MAGNERA CORP
10-Ks and 10-Qs
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Table of Contents
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Washington, D.C. 20549
Form 10-K
|
þ
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
| For the fiscal year ended December 31, 2009 | ||
|
or
|
||
|
o
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
| For the transition period from to | ||
Commission file number 1-03560
P. H. Glatfelter
Company
(Exact name of registrant as
specified in its charter)
|
Pennsylvania
(State or other jurisdiction of incorporation or organization) |
23-0628360
(IRS Employer Identification No.) |
|
|
96 South George Street, Suite 500
York, Pennsylvania 17401 (Address of principal executive offices) |
(717) 225-4711
(Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the
Act:
|
Title of Each Class
|
Name of Each Exchange on which registered
|
|
| Common Stock, par value $.01 per share | New York Stock Exchange |
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
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 the past
90 days. Yes
þ
No
o
.
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes
o
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 registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K.
o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in Rule
12b-2
of the
Exchange Act. (Check one):
| Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o |
(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, 2009, the
aggregate market value of the Common Stock of the Registrant
held by non-affiliates was $404.7 million.
Common Stock
outstanding on March 12, 2010 totaled
45,751,906 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 29, 2010
(Part III).
P. H. GLATFELTER
COMPANY
ANNUAL REPORT ON FORM 10-K
For the Year Ended
DECEMBER 31, 2009
ANNUAL REPORT ON FORM 10-K
For the Year Ended
DECEMBER 31, 2009
Table of
Contents
Table of Contents
| ITEM 1 | BUSINESS |
Overview
Glatfelter began operations in 1864
and today, we believe we are one of the world’s leading
manufacturers of specialty papers and fiber-based engineered
products. Headquartered in York, Pennsylvania, we own and
operate manufacturing facilities located in Pennsylvania, Ohio,
Germany, the United Kingdom, France, the Philippines and Canada.
We manufacture a broad and diverse line of products serving
customers in numerous 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 markets
and product applications include:
| • | papers for carbonless and forms products and specialized envelopes | |
| • | filtration papers for the tea and coffee industry | |
| • | book publishing papers | |
| • | metallized papers for packaging and bottled beverage labels | |
| • | overlay papers for decorative laminate, flooring and furniture applications | |
| • | papers for a wide variety of other specialty products including postage stamps, playing cards, greeting cards, digital imaging papers and FDA grades |
Recent Developments
On February 12, 2010,
we completed the acquisition of Concert Industries Corp.
(“Concert”), a privately-held, leading supplier of
airlaid non-woven fabric-like material, for $234.4 million
based on the currency exchange rates on the closing date.
Concert, with approximately 590 employees, has operations
located in Gatineau, Quebec, Canada and Falkenhagen,
Brandenburg, Germany. Annual revenues totaled
$203.0 million in 2009.
Concert manufactures highly absorbent cellulose based airlaid
non-woven material used in products such as feminine hygiene and
adult incontinence products, baby wipes, pre-moistened cleaning
wipes, napkins and tablecloths, and food pads.
Acquisitions
Over the past four years we
completed the following additional acquisitions:
|
Est
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Primary
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||||||||||||||||
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Purchase
|
Annual
|
Paper
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|||||||||||||||
| Dollars in millions | Date | Price | Revenue | Products | |||||||||||||
|
Business Location
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|||||||||||||||||
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Lydney, England
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Mar ’06 | $ | 65.0 | $ | 75.0 |
Tea bags &
coffee papers |
|||||||||||
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Chillicothe, Ohio
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Apr ’06 | 83.3 | 440.0 |
Carbonless &
forms |
|||||||||||||
|
Caerphilly, Wales
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Nov ’07 | 12.6 | 53.4 | Metallized | |||||||||||||
These strategic acquisitions significantly increased our
revenues and provided us with additional operating scale,
increased production capacity, and an expansion of our
geographic reach.
Our Business Units
Prior to the completion of
the Concert acquisition, we managed our business as two distinct
units: (i) the North America-based Specialty Papers
business unit; and (ii) the Europe-based Composite Fibers
business unit. Consolidated net sales and the relative net sales
contribution of each of our business units for the past three
years are summarized below:
| Dollars in thousands | 2009 | 2008 | 2007 | ||||||||||||
|
Net sales
|
$ | 1,184,010 | $ | 1,263,850 | $ | 1,148,323 | |||||||||
|
Business unit contribution
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|||||||||||||||
|
Specialty Papers
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66.9 | % | 66.0 | % | 69.9 | % | |||||||||
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Composite Fibers
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33.1 | 34.0 | 30.1 | ||||||||||||
|
Total
|
100.0 | % | 100.0 | % | 100.0 | % | |||||||||
Net tons sold by each business unit for the past three years
were as follows:
| 2009 | 2008 | 2007 | |||||||||||||
|
Specialty Papers
|
738,841 | 743,755 | 726,657 | ||||||||||||
|
Composite Fibers
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80,064 | 85,599 | 72,855 | ||||||||||||
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Total
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818,905 | 829,354 | 799,512 | ||||||||||||
Specialty Papers
Our North
America-based Specialty Papers business unit focuses on
producing papers for the following markets:
| • | Carbonless & forms papers for credit card receipts, multi-part forms, security papers and other end-user applications; | |
| • | Book publishing papers for the production of high quality hardbound books and other book publishing needs; | |
| • | Envelope and converting papers for the direct mail market, shopping bags, and other converting applications; and | |
| • | Engineered products for digital imaging, transfer, casting, release, postal, playing card and other niche specialty applications. |
The markets in which Specialty Papers competes have undergone
significant and rapid consolidation over the past several years
resulting in fewer, more globally
Glatfelter 2009 Annual
Report 1
Table of Contents
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:
| In thousands | 2009 | 2008 | 2007 | ||||||||||||
|
Carbonless & forms
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$ | 320,088 | $ | 338,067 | $ | 345,785 | |||||||||
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Book publishing
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176,646 | 201,040 | 185,343 | ||||||||||||
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Envelope & converting
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146,812 | 138,293 | 116,797 | ||||||||||||
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Engineered products
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143,490 | 149,372 | 136,785 | ||||||||||||
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Other
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4,879 | 7,127 | 17,583 | ||||||||||||
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Total
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$ | 791,915 | $ | 833,899 | $ | 802,293 | |||||||||
We believe we are one of the leading suppliers of book
publishing papers in the United States and the second leading
carbonless paper producer. Although the market for carbonless
papers in North America is declining approximately 8% to 10% per
year, and in 2009, in part due to the recession, this decline
was greater, we have been successful in executing our strategy
to replace this lost volume with products such as envelope and
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. This
market is generally more mature and declining. However, we
compete on our customer service capabilities and have grown our
market share in 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 higher growth while others are more mature and further along
in the product life cycle. Because many of these products are
technically complex and involve substantial customer-supplier
development collaboration, they typically command higher per ton
prices and generally exhibit greater pricing stability relative
to commodity grade paper products.
Composite Fibers
Our Composite Fibers
business unit, based in Gernsbach, Germany, serves customers
globally and focuses on higher-value-added products in the
following markets:
| • | Food & Beverage paper used for tea bags and coffee pods/pads; | |
| • | Metallized products used in the labeling of beer bottles, innerliners, gift wrap, self-adhesive labels and other consumer products applications; | |
| • | Composite Laminates papers used in production of decorative laminates, furniture and flooring applications; and | |
| • | Technical Specialties is a diverse line of paper products used in batteries, medical masks and other highly engineered applications. |
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:
| In thousands | 2009 | 2008 | 2007 | ||||||||||||
|
Food & beverage
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$ | 233,899 | $ | 252,545 | $ | 218,961 | |||||||||
|
Metallized
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81,388 | 85,719 | 45,426 | ||||||||||||
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Composite laminates
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46,442 | 58,705 | 52,972 | ||||||||||||
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Technical specialties and other
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30,366 | 32,983 | 28,671 | ||||||||||||
|
Total
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$ | 392,095 | $ | 429,952 | $ | 346,030 | |||||||||
Our focus on products made from abaca pulp has made us the
world’s largest producer of tea bag and coffee pods/pads
filter papers. Many of this unit’s 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 – Management’s
Discussion and Analysis of Financial Condition and Results of
Operations and in Item 8 – Financial
Statements and Supplementary Data, Note 22.
We intend to manage the operations of Concert Industries as a
separate business unit to be known as Advanced Airlaid Materials.
Our Competitive Strengths
Since commencing
operations over 145 years ago, we believe that Glatfelter
has developed into one of the world’s leading
2
Table of Contents
manufacturers of specialty papers and engineered products. We
believe that the following competitive strengths have
contributed to our success:
| • | Broad and diverse product portfolio. We manufacture a very large portfolio of specialized paper products which diversifies our revenue base, enabling us to access a variety of end-markets and to pursue a wide range of customers. We have the ability to shift production in order to capitalize on market opportunities. The breadth and global reach of our product range help cushion the impact of external economic influences on us. | |
| • | 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 each of the past three years, approximately 77%, 81% and 81% respectively, 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. | |
| • | Integrated and flexible production. As a nearly fully integrated producer, we are able to mitigate adverse fluctuations 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. The flexible operating platform of our Specialty Papers business offers the following unique benefits: | |
| • | the capability to manufacture a broad and diverse product portfolio; | |
| • | the ability to shift manufacturing capacity among product lines; | |
| • | the flexibility to maximize manufacturing efficiencies in response to changing market dynamics; and | |
| • | support for our New Product Development initiatives. |
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 80% of the
annual abaca pulp required for Composite Fibers’ production
requirements.
| • | Customer-centric business focus. We offer a unique and diverse product line that can be customized to serve the individual needs of our customers. This allows us to develop close relationships with our key customers and to be adaptable in our product development, manufacturing, sales and marketing practices to meet changing customer needs. 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 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 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 in excess of 50% of net sales in each of the past three years ended December 31, 2009. |
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:
| • | leveraging our flexible operating platform to optimize product mix by shifting production among facilities to more closely match output with changing demand trends; |
Glatfelter 2009 Annual
Report 3
Table of Contents
| • | employing our new product development capabilities to meet changing customer demands and to replace declining carbonless volumes; | |
| • | employing a low-cost approach to our manufacturing activities and continuously implementing cost reduction initiatives; and | |
| • | improving business processes and deploying continuous improvement capabilities to maintain superior customer service. |
Composite Fibers
The markets served by
this business unit are characterized by long-term growth
opportunities. To take advantage of this, our strategy is
focused on:
| • | capturing world-wide growth in Composite Fibers’ core markets of food & beverage, composite laminates and metallized papers; | |
| • | enhancing product mix across all of the business unit’s markets by utilizing new product development capabilities; and | |
| • | implementing cost reduction initiatives including, among others, work-force efficiencies and improved supply chain management. |
Acquisitions
We have a demonstrated
ability to establish leading market positions through the
successful acquisition and integration of complementary
businesses. Since 2006, we have successfully completed and fully
integrated three acquisitions. In November 2007, we expanded our
growth platform in metallized products and created a major
increase in our European production scale through our
acquisition of Metallised Products Limited and its facility
located in Caerphilly, United Kingdom. Our acquisition of the
carbonless business operations of NewPage Corporation in April
2006 permitted us to take advantage of that operation’s
scale and efficient manufacturing environment to expand our
higher-value-added Specialty Papers business unit. Lastly, our
acquisition of the Lydney mill from J R Crompton Ltd. in March
2006 further strengthened our leading position in tea bags and
coffee filter papers. We expect that our purchase of Concert
will enable us to grow with the industry leaders in feminine
hygiene and adult incontinence products and complements our
long-term strategy of driving growth in our markets in part
through acquisitions.
