|
|
$
|
(12,236
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
|
45,247
|
|
|
|
|
45,035
|
|
|
|
44,584
|
|
|
|
Diluted
|
|
|
|
45,572
|
|
|
|
|
45,422
|
|
|
|
44,584
|
|
|
|
Earnings (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
$
|
1.28
|
|
|
|
$
|
1.41
|
|
|
$
|
(0.27
|
)
|
|
|
Diluted
|
|
|
|
1.27
|
|
|
|
|
1.40
|
|
|
|
(0.27
|
)
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an
integral part of the consolidated financial
statements.
-25-
GLATFELTER
P. H. GLATFELTER
COMPANY and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31
|
|
|
Dollars in thousands, except par values
|
|
|
2008
|
|
|
2007
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
$
|
32,234
|
|
|
|
$
|
29,833
|
|
|
|
Accounts receivable (less allowance for doubtful accounts:
2008 $2,633; 2007 $3,117)
|
|
|
|
132,635
|
|
|
|
|
122,980
|
|
|
|
Inventories
|
|
|
|
193,354
|
|
|
|
|
193,042
|
|
|
|
Prepaid expenses and other current assets
|
|
|
|
33,596
|
|
|
|
|
27,557
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
|
391,819
|
|
|
|
|
373,412
|
|
|
|
Plant, equipment and timberlands net
|
|
|
|
493,564
|
|
|
|
|
519,866
|
|
|
|
Other long-term assets
|
|
|
|
171,926
|
|
|
|
|
393,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
$
|
1,057,309
|
|
|
|
$
|
1,287,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt
|
|
|
$
|
13,759
|
|
|
|
$
|
11,008
|
|
|
|
Short-term debt
|
|
|
|
5,866
|
|
|
|
|
1,136
|
|
|
|
Accounts payable
|
|
|
|
59,750
|
|
|
|
|
73,195
|
|
|
|
Dividends payable
|
|
|
|
4,089
|
|
|
|
|
4,063
|
|
|
|
Environmental liabilities
|
|
|
|
5,734
|
|
|
|
|
7,038
|
|
|
|
Other current liabilities
|
|
|
|
100,904
|
|
|
|
|
101,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
|
190,102
|
|
|
|
|
197,556
|
|
|
|
Long-term debt
|
|
|
|
293,660
|
|
|
|
|
301,041
|
|
|
|
Deferred income taxes
|
|
|
|
90,158
|
|
|
|
|
189,156
|
|
|
|
Other long-term liabilities
|
|
|
|
140,682
|
|
|
|
|
123,246
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
|
714,602
|
|
|
|
|
810,999
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $.01 par value; authorized
120,000,000 shares; issued
54,361,980 shares (including shares in treasury:
2008 8,928,004; 2007 9,219,476)
|
|
|
|
544
|
|
|
|
|
544
|
|
|
|
Capital in excess of par value
|
|
|
|
45,806
|
|
|
|
|
44,697
|
|
|
|
Retained earnings
|
|
|
|
605,001
|
|
|
|
|
563,608
|
|
|
|
Accumulated other comprehensive income (loss)
|
|
|
|
(176,133
|
)
|
|
|
|
4,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
475,218
|
|
|
|
|
612,910
|
|
|
|
Less cost of common stock in treasury
|
|
|
|
(132,511
|
)
|
|
|
|
(136,842
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
|
342,707
|
|
|
|
|
476,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
|
$
|
1,057,309
|
|
|
|
$
|
1,287,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an
integral part of the consolidated financial
statements.