Raw Material and Energy
The following table
provides an overview of the estimated amount of principal raw
materials (“PRM”) expected to be used in 2010 by each
of our manufacturing facilities:
|
Estimated Annual
|
|||||||||||
|
Quantity (short
|
Percent of PRM
|
||||||||||
| tons) | Purchased | ||||||||||
|
Specialty Papers
|
|||||||||||
|
Spring Grove
|
|||||||||||
|
Pulpwood
(1)
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1,051,000 | 92 | |||||||||
|
Wood – and other pulps
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272,800 | 16 | |||||||||
|
Chillicothe
(1)
|
|||||||||||
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Pulpwood
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1,270,000 | 100 | |||||||||
|
Wood – and other pulps
|
384,900 | 10 | |||||||||
|
Composite Fibers
|
|||||||||||
|
Abaca fiber
|
17,000 | 100 | |||||||||
|
Wood- and other pulps
|
40,200 | 100 | |||||||||
|
Abaca pulp
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16,000 | 13 | |||||||||
|
Synthetic fiber
|
10,200 | 100 | |||||||||
|
Metallized base stock
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33,000 | 100 | |||||||||
| (1) | Pulpwood is used to produce woodpulp. | |
| (2) | The information set forth above does not include the raw material needs of Concert Industries which was acquired on February 12, 2010. |
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,
including both hardwoods and softwoods. 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 Grove’s
coal needs are met under a three year contract that expires at
the end of 2012 and Chillicothe’s coal needs are supplied
under two contracts that expire in the fourth quarter of 2010.
Energy and related sales activities
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 March 31,
2010. Anticipating the 2010 expiration of our co-generation
contract, we became a member of PJM
4
Table of Contents
Interconnection, a federally regulated regional transmission
organization that coordinates the movement and ensures
reliability of wholesale electricity in its region. As a member,
we are committed to providing capacity to the high-voltage
electricity grid and agree to sell excess power at market
prices. Accordingly, our margin earned from energy sales will be
subject to market volatility associated with price at which
energy is sold together with volatility in input costs,
primarily related to coal. The Gernsbach, Scaër and Lydney
facilities generate all of the steam required for their
operations. The Gernsbach facility generated approximately 19.5%
of its 2009 electricity needs and purchased the balance. The
Scaër and Lydney facilities purchased 100% of their 2009
electric power requirements. Natural gas was used to produce
substantially all internally generated energy at the Gernsbach,
Scaër and Lydney facilities during 2009.
Our mill in the Philippines 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.
Alternative Fuel Mixture Credits
The
U.S. Internal Revenue Code provides a tax credit for
companies that use alternative fuel mixtures to produce energy
to operate their businesses. The credit, equal to $0.50 per
gallon of alternative fuel contained in the mixture, is
refundable to the taxpayer. We began mixing black liquor and
diesel fuel in late February 2009. On May 11, 2009, we were
notified by the Internal Revenue Service that our application to
be registered as an alternative fuel mixer was approved. Since
we began mixing and burning eligible alternative fuels, we
earned $107.8 million of alternative fuel mixture credits.
According to the Internal Revenue Code, the tax credit expired
on December 31, 2009. Accordingly, we do not expect to be
eligible for additional credits.
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. 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
For each of the
past three years, no single customer represented more than 10%
of our consolidated net sales.
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, exclusive of the Concert
acquisition. 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 unit’s 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, 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.
Glatfelter 2009 Annual
Report 5
Table of Contents
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 2010, we
expect capital expenditures to total approximately
$45 million to $50 million, inclusive of Concert.
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 21.
Employees
The following table summarizes our
workforce as of December 31, 2009:
| Contract Period | ||||||||||||||||||||||
| Location (3) | Total | Hourly | Salaried | Start | End | Union | ||||||||||||||||
|
U.S.
|
||||||||||||||||||||||
|
Corporate/Spring Grove
|
943 | 581 | (1) | 362 | Jan. 2008 | Jan. 2011 | United Steelworkers International | |||||||||||||||
|
Chillicothe/Fremont
|
1,424 | 1,073 | (1) | 351 | Aug. 2009 | Aug. 2012 |
Union and the Office and Professional
Employees International Union, |
|||||||||||||||
|
International
|
||||||||||||||||||||||
|
Gernsbach
|
579 | 222 | (1) | 357 | (2) |
Industriegewerkschaft
Bergbau, Chemie, Energie-IG BCE |
||||||||||||||||
|
Scaër
|
118 | 69 | (1) | 49 | (2) |
Confederation Generale des
Travailleurs & Force Ouvriere |
||||||||||||||||
|
Lydney
|
278 | 213 | (1) | 65 | (2) | Unite the Union | ||||||||||||||||
|
Caerphilly
|
112 | 82 | (1) | 30 | (2) | General Maintenance & Boiler’s | ||||||||||||||||
|
Philippines
|
92 | 61 | (1) | 31 | (2) | Newtech Pulp Workers Union | ||||||||||||||||
|
Total worldwide employees
|
3,546 | 2,301 | 1,245 | |||||||||||||||||||
| (1) | Generally, the majority of the hourly employees included in the table above are covered by terms and conditions of the collective bargaining agreements with the respective labor organization indicated. | |
| (2) | Employees of these facilities are generally covered by one-year labor agreements. Negotiations to renew the agreements are underway at various times during the year. The terms and conditions of the existing agreements will remain in effect until new agreements are reached. | |
| (3) | The data does not include Concert, which employs approximately 590 people. |
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, and biographies of our
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
satisfy the disclosure requirement for any future amendments to,
or waivers from, our Code of Business Conduct or Code of
Business Ethics for the CEO and Senior Financial Officers by
posting such information on our website. We will provide a copy
of the Code of Business Conduct or Code of Business Ethics for
the CEO and Senior Financial Officers, without charge, to any
person who requests one, by calling
(717) 225-2724.
| ITEM 1A | RISK FACTORS |
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 may continue to be
adversely affected by the global economic downturn and by
softness in targeted markets. Our results could be adversely
affected if economic conditions further weaken or fail to
continue 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.
6
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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 cost of
raw materials and energy used to manufacture our products could
increase and the availability of certain raw materials could
become constrained.
We require access to sufficient and reasonably priced quantities
of pulpwood, purchased pulps, pulp substitutes, abaca fiber 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, in the past the supply of abaca fiber has
been constrained unexpectedly 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 of fuel for both the Spring Grove and Chillicothe
facilities and natural gas is used as a source of fuel for our
Chillicothe and Composite Fibers’ business unit facilities.
Also, in prior years 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 producing capacity
exceeding the demand for products and by declining uncoated free
sheet demand. 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:
| • | the entry of new competitors into the markets we serve, including foreign producers; | |
| • | 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; | |
| • | the aggressiveness of our competitors’ pricing strategies, which could force us to decrease prices in order to maintain market share; | |
| • | our failure to anticipate and respond to changing customer preferences; | |
| • | the impact of emerging electronic-based substitutes for certain of our products such as book publishing and envelope; | |
| • | our inability to develop new, improved or enhanced products; and | |
| • | our inability to maintain the cost efficiency of our facilities. |
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
Glatfelter 2009 Annual
Report 7
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our competitors and changing customer preferences. If we fail to
anticipate or respond adequately to these factors, we may lose
opportunities for business with both current and potential
customers. The success of our new product offerings will depend
on several factors, including our ability to:
| • | anticipate and properly identify our customers’ needs and industry trends; | |
| • | price our products competitively; | |
| • | develop and commercialize new products and applications in a timely manner; | |
| • | differentiate our products from our competitors’ products; and | |
| • | invest in research and development activities efficiently. |
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 in the
lower Fox River on which our former Neenah, Wisconsin mill was
located. In December 2009, the United States District Court for
the Eastern District of Wisconsin issued a favorable order in
the pending litigation relating to the Fox River site that while
not fully resolving our liability at the site, essentially
dismissed the plaintiffs’ claims against the defendants.
The plaintiffs have filed a notice of appeal of this order.
There can be no assurance that we will be able to successfully
defend against such appeal. We have financial reserves for
environmental matters, including the Fox River site, but we
cannot be certain that those reserves will be adequate to
provide for future obligations related to these matters, that
our share of costs
and/or
damages for these matters will not exceed our available
resources, or that such obligations will not have a long-term,
material adverse effect on our consolidated financial position,
liquidity or results of operations.
Our environmental issues are complicated and should be reviewed
in context; please see a more detailed discussion of these
matters in Item 8 – Financial Statements and
Supplementary Data – Note 21.
We may not be
able to successfully integrate the Concert acquisition or
realize the potential benefits of the acquisition, which could
have a material adverse effect on our results of
operations.
We may not be able to combine successfully the operations of
Concert with our operations. The integration of Concert with our
operations will require significant attention from management
and may impose substantial demands for other resources.
Acquisitions inherently involve risks, including those
associated with assimilating and integrating different business
operations, corporate cultures, personnel, infrastructures and
technologies or products and increasing the scope, geographic
diversity and complexity of our operations. There may be
additional costs or liabilities that are not currently
anticipated, including unexpected loss of key employees or
customers of Concert and hiring additional management and other
critical personnel. The acquisition may also be disruptive to
our ongoing business and may not be successfully received by our
customers. The purchase of Concert also involved a significant
capital commitment, and the return that we achieve on any
capital invested may be less than the return that we would
achieve on our other projects or investments. Any of these
factors could adversely affect our operations, financial results
and liquidity.
Furthermore, we may not realize the potential benefits of the
acquisition. Historically, Concert has been dependent upon a
limited number of customers and product markets for a
significant portion of its net sales. One customer accounted for
the majority of Concert’s net sales for the three years
ended December 31, 2009. The loss of a significant customer
could have a material adverse effect on Concert’s operating
results. In addition,
8
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Concert’s sales in the feminine hygiene market accounted
for over three-fourths of its net sales in 2009. A decline in
Concert’s sales of feminine hygiene products or in sales of
feminine hygiene products generally could have a material
adverse effect on Concert’s operating results. Customers in
the airlaid non-woven fabric material market, including the
feminine hygiene market, may also switch to less expensive
products or otherwise reduce demand for Concert’s products,
thus reducing the size of the markets in which Concert currently
sells its products. Any of the foregoing could result in our
failing to realize the benefits of the acquisition, which could
have a material adverse effect on our financial performance and
business prospects.
Our operations
may be impaired and we may be exposed to potential losses and
liability as a result of natural disasters, acts of terrorism or
sabotage or similar events.
Natural disasters, such as earthquakes, flooding or fire, and
acts of terrorism or sabotage affecting our operating activities
and major facilities could materially and adversely affect our
operations, our operating results and financial condition. In
particular, we own and operate four dams in York County,
Pennsylvania that were built to ensure a steady supply of water
for the operation of our paper mill in Spring Grove,
Pennsylvania, which is a primary manufacturing location for our
book publishing papers and engineered products. Each of these
dams is classified as “high hazard” by the
Commonwealth of Pennsylvania because they are located in close
proximity to inhabited areas and sudden failure would endanger
occupants or residential, commercial or industrial structures.
Failure or breach of any of the dams, including as a result of
natural disaster or act of terrorism or sabotage, could cause
significant personal injuries and damage to residential and
commercial property downstream for which we may be liable. The
failure of a dam could also be extremely disruptive and result
in damage to or the shutdown of our Spring Grove mill. Any
losses or liabilities incurred due to the failure of one of our
dams may not be fully covered by our insurance policies or may
substantially exceed the limits of our policies, and could
materially and adversely affect our operating results and
financial condition.
In addition, many of our paper making operations requires a
reliable and abundant supply of water. Such mills rely on a
local water body or water source for its water needs and,
therefore, is particularly impacted by drought conditions or
other natural or manmade interruptions to its water supplies. At
various times and for differing periods, each of our mills has
had to modify operations due to water shortages or low flow
conditions in its principal water supplies. Any interruption or
curtailment of operations at any of our paper mills due to
drought or low flow conditions at the principal water source or
another cause could materially and adversely affect our
operating results and financial condition.
In addition, our pulp mill in Lanao del Norte on the Island of
Mindanao in the Republic of the Philippines is located along the
Pacific Rim in the world’s hazard belt. By virtue of its
geographic location, this mill is subject to, among other types
of natural disasters, floods, droughts, cyclones, typhoons,
earthquakes, windstorms and volcanic activity. Moreover, the
area of Lanao del Norte has been a target of terrorist
activities, including bombings, by suspected members of the
al-Qaeda-linked Islamist groups in the Philippines, such as the
Abu Sayyaf and the Rajah Solaiman Group and other Islamic
militant groups, most notably the Moro Islamic Liberation Front.
The most common bomb targets in Lanao del Norte to date have
been power transmission towers. Our pulp mill in Mindanao is
located in a rural portion of the island and is susceptible to
attacks or power interruptions. The Mindanao mill supplies
approximately 80% of the abaca pulp that is used by our
Composite Fibers business unit to manufacture our coffee and tea
bag filter papers. Any interruption, loss or extended
curtailment of operations at our Mindanao mill could materially
and adversely affect our operating results and financial
condition.
We have
operations in a potentially politically and economically
unstable location.
Our pulp mill in the Philippines is located in a region that is
unstable and subject to political unrest. As discussed above,
our Philippine pulp mill produces abaca pulp, a significant raw
material used by our Composite Fibers business unit and is
currently our main provider of abaca pulp. There are limited
suitable alternative sources of readily available abaca pulp in
the world. In the event of a disruption in supply from our
Philippine mill, there is no guarantee that we could obtain
adequate amounts of abaca pulp from alternative sources at a
reasonable price or at all. As a consequence, any civil
disturbance, unrest, political instability or other event that
causes a disruption in supply could limit the availability of
abaca pulp and would increase our cost of obtaining abaca pulp.
Such occurrences could adversely impact our sales volumes,
revenues and operating results.
Our
international operations pose certain risks that may adversely
impact sales and earnings.
We have significant operations and assets located in Germany,
France, the United Kingdom, the Philippines and as a result of
the recent completion of the Concert Industries acquisition, in
Canada. Our international sales and operations are subject to a
number of special risks,
Glatfelter 2009 Annual
Report 9
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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 and as a result of the recent
completion of the Concert acquisition, in Canada. 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.
Substantially
lower and more volatile market prices for sales of excess
electricity compared to the price we currently receive may
prevent us from achieving the historical margins on our sales of
excess electricity in relation to our coal supply contract,
which could have a material adverse affect on our consolidated
financial position and results of operations.
We generate electricity at our Spring Grove facility using a
variety of fuels, including coal. We purchase coal for this
facility under a long-term, fixed price supply contract, which
expires at the end of 2012. The current market price for coal is
approximately 10% higher than the fixed price we pay under the
contract. In addition, because our Spring Grove facility
produces more electricity than it requires, we have historically
sold the excess electricity to the local power company under a
long-term co-generation contract, which expires March 31,
2010. The fixed price we receive for electricity under this
contract is approximately 30% higher than current forward prices
for electricity. We are unable to renew this co-generation
contract upon its expiration on March 31, 2010 and will,
instead, sell our excess electricity at market prices prevailing
at the time of sale. Market prices for electricity have
historically been volatile and may continue to be substantially
lower than the price we currently receive under our expiring
co-generation contract.
Our cost of coal, as well as the costs incurred for natural gas
and other fuels used to generate electricity, have a major
impact on the net revenue and overall profitability of our
Specialty Paper business unit. By selling our excess electricity
at market prices prevailing at the time of sale, we may not be
able to continue to sell excess electricity at acceptable
margins in relation to the prices under our coal supply
contract, if at all. A reduction in these margins or an
inability to sell our excess electricity could reduce the net
revenues and overall profitability of our Specialty Papers
business unit, which would have a material adverse affect on our
consolidated financial position and results of operations.
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 counterparty’s 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.
10
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An IRS audit
of our 2009 tax return could result in a change in the tax
treatment of the alternative fuel mixture credits we claimed in
2009, which could have a material adverse effect on our results
of operations and financial position.
The U.S. Internal Revenue Code, or the Code, provided a tax
credit for companies that used alternative fuel mixtures to
produce energy to operate their businesses on or prior to
December 31, 2009. During 2009, we registered two of our
facilities with the IRS as alternative fuel mixers based on
their use of black liquor as an alternative fuel source. For the
year ended December 31, 2009, we will have substantial
alternative fuel mixture credits relating to these facilities.
Our results of operations in 2009 included, on a pre-tax basis,
$107.8 million of alternative fuel mixture credits of which
$29.7 million has been received in cash, $20.1 million
was used to reduce estimated interim tax payments and
$58.0 million will be claimed as refundable income tax
credits and is expected to be realized in cash primarily in the
first half of 2010. In the event that the IRS audits our tax
return for the year ended December 31, 2009, the IRS may
conclude that some or all of the credits claimed are subject to
federal income taxes, which would subject us to additional tax
liabilities and could have a material adverse effect on our
results of operations and financial position.
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.
| ITEM 1B | UNRESOLVED STAFF COMMENTS |
None.
| ITEM 2 | PROPERTIES |
Our leased corporate offices are located in York, Pennsylvania.
In addition, we lease office space for a sales and distribution
office in Moscow, Russia. As of December 31, 2009, we owned
and operated 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.
The following table summarizes the estimated production capacity
of each of our facilities as of December 31, 2009:
|
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.
Glatfelter 2009 Annual
Report 11
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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 unit’s 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 facility in the Philippines consists of a pulpmill that
supplies a majority of the abaca pulp requirements of the
Composite Fibers paper mills.
Concert, which was acquired in February 2010, has annual rated
capacity totaling approximately 84,000 metric tons of airlaid
products.
| ITEM 3 | LEGAL PROCEEDINGS |
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 21.
| ITEM 4 | [RESERVED] |
EXECUTIVE
OFFICERS
The following table sets forth certain information with respect
to our executive officers as of March 15, 2010.
| Name | Age | Office with the Company | ||||||
|
George H. Glatfelter II
|
58 | Chairman and Chief Executive Officer | ||||||
|
Dante C. Parrini
|
45 | Executive Vice President and Chief Operating Officer | ||||||
|
John P. Jacunski
|
44 | Senior Vice President and Chief Financial Officer | ||||||
|
David C. Elder
|
41 | Vice President and Corporate Controller | ||||||
|
Thomas G. Jackson
|
44 | Vice President General Counsel and Corporate Secretary | ||||||
|
Debabrata Mukherjee
|
40 | Vice President and General Manager, Specialty Papers Business Unit | ||||||
|
Martin Rapp
|
50 | Vice President and General Manager, Composite Fibers Business Unit | ||||||
|
Mark A. Sullivan
|
55 | Vice President Global Supply Chain | ||||||
|
William T. Yanavitch II
|
49 | Vice President Human Resources and Administration | ||||||
Officers are elected to serve at the pleasure of the Board of
Directors. Except in the case of officers elected to fill a new
position or a vacancy occurring at some other date, officers are
generally elected at the organizational meeting of the Board of
Directors held immediately after the annual meeting of
shareholders.
George H. Glatfelter II
is our Chairman and Chief
Executive Officer, positions he has held since February 2001.
Mr. Glatfelter joined our company in January 1977. He also
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 beginning in January 2003. Mr. Parrini
previously was Vice President responsible for Sales and
Marketing.
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.
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.
12
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Thomas G. Jackson
became Vice President, General Counsel
and Secretary in June 2008. Since joining us in November 2006,
Mr. Jackson has held various positions in our legal
department including Assistant General Counsel, Assistant
Secretary and Director of Compliance. 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
through 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 Dennison’s Roll
Materials Business in Central and Eastern Europe since August
2002.
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.
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.
| ITEM 5 | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
Common Stock Prices and Dividends Declared Information
The following table shows the high and low prices of our common
stock traded on the New York Stock Exchange under the symbol
“GLT” and the dividend declared per share for each
quarter during the past two years.
| Quarter | High | Low | Dividend | |||||||||||
|
2009
|
||||||||||||||
|
Fourth
|
$ | 12.58 | $ | 10.01 | $ | 0.09 | ||||||||
|
Third
|
12.14 | 7.91 | 0.09 | |||||||||||
|
Second
|
11.59 | 6.00 | 0.09 | |||||||||||
|
First
|
9.80 | 4.57 | 0.09 | |||||||||||
|
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 | |||||||||||
As of March 12, 2010, we had 1,515 shareholders of record.
Glatfelter 2009 Annual
Report 13
Table of Contents
STOCK PERFORMANCE
GRAPH
The following graph compares the cumulative
5-year
total
return of our common stock with the cumulative total returns of
both a peer group and a broad market index. For the year ended
December 31, 2009, as a result of changes in our industry,
including the bankruptcy of certain companies previously
included in the old peer group, we now compare our stock
performance to the S&P Small Cap 600 Paper Products index.