-26-
GLATFELTER
P.H. GLATFELTER
COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31
|
|
|
In thousands
|
|
|
2008
|
|
|
2007
|
|
2006
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
$
|
57,888
|
|
|
|
$
|
63,472
|
|
|
$
|
(12,236
|
)
|
|
|
Adjustments to reconcile to net cash (used) provided by
operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
|
60,611
|
|
|
|
|
56,001
|
|
|
|
50,021
|
|
|
|
(Cash used) reserve for environmental matters
|
|
|
|
(13,012
|
)
|
|
|
|
26,000
|
|
|
|
|
|
|
|
Pension income
|
|
|
|
(16,062
|
)
|
|
|
|
(12,896
|
)
|
|
|
(16,993
|
)
|
|
|
(Reversals of) shutdown and restructuring charges
|
|
|
|
(856
|
)
|
|
|
|
35
|
|
|
|
37,066
|
|
|
|
Deferred income taxes
|
|
|
|
3,265
|
|
|
|
|
8,004
|
|
|
|
(12,726
|
)
|
|
|
Gains on dispositions of plant, equipment and timberlands, net
|
|
|
|
(18,468
|
)
|
|
|
|
(78,685
|
)
|
|
|
(17,394
|
)
|
|
|
Share-based compensation
|
|
|
|
4,350
|
|
|
|
|
3,850
|
|
|
|
2,335
|
|
|
|
Change in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
|
(17,668
|
)
|
|
|
|
16,662
|
|
|
|
(17,622
|
)
|
|
|
Inventories
|
|
|
|
(9,975
|
)
|
|
|
|
8,493
|
|
|
|
(8,869
|
)
|
|
|
Prepaid and other assets
|
|
|
|
871
|
|
|
|
|
(2,461
|
)
|
|
|
4,413
|
|
|
|
Liabilities
|
|
|
|
2,481
|
|
|
|
|
11,857
|
|
|
|
(36,422
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided (used) by operations
|
|
|
|
53,425
|
|
|
|
|
100,332
|
|
|
|
(28,427
|
)
|
|
|
Investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for purchases of plant, equipment and timberlands
|
|
|
|
(52,469
|
)
|
|
|
|
(28,960
|
)
|
|
|
(44,460
|
)
|
|
|
Proceeds from disposal of plant, equipment and timberlands
|
|
|
|
19,279
|
|
|
|
|
41,616
|
|
|
|
21,071
|
|
|
|
Acquisitions, net of cash acquired
|
|
|
|
|
|
|
|
|
(7,923
|
)
|
|
|
(158,442
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used) provided by investing activities
|
|
|
|
(33,190
|
)
|
|
|
|
4,733
|
|
|
|
(181,831
|
)
|
|
|
Financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (repayments of) proceeds from revolving credit facility
|
|
|
|
(24,197
|
)
|
|
|
|
(30,656
|
)
|
|
|
43,522
|
|
|
|
Net (repayments of) proceeds from other short-term debt
|
|
|
|
2,927
|
|
|
|
|
(6,916
|
)
|
|
|
(995
|
)
|
|
|
Net (repayments of) proceeds from $100 million term loan
facility
|
|
|
|
(13,000
|
)
|
|
|
|
(53,000
|
)
|
|
|
94,829
|
|
|
|
Net proceeds from $200 million
71/8% note
offering
|
|
|
|
|
|
|
|
|
|
|
|
|
196,440
|
|
|
|
Repayment of $150 million
67/8
notes
|
|
|
|
|
|
|
|
|
|
|
|
|
(152,675
|
)
|
|
|
Proceeds from borrowing under Term Loan due 2013
|
|
|
|
36,695
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of dividends
|
|
|
|
(16,469
|
)
|
|
|
|
(16,350
|
)
|
|
|
(16,023
|
)
|
|
|
Proceeds and excess tax benefits from stock options exercised
and other
|
|
|
|
1,165
|
|
|
|
|
7,551
|
|
|
|
8,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used) provided by financing activities
|
|
|
|
(12,879
|
)
|
|
|
|
(99,371
|
)
|
|
|
173,388
|
|
|
|
Effect of exchange rate changes on cash
|
|
|
|
(4,955
|
)
|
|
|
|
2,154
|
|
|
|
1,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
|
2,401
|
|
|
|
|
7,848
|
|
|
|
(35,457
|
)
|
|
|
Cash and cash equivalents at the beginning of period
|
|
|
|
29,833
|
|
|
|
|
21,985
|
|
|
|
57,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of period
|
|
|
$
|
32,234
|
|
|
|
$
|
29,833
|
|
|
$
|
21,985
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
$
|
21,243
|
|
|
|
$
|
28,498
|
|
|
$
|
26,218
|
|
|
|
Income taxes
|
|
|
|
20,011
|
|
|
|
|
2,614
|
|
|
|
17,579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an
integral part of the consolidated financial
statements.