This peer index is comprised of Buckeye Technologies Inc.,
Clearwater Paper Corp., Neenah Paper Inc., Schweitzer-Mauduit
International and Wausau Paper Corp. The old peer group
consisted 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 benchmark 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, 2004
and charts it through December 31, 2009.
| ITEM 6 | SELECTED FINANCIAL DATA |
|
As of or for the year ended
December 31
|
||||||||||||||||||||||||
| Dollars in thousands, except per share | 2009 (1) | 2008 | 2007 | 2006 | 2005 | |||||||||||||||||||
|
Net sales
|
$ | 1,184,010 | $ | 1,263,850 | $ | 1,148,323 | $ | 986,411 | $ | 579,121 | ||||||||||||||
|
Energy sales, net
|
13,332 | 9,364 | 9,445 | 10,726 | 10,078 | |||||||||||||||||||
|
Total revenue
|
1,197,342 | 1,273,214 | 1,157,768 | 997,137 | 589,199 | |||||||||||||||||||
|
Reversal of (shutdown and restructuring charges and unusual
items)
|
— | 856 | (35 | ) | (30,318 | ) | (1,564 | ) | ||||||||||||||||
|
Gains on dispositions of plant, equipment and timberlands, net
|
898 | 18,468 | 78,685 | 17,394 | 22,053 | |||||||||||||||||||
|
Gains from insurance recoveries
|
— | — | — | 205 | 20,151 | |||||||||||||||||||
|
Net income (loss)
|
123,442 | 57,888 | 63,472 | (12,236 | ) | 38,609 | ||||||||||||||||||
|
Earnings (loss) per share
|
||||||||||||||||||||||||
|
Basic
|
2.70 | 1.28 | 1.41 | (0.27 | ) | 0.88 | ||||||||||||||||||
|
Diluted
|
2.70 | 1.27 | 1.40 | (0.27 | ) | 0.87 | ||||||||||||||||||
|
Total assets
|
1,190,294 | 1,057,309 | 1,287,067 | 1,225,643 | 1,044,977 | |||||||||||||||||||
|
Total debt
|
254,583 | 313,285 | 313,185 | 397,613 | 207,073 | |||||||||||||||||||
|
Shareholders’ equity
|
510,704 | 342,707 | 476,068 | 388,368 | 432,312 | |||||||||||||||||||
|
Cash dividends declared per common share
|
0.36 | 0.36 | 0.36 | 0.36 | 0.36 | |||||||||||||||||||
|
Shares outstanding
|
45,706 | 45,434 | 45,141 | 44,821 | 44,132 | |||||||||||||||||||
|
Capital expenditures
|
26,257 | 52,469 | 28,960 | 44,460 | 31,024 | |||||||||||||||||||
|
Depreciation and amortization
|
61,256 | 60,611 | 56,001 | 50,021 | 50,647 | |||||||||||||||||||
|
Tons sold
|
818,905 | 829,354 | 799,512 | 721,892 | 498,593 | |||||||||||||||||||
|
Number of employees
|
3,546 | 3,633 | 3,854 | 3,704 | 1,958 | |||||||||||||||||||
| (1) | During 2009, we recognized $107.8 million of alternative fuel mixture credits, all of which were recorded as a reduction to cost of products sold. |
14
Table of Contents
| ITEM 7 | MANAGEMENT’S 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 management’s 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 expense, environmental costs, capital
expenditures and liquidity, all of which are inherently
difficult to predict. Although we make such statements based on
assumptions that we believe to be reasonable, there can be no
assurance that actual results will not differ materially from
our expectations. Accordingly, we identify the following
important factors, among others, which could cause our results
to differ from any results that might be projected, forecasted
or estimated in any such forward-looking statements:
| i. | variations in demand for our products including the impact of any unplanned market-related downtime, or variations in product pricing; |
| ii. | changes in the cost or availability of raw materials we use, in particular pulpwood, market pulp, pulp substitutes, caustic soda and abaca fiber; |
| iii. | changes in energy-related costs and commodity raw materials with an energy component; |
| iv. | our ability to develop new, high value-added Specialty Papers and Composite Fibers products; |
| v. | our inability to renew our electricity sales agreement resulting in market pricing that is currently below historical 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. | disruptions in production and/or increased costs due to labor disputes; |
| xiii. | enactment of adverse state, federal or foreign tax or other legislation or changes in government policy or regulation; |
| xiv. | adverse results in litigation; and |
| xv. | our ability to finance, consummate and integrate current or 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 & converting,
carbonless papers and forms, food & beverage filter
papers, decorative laminates for furniture and flooring,
metallized papers and other highly technical niche markets.
Overview
Our results of operations for 2009
when compared with 2008 were impacted by the weak global
economic conditions. Overall volumes shipped by Specialty Papers
declined slightly and Composite Fibers declined 6.5% in the
year-to-year
comparison. As a result of the soft demand for most of our
products and our efforts to reduce inventory, during the second
quarter of 2009, we incurred significant market-related downtime
at many of our facilities which adversely affected results of
operations. This downtime continued within our Composite Fibers
business unit into the third quarter, although to a lesser
extent. For 2009, we generated $163.9 million of cash from
operations, including alternative fuel mixture credits, as a
result of improved operations, inventory reductions and
effective working capital management initiatives.
During 2009, we registered two of our facilities with the
U.S. Internal Revenue Service as alternative fuel mixers
based on their use of black liquor as an
Glatfelter 2009 Annual
Report 15
Table of Contents
alternative fuel source. Our 2009 results of operations
included, on a pre-tax basis, $107.8 million of alternative
fuel mixture credits, of which $29.7 million was received
in cash and another $20.1 million was used to offset
interim estimated tax payments. We expect to realize the
remaining $58.0 million of credits in the form of
non-taxable refundable income tax credits.
Specialty Papers’ operating income totaled
$55.9 million and $49.2 million for 2009 and 2008,
respectively. The improvement in operating income was led by
productivity improvements and cost reduction initiatives and
sales of renewable energy credits, partially offset by the
adverse impact of lower volumes and selling prices. During 2009,
the weak economic environment adversely affected demand in all
markets served by Specialty Papers. As a result of weak demand
in the first half of the year and our efforts to reduce
inventory, this unit incurred market related downtime totaling
33,019 tons of paper. During the year, we reduced Specialty
Papers’ inventories by 13.3%.
Our Composite Fibers business unit’s operating income
declined to $21.9 million from $25.0 million in 2008.
Volumes shipped during 2009 declined 6.5% compared to 2008 as a
result of the weak economic environment and our customers’
actions to reduce their inventory levels. As a result of weak
demand and our inventory reduction efforts, during 2009 we
incurred unscheduled downtime totaling approximately 6,480 tons
of paper, or 9.4% of the unit’s total capacity for the
period.
In addition, our pre-tax results of operations in 2009 included
$17.7 million of lower gains from the sale of timberlands
than what was realized in 2008. We also recorded
$7.0 million of pension expense in 2009 compared with
pension income of $16.1 million in 2008.
RESULTS OF
OPERATIONS
2009 versus
2008
The following table sets forth summarized results of operations:
| Year Ended December 31 | ||||||||||||
| In thousands, except per share | 2009 | 2008 | ||||||||||
|
Net sales
|
$ | 1,184,010 | $ | 1,263,850 | ||||||||
|
Gross profit
|
269,764 | 177,782 | ||||||||||
|
Operating income
|
160,405 | 99,209 | ||||||||||
|
Net income
|
123,442 | 57,888 | ||||||||||
|
Earnings per diluted share
|
2.70 | 1.27 | ||||||||||
The consolidated results of operations for 2009 and 2008 include
the following items not considered to be part of our core
business operations:
|
After-tax
|
||||||||||
| In thousands, except per share | Income (loss) | Diluted EPS | ||||||||
|
2009
|
||||||||||
|
Alternative fuel mixture credits
|
$ | 95,764 | $ | 2.09 | ||||||
|
Acquisition related costs
|
(1,768 | ) | (0.04 | ) | ||||||
|
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 | ) | ||||||
These items increased earnings by $94.0 million, or $2.05
per diluted share in 2009. Comparatively, the items identified
above increased earnings in 2008 by $10.6 million, or $0.23
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 Business Unit Performance table.
Management evaluates results of operations of the business units
before pension income or expense, alternative fuel mixture
credits, charges related to the Fox River environmental
reserves, restructuring related charges, unusual items, certain
corporate level costs, and the effects of asset dispositions.
Management believes that 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 these core operations.
Such amounts are presented under the caption “Other and
Unallocated.” This presentation is aligned with the
management and operating structure of our company. It is also on
this basis that our performance is evaluated internally and by
our Board of Directors.
16
Table of Contents
|
Business Unit Performance
|
Year Ended December 31 | ||||||||||||||||||||||||||||||||||||||
| In thousands, except tons | Specialty Papers | Composite Fibers | Other and Unallocated | Total | |||||||||||||||||||||||||||||||||||
| 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | ||||||||||||||||||||||||||||||||
|
Net sales
|
$ | 791,915 | $ | 833,899 | $ | 392,095 | $ | 429,952 | – | $ | (1 | ) | $ | 1,184,010 | $ | 1,263,850 | |||||||||||||||||||||||
|
Energy sales, net
|
13,332 | 9,364 | – | – | – | – | 13,332 | 9,364 | |||||||||||||||||||||||||||||||
|
Total revenue
|
805,247 | 843,263 | 392,095 | 429,952 | – | (1 | ) | 1,197,342 | 1,273,214 | ||||||||||||||||||||||||||||||
|
Cost of products sold
|
693,949 | 739,481 | 334,378 | 366,791 | (100,749 | ) | (10,840 | ) | 927,578 | 1,095,432 | |||||||||||||||||||||||||||||
|
Gross profit (loss)
|
111,298 | 103,782 | 57,717 | 63,161 | 100,749 | 10,839 | 269,764 | 177,782 | |||||||||||||||||||||||||||||||
|
SG&A
|
55,408 | 54,596 | 35,779 | 38,206 | 19,070 | 5,095 | 110,257 | 97,897 | |||||||||||||||||||||||||||||||
|
Reversal of shutdown and restructuring charges
|
– | – | – | – | – | (856 | ) | – | (856 | ) | |||||||||||||||||||||||||||||
|
Gains on dispositions of plant, equipment and timberlands
|
– | – | – | – | (898 | ) | (18,468 | ) | (898 | ) | (18,468 | ) | |||||||||||||||||||||||||||
|
Total operating income (loss)
|
55,890 | 49,186 | 21,938 | 24,955 | 82,577 | 25,068 | 160,405 | 99,209 | |||||||||||||||||||||||||||||||
|
Non operating income (expense)
|
– | – | – | – | (17,259 | ) | (18,183 | ) | (17,259 | ) | (18,183 | ) | |||||||||||||||||||||||||||
|
Income (loss) before income taxes
|
$ | 55,890 | $ | 49,186 | $ | 21,938 | $ | 24,955 | $ | 65,318 | $ | 6,885 | $ | 143,146 | $ | 81,026 | |||||||||||||||||||||||
|
Supplementary Data
|
|||||||||||||||||||||||||||||||||||||||
|
Net tons sold
|
738,841 | 743,755 | 80,064 | 85,599 | – | – | 818,905 | 829,354 | |||||||||||||||||||||||||||||||
|
Depreciation, depletion and amortization
|
$ | 37,520 | $ | 35,010 | $ | 23,736 | $ | 25,601 | $ | – | $ | – | $ | 61,256 | $ | 60,611 | |||||||||||||||||||||||
|
Capital expenditures
|
14,077 | 20,878 | 12,080 | 31,591 | 100 | – | 26,257 | 52,469 | |||||||||||||||||||||||||||||||
Sales and Costs
of Products Sold
| Year Ended December 31 | ||||||||||||||||
| In thousands | 2009 | 2008 | Change | |||||||||||||
|
Net sales
|
$ | 1,184,010 | $ | 1,263,850 | $ | (79,840 | ) | |||||||||
|
Energy and related sales – net
|
13,332 | 9,364 | 3,968 | |||||||||||||
|
Total revenues
|
1,197,342 | 1,273,214 | (75,872 | ) | ||||||||||||
|
Costs of products sold
(1)
|
927,578 | 1,095,432 | (167,854 | ) | ||||||||||||
|
Gross profit
|
$ | 269,764 | $ | 177,782 | $ | 91,982 | ||||||||||
|
Gross profit as a percent of Net sales
|
22.8 | % | 14.1 | % | ||||||||||||
| (1) | Includes $107.8 million of alternative fuel mixture credits, net of related expenses. |
The following table sets forth the contribution to consolidated
net sales by each business unit:
| Percent of total | ||||||||||||
| 2009 | 2008 | |||||||||||
|
Business Unit
|
||||||||||||
|
Specialty Papers
|
66.9 | % | 66.0 | % | ||||||||
|
Composite Fibers
|
33.1 | 34.0 | ||||||||||
|
Total
|
100.0 | % | 100.0 | % | ||||||||
Net sales
totaled $1,184.0 million for
2009, a decrease of $79.8 million, or 6.3%, compared to
2008.