-27-
GLATFELTER
P. H. GLATFELTER
COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
For the Years Ended December 31, 2008, 2007 and
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
Capital in
|
|
|
|
|
|
Other
|
|
|
|
Total
|
|
|
|
|
Common
|
|
Excess of
|
|
Retained
|
|
Deferred
|
|
Comprehensive
|
|
Treasury
|
|
Shareholders
|
|
|
In thousands, except
shares outstanding
|
|
Stock
|
|
Par Value
|
|
Earnings
|
|
Compensation
|
|
Income (Loss)
|
|
Stock
|
|
Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2006
|
|
$
|
544
|
|
|
$
|
43,450
|
|
|
$
|
547,810
|
|
|
$
|
(2,295
|
)
|
|
$
|
(5,343
|
)
|
|
$
|
(151,854
|
)
|
|
$
|
432,312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
(12,236
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(12,236
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustment to minimum pension liability prior to adoption of
SFAS No. 158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,926
|
|
|
|
|
|
|
|
12,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reversal of minimum pension liability under
SFAS No. 158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,909
|
|
|
|
|
|
|
|
3,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional net pension liability, net of tax benefit of $27,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(43,829
|
)
|
|
|
|
|
|
|
(43,829
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of SFAS No. 123(R)
|
|
|
|
|
|
|
(2,295
|
)
|
|
|
|
|
|
|
2,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax effect on employee stock options exercised
|
|
|
|
|
|
|
792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared ($0.36 per share)
|
|
|
|
|
|
|
|
|
|
|
(16,085
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,085
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense RSU
|
|
|
|
|
|
|
1,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delivery of treasury shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Shares
|
|
|
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
200
|
|
|
|
207
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401(k) plans
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,608
|
|
|
|
1,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director compensation
|
|
|
|
|
|
|
8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
105
|
|
|
|
113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options exercised net
|
|
|
|
|
|
|
(827
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,325
|
|
|
|
7,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2006
|
|
|
544
|
|
|
|
42,288
|
|
|
|
519,489
|
|
|
|
|
|
|
|
(32,337
|
)
|
|
|
(141,616
|
)
|
|
|
388,368
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
63,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in benefit plans net funded status, net of tax
benefit of $7,167
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,432
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,398
|
|
|
|
|
|
|
|
36,398
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of adopting of FIN 48
|
|
|
|
|
|
|
|
|
|
|
(2,974
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,974
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax effect on employee stock options exercised
|
|
|
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared ($0.36 per share)
|
|
|
|
|
|
|
|
|
|
|
(16,379
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,379
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
2,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delivery of treasury shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401(k) plans
|
|
|
|
|
|
|
85
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,049
|
|
|
|
3,134
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director compensation
|
|
|
|
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
162
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options exercised net
|
|
|
|
|
|
|
(114
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,563
|
|
|
|
1,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2007
|
|
|
544
|
|
|
|
44,697
|
|
|
|
563,608
|
|
|
|
|
|
|
|
4,061
|
|
|
|
(136,842
|
)
|
|
|
476,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
57,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
57,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(32,029
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in benefit plans net funded status, net of tax
benefit of $92,570
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(148,165
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(180,194
|
)
|
|
|
|
|
|
|
(180,194
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(122,306
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax effect on employee stock options exercised
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends declared ($0.36 per share)
|
|
|
|
|
|
|
|
|
|
|
(16,495
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(16,495
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
3,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delivery of treasury shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RSUs
|
|
|
|
|
|
|
(1,739
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,400
|
|
|
|
(339
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
401(k) plans
|
|
|
|
|
|
|
(248
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,768
|
|
|
|
1,520
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director compensation
|
|
|
|
|
|
|
(43
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
206
|
|
|
|
163
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee stock options exercised net
|
|
|
|
|
|
|
(143
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
957
|
|
|
|
814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2008
|
|
$
|
544
|
|
|
$
|
45,806
|
|
|
$
|
605,001
|
|
|
$
|
|
|
|
$
|
(176,133
|
)
|
|
$
|
(132,511
|
)
|
|
$
|
342,707
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an
integral part of the consolidated financial
statements.