In the Specialty Papers business unit, 2009 net sales
decreased $42.0 million to $791.9 million. Operating
income increased $6.7 million in the year over year
comparison and totaled $55.9 million in 2009. The
improvement in operating income was primarily due to
$12.2 million of productivity efficiencies and cost
reduction initiatives and $4.5 million of lower input
costs. These favorable factors were offset by $7.6 million
of lower volumes and mix impact and $2.1 million of lower
selling prices. Operating income was also adversely impacted by
the costs of unplanned downtime at the Spring Grove and
Chillicothe facilities totaling approximately $6.6 million
in 2009 compared to 2008.
We sell excess power generated by the Spring Grove, PA facility
pursuant to a long-term contract that expires March 31,
2010. The following table summarizes this activity for each of
the past two years:
| In thousands | 2009 | 2008 | Change | |||||||||||||
|
Energy sales
|
$ | 20,128 | $ | 19,731 | $ | 397 | ||||||||||
|
Costs to produce
|
(11,883 | ) | (10,367 | ) | (1,516 | ) | ||||||||||
|
Net
|
8,245 | 9,364 | (1,119 | ) | ||||||||||||
|
Renewable energy credits
|
5,087 | – | 5,087 | |||||||||||||
|
Total
|
$ | 13,332 | $ | 9,364 | $ | 3,968 | ||||||||||
Renewable energy credits (“RECs”) represent sales of
certified credits earned related to burning renewable sources of
energy such as black liquor and wood waste. The market for such
certificates is an emerging and somewhat illiquid market. The
extent and value of future revenues from REC sales is dependent
on many factors outside of management’s control. Therefore,
we may not be able to generate additional sales of RECs in
future periods. In addition, the certification by the Public
Utility Commission of Ohio of our Chillicothe, OH facility as a
renewable energy generator was appealed by a consumer advocacy
group. While we believe the certification will be upheld, we are
unable to predict its ultimate outcome.
In Composite Fibers, 2009 net sales were
$392.1 million, a decline of $37.9 million from 2008.
Operating income declined by $3.0 million in the comparison
to $21.9 million. Total volumes shipped by this business
unit declined 6.5% led by lower shipments of composite laminates
and food & beverage paper products, which declined
18.5% and 5.5%, respectively. The translation of foreign
currencies adversely impacted net sales by $23.0 million;
however, higher average selling prices contributed
$6.2 million.
Glatfelter 2009 Annual
Report 17
Table of Contents
Energy and raw material costs in the Composite Fibers business
unit were $3.9 million higher in 2009 than in 2008.
Market-related downtime adversely impacted operating results by
$7.4 million in 2009 compared to 2008.
Alternative Fuel Mixture Credits
The
U.S. Internal Revenue Code provides a tax credit for
companies that use alternative fuel mixtures to produce energy
to operate their businesses. The credit, equal to $0.50 per
gallon of alternative fuel contained in the mixture, is
refundable to the taxpayer. On May 11, 2009, we were
notified by the Internal Revenue Service that our application to
be registered as an alternative fuel mixer was approved. We
received a payment from the Internal Revenue Service on
June 30, 2009 in the amount of $29.7 million for the
alternative fuel mixture consumed at our Spring Grove, PA and
Chillicothe, OH facilities during the period February 20,
2009 through May 17, 2009. Since we began mixing and
burning eligible alternative fuels, we have earned
$107.8 million of alternative fuel mixture credits of which
$29.7 million has been received in cash, $20.1 million
was used to reduce estimated interim tax payments and
$58.0 million will be claimed as refundable income tax
credits and is expected to be realized in cash primarily in the
first half of 2010. We record all alternative fuel mixture
credits as a reduction to cost of goods sold.
According to the Internal Revenue Code, the tax credit expired
on December 31, 2009.
Pension Expense/Income
The following table
summarizes the amounts of pension expense or income recognized
for 2009 compared to 2008:
| Year Ended December 31 | ||||||||||||||||
| In thousands | 2009 | 2008 | Change | |||||||||||||
|
Recorded as
:
|
||||||||||||||||
|
Costs of products sold
|
$ | (4,936 | ) | $ | 11,067 | $ | (16,003 | ) | ||||||||
|
SG&A expense
|
(2,097 | ) | 4,995 | (7,092 | ) | |||||||||||
|
Total
|
$ | (7,033 | ) | $ | 16,062 | $ | (23,095 | ) | ||||||||
The amount of pension expense or 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 –
Note 11, the fair value of the plans’ assets declined
approximately 29% during 2008. As a result, during 2009 we
recognized net pension expense totaling approximately
$7.0 million, on a pre-tax basis. However, we were not
required to make cash contributions to our qualified defined
benefit pension plans in 2009.
Selling, general and administrative (“SG&A”)
SG&A expenses increased $12.4 million in the
year-to-year
comparison and totaled $110.3 million for 2009. In 2009,
SG&A included $2.1 million of pension expense compared
with $5.0 million of pension income in 2008. In addition,
we incurred higher legal and professional fees related to the
Fox River environmental matter and the Concert Industries
acquisition.
Gain on Sales of Plant, Equipment and
Timberlands
During the years ended
December 31, 2009 and 2008, we completed sales of
timberlands which are summarized by the following table:
| Dollars in thousands | Acres | Proceeds | Gain | |||||||||||||
|
2009
|
||||||||||||||||
|
Timberlands
|
319 | $ | 951 | $ | 906 | |||||||||||
|
Other
|
n/a | – | (8 | ) | ||||||||||||
|
Total
|
$ | 951 | $ | 898 | ||||||||||||
|
2008
|
||||||||||||||||
|
Timberlands
|
4,561 | $ | 19,279 | $ | 18,649 | |||||||||||
|
Other
|
n/a | – | (181 | ) | ||||||||||||
|
Total
|
$ | 19,279 | $ | 18,468 | ||||||||||||
In connection with each of the asset sales set forth above, we
received cash proceeds.
Income taxes
Our results of operations for
2009 reflect an effective tax rate of 13.8% compared to 28.6% a
year ago. The lower tax rate in 2009 was primarily due to a tax
benefit of $27.1 million due to nontaxable alternative fuel
mixture credits, and from a lower proportion of timberland
gains, which are taxed at a higher effective tax rate.
Foreign Currency
In 2009, we owned and
operated 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 2009,
Euro functional currency operations generated approximately
19.8% of our sales and 18.9% of operating expenses and British
Pound Sterling operations represented 10.6% of net sales and
10.8% 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 operation’s results:
|
Year Ended
|
|||||||
| In thousands | December 31, 2009 | ||||||
|
Favorable
|
|||||||
| (unfavorable) | |||||||
|
Net sales
|
$ | (22,975 | ) | ||||
|
Costs of products sold
|
24,116 | ||||||
|
SG&A expenses
|
3,233 | ||||||
|
Income taxes and other
|
883 | ||||||
|
Net income
|
$ | 5,257 | |||||
The above table only presents the financial reporting impact of
foreign currency translations. It does not
18
Table of Contents
present the impact of certain competitive advantages or
disadvantages of operating or competing in multi-currency
markets.
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 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 (loss)
|
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 (loss)
|
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 (loss) 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 | |||||||||||||||||||||||||||||||
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 Chillicothe’s 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
Glatfelter 2009 Annual
Report 19
Table of Contents
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 unit’s 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 29% since the beginning of 2008.
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 year’s 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 | ||||||||||||
We received cash proceeds in connection with each of the asset
sales set forth above, with the exception of the sale of
approximately 26,000 acres of timberland completed in
November 2007. In connection with that transaction, we formed
GPW Virginia Timberlands LLC (“GPW Virginia”) as an
indirect, wholly owned and bankruptcy-remote subsidiary of ours.
GPW Virginia received as consideration for the timberland sold
in that transaction a $43.2 million, interest-bearing note
that matures in 2027 from the buyer, Glawson Investments Corp.
(“Glawson”), a Georgia corporation, and GIC
Investments LLC, a Delaware limited liability company owned by
Glawson. The Glawson note receivable is fully secured by a
letter of credit issued by The Royal Bank of Scotland plc. In
January 2008, GPW Virginia monetized the Glawson note receivable
by entering into a $36.7 million term loan agreement (the
“2008 Term Loan”) with a financial institution. The
2008 Term Loan is secured by all of the assets of GPW Virginia,
including the Glawson note receivable, the related letter of
credit and additional notes with an aggregate principal amount
of $9.2 million that we issued in favor of GPW Virginia
(the “Company Note”). The 2008 Term Loan bears
interest at a six month reserve adjusted LIBOR rate plus a
margin rate of 1.20% per annum. Interest on the 2008 Term Loan
is payable semiannually. The principal amount of the 2008 Term
Loan is due on January 15, 2013, but GPW Virginia may
prepay the 2008 Term Loan at any time, in whole or in part,
without premium or penalty. During 2009, GPW Virginia received
aggregate interest payments of $1.5 million under the
Glawson note receivable and the Company Note and, in turn, made
interest payments of $1.1 million under the 2008 Term Loan.
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
In 2008, we owned and
operated 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
20
Table of Contents
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 operation’s results:
|
Year Ended
|
||||||
| In thousands | December 31, 2008 | |||||
|
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.
LIQUIDITY AND
CAPITAL RESOURCES
Our business is capital intensive and requires significant
expenditures for new or enhanced equipment, for environmental
compliance matters including, but not limited to, the Clean Air
Act, 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 | 2009 | 2008 | ||||||||||
|
Cash and cash equivalents at beginning of period
|
$ | 32,234 | $ | 29,833 | ||||||||
|
Cash provided by (used for)
|
||||||||||||
|
Operating activities
|
163,868 | 53,425 | ||||||||||
|
Investing activities
|
12,544 | (33,190 | ) | |||||||||
|
Financing activities
|
(75,329 | ) | (12,879 | ) | ||||||||
|
Effect of exchange rate changes on cash
|
2,103 | (4,955 | ) | |||||||||
|
Net cash provided
|
103,186 | 2,401 | ||||||||||
|
Cash and cash equivalents at end of period
|
$ | 135,420 | $ | 32,234 | ||||||||
At the end of the 2009, we had $135.4 million in cash and
cash equivalents and $194.3 million available under our
revolving credit agreement, which matures in April 2011.
Operating cash flow improved by $110.4 million primarily
due to cash generated from working capital management
initiatives including $28.2 million of cash in 2009 from
reduced inventory compared with a use of $10.0 million in
2008 and $16.5 million from lower accounts receivable in
2009 compared with a $17.7 million use in 2008. In
addition, $29.7 million of cash was received from
alternative fuel mixture credits. In January 2009, we used
$6.5 million to satisfy a commitment we had to fund certain
Fox River environmental remediation activities.
Net cash provided from investing activities totaled
$12.5 million in 2009 compared with a net use of
$33.2 million in 2008. The improvement reflects the
collection of a $37.9 million note receivable in connection
with the unwinding of the 2003 timberland installment sale, and
$26.2 million from reduced capital expenditures in
connection with the deferral of discretionary capital
expenditures.
Net cash used for financing activities totaled
$75.3 million in 2009, primarily reflecting reductions of
debt including $34.0 million repaid in connection with the
above referenced unwinding of the 2003 timberland installment
sale, term loan principal repayments of $16.0 million and
reduced usage under our revolving credit facility.
During 2009 and 2008, cash dividends paid on common stock
totaled $16.6 million and $16.5 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.
The following table sets forth our outstanding long-term
indebtedness:
| December 31 | ||||||||||||
| In thousands | 2009 | 2008 | ||||||||||
|
Revolving credit facility, due April 2011
|
$ | – | $ | 6,724 | ||||||||
|
Term loan, due April 2011
|
14,000 | 30,000 | ||||||||||
|
7
1
/
8
% Notes,
due May 2016
|
200,000 | 200,000 | ||||||||||
|
2008 Term Loan, due January 2013
|
36,695 | 36,695 | ||||||||||
|
Note payable, due March 2013
|
– | 34,000 | ||||||||||
|
Total long-term debt
|
250,695 | 307,419 | ||||||||||
|
Less current portion
|
(13,759 | ) | (13,759 | ) | ||||||||
|
Long-term debt, excluding current portion
|
$ | 236,936 | $ | 293,660 | ||||||||
The significant terms of the debt instruments are more fully
discussed in Item 8 – Financial Statements and
Supplementary Data – Note 17.
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 operations, including the restoration of natural
resources and liability for personal injury and for damages to
property and natural resources. See Item 8 –
Financial
Glatfelter 2009 Annual
Report 21
Table of Contents
Statements and Supplementary Data – Note 21 for a
summary of significant environmental matters.
On February 5, 2010, we and certain of our subsidiaries
(the “Guarantors”) issued and sold $100 million
in aggregate principal amount of
7
1
/
8
% Senior
Notes due 2016 (the “Notes”). The Notes were issued at
95.0% of the principal amount. We used the net proceeds from the
sale, along with borrowings under our revolving credit facility
and cash on hand, to fund the acquisition of Concert Industries
Corp. See Item 8 – Financial Statements and
Supplementary Data – Note 24 for a summary of
these transactions.
We will pay interest on the Notes on May 1 and November 1 of
each year, beginning on May 1, 2010. The Notes will mature
on May 1, 2016. The Notes are senior unsecured obligations
and will rank equally with our other and future senior unsecured
obligations. The Notes are guaranteed, jointly and severally, on
a senior unsecured basis, by certain of our current and future
domestic subsidiaries.
We may redeem some or all of the notes at any time and from time
to time on or after May 1, 2011 at the applicable
redemption price plus accrued and unpaid interest to the date of
redemption. We have the option to redeem the Notes in whole, but
not in part, prior to May 1, 2011 at a redemption price
equal to 100% of the principal amount plus accrued and unpaid
interest and a make-whole premium.
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 21, 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, both the Notes and our
previously issued $200 million in aggregate principal
amount of
7
1
/
8
% Senior
Notes due 2016 contain cross default provisions that could
result in all such notes becoming due and payable in the event
of a failure to repay debt outstanding under the credit
agreement at maturity or a default under the credit agreement,
that accelerates the debt outstanding thereunder. As of
December 31, 2009, we met all of the requirements of our
debt covenants.
Off-Balance-Sheet Arrangements
As of
December 31, 2009 and 2008, 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, 2009:
|
Payments Due During the Year
|
||||||||||||||||||||||
| Ended December 31, | ||||||||||||||||||||||
|
2011 to
|
2013 to
|
2015 and
|
||||||||||||||||||||
| In millions | Total | 2010 | 2012 | 2014 | beyond | |||||||||||||||||
|
Long-term
debt
(1)
|
$ | 344 | $ | 29 | $ | 30 | $ | 66 | $ | 219 | ||||||||||||
|
Operating
leases
(2)
|
20 | 5 | 5 | 3 | 7 | |||||||||||||||||
|
Purchase
obligations
(3)
|
163 | 94 | 69 | – | – | |||||||||||||||||
|
Other long term obligations
(4),(5)
|
104 | 11 | 20 | 26 | 47 | |||||||||||||||||
|
Total
|
$ | 631 | $ | 139 | $ | 124 | $ | 95 | $ | 273 | ||||||||||||
| (1) | Represents principal and interest payments due on long-term debt. At December 31, 2009, we had $200.0 million of debt maturing in May 2016 and bearing a fixed rate of interest at 7 1 / 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%. The amounts set forth above do not include the $100 million Notes issued in February 2010 scheduled to mature in 2016. | |
| (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, 2009 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 ASC 740-10-20. As discussed in more detail in Item 8 – Financial Statements, Note 9, “Income Taxes”, such amounts totaled $40.1 million at December 31, 2009. |
22
Table of Contents
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.
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 or expense, which will
result in changes to the recorded benefit plan assets and
liabilities.
Environmental Liabilities
We maintain accruals
for losses associated with environmental obligations when it is
probable that a liability has been incurred and the amount of
the liability can be reasonably estimated based on existing
legislation and remediation technologies. These accruals are
adjusted periodically as assessment and remediation actions
continue
and/or
further legal or technical information develops. Such
undiscounted liabilities are exclusive of any insurance or other
claims against third parties. Recoveries of environmental
remediation costs from other parties, including insurance
carriers, are recorded as assets when their receipt is assured
beyond a reasonable doubt.
Income Taxes
We record the estimated future
tax effects of temporary differences between the tax bases of
assets and liabilities and amounts reported in our balance
sheets, as well as operating loss and tax credit carry forwards.
These deferred tax assets and liabilities are measured using
enacted tax rates and laws that will be in effect when such
amounts are expected to reverse or be utilized. We regularly
review our deferred tax assets for recoverability based on
historical taxable income, projected future taxable income, the
expected timing of the reversals 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
Glatfelter 2009 Annual
Report 23
Table of Contents
where the ultimate tax determination is less than certain. We
and our subsidiaries are examined by various Federal, State and
foreign tax authorities. We regularly assess the
potential outcomes of these examinations and any future
examinations for the current or prior years in determining the
adequacy of our provision for income taxes. We continually
assess the likelihood and amount of potential adjustments and
adjust the income tax provision, the current liability and
deferred taxes in the period in which the facts that give rise
to a revision become known.
Other significant accounting policies, not involving the same
level of uncertainties as those discussed above, are
nevertheless important to an understanding of the Consolidated
Financial Statements. Refer to Item 8 – Financial
Statements and Supplementary Data – Notes to
Consolidated Financial Statements for additional accounting
policies.
| ITEM 7A | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
| Year Ended December 31 | At December 31, 2009 | |||||||||||||||||||||||||||||||
| Dollars in thousands | 2010 | 2011 | 2012 | 2013 | 2014 | 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 | $ | 196,750 | ||||||||||||||||||
|
At variable interest rates
|
43,815 | 36,815 | 36,695 | 1,407 | – | 50,695 | 51,209 | |||||||||||||||||||||||||
| $ | 250,695 | $ | 247,959 | |||||||||||||||||||||||||||||
|
Weighted – average interest rate
|
||||||||||||||||||||||||||||||||
|
Fixed interest rate debt – Bond
|
7.13 | % | 7.13 | % | 7.13 | % | 7.13 | % | 7.13 | % | ||||||||||||||||||||||
|
Variable interest rate debt
|
1.57 | 1.65 | 1.66 | 1.66 | – | |||||||||||||||||||||||||||
The table above presents the average principal outstanding and
related interest rates for the next five years for debt
outstanding as of December 31, 2009. Fair values included
herein have been determined based upon rates currently available
to us for debt with similar terms and remaining maturities. The
amounts set forth above do not give effect to the issuance in
February 2010 of $100 million
7
1
/
8
% senior
notes due May 2016. These notes are described more fully in
Item 8 – Financial Statements and Supplementary
Data, Note 24.
Our market risk exposure primarily results from changes in
interest rates and currency exchange rates. At December 31,
2009, we had long-term debt outstanding of $250.7 million,
of which $50.7 million or 20.2% was at variable interest
rates. Variable-rate debt outstanding represents
i) borrowings under our revolving credit facility and term
loans that accrue interest based on the domestic prime rate or a
Eurocurrency rate, at our option, plus a margin; and
ii) cash collateralized borrowing incurred in connection
with the 2007 installment timberland sale that accrues interest
based on 6 month LIBOR plus a margin. At December 31,
2009, the weighted-average interest rate paid was approximately
1.57%. A hypothetical 100 basis point increase or decrease
in the interest rate on variable rate debt would increase or
decrease annual interest expense by $0.4 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
2009, Euro functional currency operations generated
approximately 19.8% of our sales and 18.9% of operating expenses
and British Pound Sterling operations represented 10.6% of net
sales and 10.8% of operating expenses.
24
Table of Contents
| ITEM 8 | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
MANAGEMENT’S
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 Company’s
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
Company’s financial statements for external reporting
purposes in accordance with accounting principles generally
accepted in the United States.