-28-
GLATFELTER
P. H. GLATFELTER
COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
P. H. Glatfelter Company and subsidiaries
(Glatfelter) is a manufacturer of specialty papers
and engineered products. Headquartered in York, Pennsylvania,
our manufacturing facilities are located in Spring Grove,
Pennsylvania; Chillicothe and Freemont, Ohio; Gloucestershire
(Lydney), England; Caerphilly, Wales, Gernsbach, Germany;
Scaër, France; and the Philippines. Our products are
marketed throughout the United States and in over 85 other
countries, either through wholesale paper merchants, brokers and
agents or directly to customers.
Principles of Consolidation The consolidated
financial statements include the accounts of Glatfelter and its
wholly owned subsidiaries. All intercompany balances and
transactions have been eliminated.
Accounting Estimates The preparation of
financial statements in conformity with accounting principles
generally accepted in the United States of America requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosures of
contingencies as of the balance sheet date and the reported
amounts of revenues and expenses during the reporting period.
Management believes the estimates and assumptions used in the
preparation of these consolidated financial statements are
reasonable, based upon currently available facts and known
circumstances, but recognizes that actual results may differ
from those estimates and assumptions.
Cash and Cash Equivalents We classify all
highly liquid instruments with an original maturity of three
months or less at the time of purchase as cash equivalents.
Inventories Inventories are stated at the
lower of cost or market. Raw materials, in-process and finished
inventories of our domestic manufacturing operations are valued
using the
last-in,
first-out (LIFO) method, and the supplies inventories are valued
principally using the average-cost method. Inventories at our
foreign operations are valued using a method that approximates
average cost.
Plant, Equipment and Timberlands For financial
reporting purposes, depreciation is computed using the
straight-line method over the estimated useful lives of the
respective assets.
The range of estimated service lives used to calculate financial
reporting depreciation for principal items of plant and
equipment are as follows:
|
|
|
|
|
Buildings
|
|
|
10 45 Years
|
|
Machinery and equipment
|
|
|
7 35 Years
|
|
Other
|
|
|
4 40 Years
|
|
Maintenance and Repairs Maintenance and
repairs costs are charged to income and major renewals and
betterments are capitalized. At the time property is retired or
sold, the net carrying value is eliminated and any resultant
gain or loss is included in income.
Valuation of Long-lived Assets, Intangible Assets and
Goodwill We evaluate long-lived assets for
impairment when a specific event indicates that the carrying
value of an asset may not be recoverable. Recoverability is
assessed based on estimates of future cash flows expected to
result from the use and eventual disposition of the asset. If
the sum of expected undiscounted cash flows is less than the
carrying value of the asset, the assets fair value is
estimated and an impairment loss is recognized for any
deficiencies. Goodwill is reviewed for impairment on a
discounted cash flow basis at least annually. Impairment losses,
if any, are recognized for the amount by which the carrying
value of the asset exceeds its fair value.
Asset Retirement Obligations In accordance
with Statement of Financial Accounting Standards
(SFAS) No. 143, Accounting for Asset