As of December 31, 2009, management conducted an assessment
of the effectiveness of the Company’s 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
Company’s internal control over financial reporting as of
December 31, 2009 is effective to provide reasonable
assurance regarding the reliability of financial reporting and
the preparation of the Company’s financial statements for
external reporting purposes in accordance with accounting
principles generally accepted in the United States.
The Company’s 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
Company’s assets that could have a material effect on our
financial statements.
The Company’s internal control over financial reporting as
of December 31, 2009, 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 Company’s internal control over
financial reporting as of December 31, 2009.
The Company’s 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 system’s objectives
will be met. The design of a control system must reflect the
fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Further,
because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that
misstatements due to error or fraud will not occur or that all
control issues and instances of fraud, if any, within the
Company have been detected. These inherent limitations include
the realities that judgments in decision-making can be faulty
and that breakdowns can occur because of simple error or
mistake. Controls can also be circumvented by the individual
acts of some persons, by collusion of two or more people, or by
management override of the controls. The design of any system of
controls is based, in part, on certain assumptions about the
likelihood of future events, and there can be no assurance that
any design will succeed in achieving its stated goals under all
potential future conditions. Projections of any evaluation of
controls effectiveness to future periods are subject to risks.
Over time, controls may become inadequate because of changes in
conditions or deterioration in the degree of compliance with
policies or procedures.
Glatfelter 2009 Annual
Report 25
Table of Contents
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, 2009, based on
criteria established in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission. The Company’s 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 Management’s Report on Internal Control Over
Financial Reporting. Our responsibility is to express an opinion
on the Company’s 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 company’s internal control over financial reporting is a
process designed by, or under the supervision of, the
company’s principal executive and principal financial
officers, or persons performing similar functions, and effected
by the company’s 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 company’s
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
company’s 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, 2009, 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, 2009 of
the Company and our report dated March 16, 2010 expressed
an unqualified opinion on those financial statements and
financial statement schedule.
/s/ DELOITTE & TOUCHE LLP
| Philadelphia, Pennsylvania |
March 16, 2010
26
Table of Contents
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, 2009 and 2008, and
the related consolidated statements of income,
shareholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2009. 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 Company’s
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,
2009 and 2008, and the results of their operations and their
cash flows for each of the three years in the period ended
December 31, 2009, 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, present fairly, in all material respects, the
information set forth therein.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Company’s internal control over financial reporting as of
December 31, 2009, 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 16, 2010 expressed an
unqualified opinion on the Company’s internal control over
financial reporting.
/s/ DELOITTE & TOUCHE LLP
Philadelphia, Pennsylvania
March 16, 2010
Glatfelter 2009 Annual
Report 27
Table of Contents
| Year Ended December 31 | ||||||||||||||||
| In thousands, except per share | 2009 | 2008 | 2007 | |||||||||||||
|
Net sales
|
$ | 1,184,010 | $ | 1,263,850 | $ | 1,148,323 | ||||||||||
|
Energy and related sales – net
|
13,332 | 9,364 | 9,445 | |||||||||||||
|
Total revenues
|
1,197,342 | 1,273,214 | 1,157,768 | |||||||||||||
|
Costs of products sold
|
927,578 | 1,095,432 | 1,001,456 | |||||||||||||
|
Gross profit
|
269,764 | 177,782 | 156,312 | |||||||||||||
|
Selling, general and administrative expenses
|
110,257 | 97,897 | 116,144 | |||||||||||||
|
(Reversals of) Shutdown and restructuring charges
|
– | (856 | ) | 35 | ||||||||||||
|
Gains on disposition of plant, equipment and timberlands, net
|
(898 | ) | (18,468 | ) | (78,685 | ) | ||||||||||
|
Operating income
|
160,405 | 99,209 | 118,818 | |||||||||||||
|
Other nonoperating income (expense)
|
||||||||||||||||
|
Interest expense
|
(19,220 | ) | (23,160 | ) | (29,022 | ) | ||||||||||
|
Interest income
|
1,886 | 4,975 | 3,933 | |||||||||||||
|
Other – net
|
75 | 2 | 205 | |||||||||||||
|
Total other nonoperating expense
|
(17,259 | ) | (18,183 | ) | (24,884 | ) | ||||||||||
|
Income before income taxes
|
143,146 | 81,026 | 93,934 | |||||||||||||
|
Income tax provision
|
19,704 | 23,138 | 30,462 | |||||||||||||
|
Net income
|
$ | 123,442 | $ | 57,888 | $ | 63,472 | ||||||||||
|
Weighted average shares outstanding
|
||||||||||||||||
|
Basic
|
45,678 | 45,247 | 45,035 | |||||||||||||
|
Diluted
|
45,774 | 45,572 | 45,422 | |||||||||||||
|
Earnings per share
|
||||||||||||||||
|
Basic
|
$ | 2.70 | $ | 1.28 | $ | 1.41 | ||||||||||
|
Diluted
|
2.70 | 1.27 | 1.40 | |||||||||||||
The accompanying notes are an
integral part of the consolidated financial
statements.
28
Table of Contents
P. H. GLATFELTER
COMPANY and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS
| December 31 | ||||||||||||
| Dollars in thousands, except par values | 2009 | 2008 | ||||||||||
|
Assets
|
||||||||||||
|
Current assets
|
||||||||||||
|
Cash and cash equivalents
|
$ | 135,420 | $ | 32,234 | ||||||||
|
Accounts receivable (less allowance for doubtful accounts:
2009 – $2,888; 2008 – $2,633)
|
119,319 | 132,635 | ||||||||||
|
Inventories
|
168,370 | 193,354 | ||||||||||
|
Prepaid expenses and other current assets
|
96,947 | 33,596 | ||||||||||
|
Total current assets
|
520,056 | 391,819 | ||||||||||
|
Plant, equipment and timberlands – net
|
470,632 | 493,564 | ||||||||||
|
Other long-term assets
|
199,606 | 171,926 | ||||||||||
|
Total assets
|
$ | 1,190,294 | $ | 1,057,309 | ||||||||
|
Liabilities and Shareholders’ Equity
|
||||||||||||
|
Current liabilities
|
||||||||||||
|
Current portion of long-term debt
|
$ | 13,759 | $ | 13,759 | ||||||||
|
Short-term debt
|
3,888 | 5,866 | ||||||||||
|
Accounts payable
|
63,604 | 59,750 | ||||||||||
|
Dividends payable
|
4,170 | 4,089 | ||||||||||
|
Environmental liabilities
|
440 | 5,734 | ||||||||||
|
Other current liabilities
|
100,249 | 100,904 | ||||||||||
|
Total current liabilities
|
186,110 | 190,102 | ||||||||||
|
Long-term debt
|
236,936 | 293,660 | ||||||||||
|
Deferred income taxes
|
96,668 | 90,158 | ||||||||||
|
Other long-term liabilities
|
159,876 | 140,682 | ||||||||||
|
Total liabilities
|
679,590 | 714,602 | ||||||||||
|
Commitments and contingencies
|
– | – | ||||||||||
|
Shareholders’ equity
|
||||||||||||
|
Common stock, $.01 par value; authorized –
120,000,000 shares; issued –
54,361,980 shares (including shares in treasury:
2009 – 8,655,826; 2008 – 8,928,004)
|
544 | 544 | ||||||||||
|
Capital in excess of par value
|
46,746 | 45,806 | ||||||||||
|
Retained earnings
|
711,765 | 605,001 | ||||||||||
|
Accumulated other comprehensive income (loss)
|
(119,885 | ) | (176,133 | ) | ||||||||
| 639,170 | 475,218 | |||||||||||
|
Less cost of common stock in treasury
|
(128,466 | ) | (132,511 | ) | ||||||||
|
Total shareholders’ equity
|
510,704 | 342,707 | ||||||||||
|
Total liabilities and shareholders’ equity
|
$ | 1,190,294 | $ | 1,057,309 | ||||||||
The accompanying notes are an
integral part of the consolidated financial
statements.
Glatfelter 2009 Annual
Report 29
Table of Contents
| Year Ended December 31 | ||||||||||||||||
| In thousands | 2009 | 2008 | 2007 | |||||||||||||
|
Operating activities
|
||||||||||||||||
|
Net income
|
$ | 123,442 | $ | 57,888 | $ | 63,472 | ||||||||||
|
Adjustments to reconcile to net cash provided by operations:
|
||||||||||||||||
|
Depreciation, depletion and amortization
|
61,256 | 60,611 | 56,001 | |||||||||||||
|
Pension expense (income), net of unfunded benefits paid
|
6,343 | (16,062 | ) | (12,896 | ) | |||||||||||
|
(Reversals of) shutdown and restructuring charges
|
– | (856 | ) | 35 | ||||||||||||
|
Deferred income taxes
|
(22,981 | ) | 3,265 | 8,004 | ||||||||||||
|
Gains on dispositions of plant, equipment and timberlands, net
|
(898 | ) | (18,468 | ) | (78,685 | ) | ||||||||||
|
Share-based compensation
|
4,599 | 4,350 | 3,850 | |||||||||||||
|
Alternative fuel mixture credits, net of credits applied to
taxes due
|
(57,946 | ) | – | – | ||||||||||||
|
Change in operating assets and liabilities
|
||||||||||||||||
|
Accounts receivable
|
16,542 | (17,668 | ) | 16,662 | ||||||||||||
|
Inventories
|
28,207 | (9,975 | ) | 8,493 | ||||||||||||
|
Prepaid and other current assets
|
1,451 | 871 | (2,461 | ) | ||||||||||||
|
Accounts payable
|
2,390 | 4,264 | (10,045 | ) | ||||||||||||
|
Environmental matters
|
(7,728 | ) | (13,012 | ) | 26,000 | |||||||||||
|
Accruals and other current liabilities
|
6,676 | (10,557 | ) | 20,408 | ||||||||||||
|
Other
|
2,515 | 8,774 | 1,494 | |||||||||||||
|
Net cash provided by operations
|
163,868 | 53,425 | 100,332 | |||||||||||||
|
Investing activities
|
||||||||||||||||
|
Expenditures for purchases of plant, equipment and timberlands
|
(26,257 | ) | (52,469 | ) | (28,960 | ) | ||||||||||
|
Proceeds from disposal of plant, equipment and timberlands
|
951 | 19,279 | 41,616 | |||||||||||||
|
Proceeds from timberland installment sale note receivable
|
37,850 | – | – | |||||||||||||
|
Acquisitions, net of cash acquired
|
– | – | (7,923 | ) | ||||||||||||
|
Net cash provided (used) by investing activities
|
12,544 | (33,190 | ) | 4,733 | ||||||||||||
|
Financing activities
|
||||||||||||||||
|
Net repayments of revolving credit facility
|
(6,725 | ) | (24,197 | ) | (30,656 | ) | ||||||||||
|
Net (repayments of) proceeds from other short-term debt
|
(2,008 | ) | 2,927 | (6,916 | ) | |||||||||||
|
Repayments of $100 million term loan facility
|
(16,000 | ) | (13,000 | ) | (53,000 | ) | ||||||||||
|
(Repayments of) proceeds from borrowing under Term Loans due 2013
|
(34,000 | ) | 36,695 | – | ||||||||||||
|
Payment of dividends
|
(16,596 | ) | (16,469 | ) | (16,350 | ) | ||||||||||
|
Proceeds and excess tax benefits from stock options exercised
and other
|
– | 1,165 | 7,551 | |||||||||||||
|
Net cash used by financing activities
|
(75,329 | ) | (12,879 | ) | (99,371 | ) | ||||||||||
|
Effect of exchange rate changes on cash
|
2,103 | (4,955 | ) | 2,154 | ||||||||||||
|
Net increase in cash and cash equivalents
|
103,186 | 2,401 | 7,848 | |||||||||||||
|
Cash and cash equivalents at the beginning of period
|
32,234 | 29,833 | 21,985 | |||||||||||||
|
Cash and cash equivalents at the end of period
|
$ | 135,420 | $ | 32,234 | $ | 29,833 | ||||||||||
|
Supplemental cash flow information
|
||||||||||||||||
|
Cash paid for
|
||||||||||||||||
|
Interest
|
$ | 17,338 | $ | 21,243 | $ | 28,498 | ||||||||||
|
Income taxes
|
16,634 | 20,011 | 2,614 | |||||||||||||
The accompanying notes are an
integral part of the consolidated financial
statements.
30
Table of Contents
P. H. GLATFELTER
COMPANY and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the Years Ended December 31, 2009, 2008 and 2007
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
For the Years Ended December 31, 2009, 2008 and 2007
|
Accumulated
|
||||||||||||||||||||||||||
|
Capital in
|
Other
|
Total
|
||||||||||||||||||||||||
|
Common
|
Excess of
|
Retained
|
Comprehensive
|
Treasury
|
Shareholders’
|
|||||||||||||||||||||
| In thousands | Stock | Par Value | Earnings | Income (Loss) | Stock | Equity | ||||||||||||||||||||
|
Balance at January 1, 2007
|
$ | 544 | $ | 42,288 | $ | 519,489 | $ | (32,337 | ) | $ | (141,616 | ) | $ | 388,368 | ||||||||||||
|
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 – RSU
|
2,348 | 2,348 | ||||||||||||||||||||||||
|
Delivery of treasury shares
|
||||||||||||||||||||||||||
|
Performance 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 | ) | ||||||||||||||||||||||||
|
Cumulative effect of adopting of FIN 48
|
||||||||||||||||||||||||||
|
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 | ||||||||||||||||||
|
Comprehensive income
|
||||||||||||||||||||||||||
|
Net income
|
123,442 | 123,442 | ||||||||||||||||||||||||
|
Foreign currency translation adjustments
|
11,941 | |||||||||||||||||||||||||
|
Change in benefit plans’ net funded status, net of taxes of
$27,164
|
44,307 | |||||||||||||||||||||||||
|
Other comprehensive income
|
56,248 | 56,248 | ||||||||||||||||||||||||
|
Comprehensive income
|
179,690 | |||||||||||||||||||||||||
|
Cash dividends declared ($0.36 per share)
|
(16,678 | ) | (16,678 | ) | ||||||||||||||||||||||
|
Share-based compensation expense
|
3,502 | 3,502 | ||||||||||||||||||||||||
|
Delivery of treasury shares
|
||||||||||||||||||||||||||
|
RSUs
|
(1,483 | ) | 1,280 | (203 | ) | |||||||||||||||||||||
|
401(k) plans
|
(995 | ) | 2,517 | 1,522 | ||||||||||||||||||||||
|
Director compensation
|
(84 | ) | 248 | 164 | ||||||||||||||||||||||
|
Balance at December 31, 2009
|
$ | 544 | $ | 46,746 | $ | 711,765 | $ | (119,885 | ) | $ | (128,466 | ) | $ | 510,704 | ||||||||||||
The accompanying notes are an
integral part of the consolidated financial
statements.
Glatfelter 2009 Annual
Report 31
Table of Contents
P. H. GLATFELTER
COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
| 1. | ORGANIZATION |
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.
| 2. | ACCOUNTING POLICIES |
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 asset’s 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 the Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”)
No. 410, Asset Retirement and Environmental Obligations,
we accrue asset retirement obligations, if any, in the
period in which obligations relating to future asset retirements
are incurred and when a reasonable estimate of fair value can be
determined. Under these standards, costs are to be accrued at
estimated fair value, and a related long-lived asset is
capitalized. Over time, the liability is accreted to its
settlement value and the capitalized cost is depreciated over
the useful life of the related asset for which the obligation
exists. Upon settlement of the liability, we recognize a gain or
loss for any difference between the settlement amount and the
liability recorded.
Income Taxes
Income taxes are determined using
the asset and liability method of accounting for income taxes in
accordance with FASB ASC 740 Income Taxes (“ASC 740”).
Under ASC 740, tax expense includes U.S. and international
income taxes plus the provision for U.S. taxes on
undistributed earnings of international subsidiaries not deemed
to be permanently invested. Tax credits and other incentives
reduce tax expense in the year the credits are claimed. Certain
items of income and
32
Table of Contents
expense are not reported in tax returns and financial statements
in the same year. The tax effect of such temporary differences
is reported in deferred income taxes. Deferred tax assets are
recognized if it is more likely than not that the assets will be
realized in future years. We establish a valuation allowance for
deferred tax assets for which realization is not more likely
than not.
Effective January 1, 2007, income tax contingencies are
accounted for in accordance with FASB ASC
740-10-20
Income Taxes (formerly FASB Interpretation No. 48,
“Accounting for Uncertainty in Income Taxes –
an interpretation of FASB Statement No. 109”
).
Significant judgment is required in determining our worldwide
provision for income taxes and recording the related assets and
liabilities. In the ordinary course of our business, there are
many transactions and calculations where the ultimate tax
determination is less than certain. We and our subsidiaries are
examined by various Federal, State and foreign tax authorities.
We regularly assess the potential outcomes of these examinations
and any future examinations for the current or prior years in
determining the adequacy of our provision for income taxes. We
continually assess the likelihood and amount of potential
adjustments and record any necessary adjustments in the period
in which the facts that give rise to a revision become known.
Treasury Stock
Common stock purchased for
treasury is recorded at cost. At the date of subsequent reissue,
the treasury stock account is reduced by the cost of such stock
on the weighted-average cost basis.
Foreign Currency Translation
Our subsidiaries
outside the United States use their local currency as the
functional currency. Accordingly, translation gains and losses
and the effect of exchange rate changes on transactions
designated as hedges of net foreign investments are included as
a component of other comprehensive income (loss). Transaction
gains and losses are included in income in the period in which
they occur.
Revenue Recognition
We recognize revenue on
product sales when the customer takes title and assumes the
risks and rewards of ownership. We record revenue net of an
allowance for customer returns and rebates.
Revenue from energy sales is recognized when electricity is
delivered to the customer. Certain costs associated with the
production of electricity, such as fuel, labor, depreciation and
maintenance are netted against energy sales for presentation on
the Consolidated Statements of Income. Our current contract to
sell electricity generated in excess of our own use expires in
the year 2010 and requires that the customer purchase all of our
excess electricity up to a certain level. The price for the
electricity is determined pursuant to a formula and varies
depending upon the amount sold in any given year.
Revenue from renewable energy credits is recognized when all
risks, rights and rewards to the certificate are transferred to
the counterparty.
Environmental Liabilities
Accruals for losses
associated with environmental obligations are recorded when it
is probable that a liability has been incurred and the amount of
the liability can be reasonably estimated based on existing
legislation and remediation technologies. Costs related to
environmental remediation are charged to expense. These accruals
are adjusted periodically as assessment and remediation actions
continue
and/or
further legal or technical information develops. Such
undiscounted liabilities are exclusive of any insurance or other
claims against third parties. Environmental costs are
capitalized if the costs extend the life of the asset, increase
its capacity
and/or
mitigate or prevent contamination from future operations.
Recoveries of environmental remediation costs from other
parties, including insurance carriers, are recorded as assets
when their receipt is assured beyond a reasonable doubt.
Accumulated Other Comprehensive Income
The
amounts reported on the consolidated Statement of
Shareholders’ Equity for Accumulated Other Comprehensive
Income at December 31, 2009 consisted of a loss of
$136.3 million from additional defined benefit liabilities,
net of tax, and $16.4 million of gains from foreign
currency translation adjustments.
Earnings Per Share
Basic earnings per share
are computed by dividing net income by the weighted-average
common shares outstanding during the respective periods. Diluted
earnings per share are computed by dividing net income by the
weighted-average common shares and common share equivalents
outstanding during the period. The dilutive effect of common
share equivalents is considered in the diluted earnings per
share computation using the treasury stock method.
Fair Value of Financial Instruments
Under the
accounting for fair value measurements and disclosures, a fair
value hierarchy was established that prioritizes the inputs to
valuation techniques used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (level 1
measurements) and the lowest priority to unobservable inputs
(level 3 measurements). A financial instrument’s level
within the fair value hierarchy is based on the lowest level of
any input that is significant to the fair value measurement.
Glatfelter 2009 Annual
Report 33
Table of Contents
We use the following valuation techniques to measure fair value
for our assets and liabilities:
| Level 1 | Quoted market prices in active markets for identical assets or liabilities; |
| Level 2 | Significant other observable inputs (e.g. quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable such as interest rate and yield curves, and market-corroborated inputs); and |
| Level 3 | Unobservable inputs for the asset or liability, which are valued based on management’s estimates of assumptions that market participants would use in pricing the asset or liability. |
The amounts reported on the Consolidated Balance Sheets for cash
and cash equivalents, accounts receivable, other assets, and
short-term debt approximate fair value.
| 3. | RECENT PRONOUNCEMENTS |
In June 2009, the FASB issued Statement of Financial Accounting
Standards (“SFAS”) No. 168, “The FASB
Accounting Standards Codification and the Hierarchy of GAAP, a
replacement of SFAS No. 162”
(“SFAS 168”) as codified under ASC 105
“Generally Accepted Accounting Principles.”
SFAS No. 168 became the source of authoritative GAAP
recognized by the FASB. SFAS No. 168 was effective for
financial statements issued for interim and annual periods
ending after September 15, 2009. On the effective date of
SFAS No. 168, the ASC superseded all then-existing
non-SEC accounting and reporting standards. The issuance of
SFAS No. 168 requires references to authoritative US
GAAP to coincide with the appropriate section of the ASC.
Accordingly, this standard did not have an impact on our
financial condition or results of operations.
| 4. | ACQUISITIONS |
Metallised Products Limited
On
November 30, 2007, through Glatfelter-UK Limited
(“GLT-UK”), a wholly-owned subsidiary, we completed
our acquisition of Metallised Products Limited
(“MPL”), a privately owned company that manufactures a
variety of metallized paper products for consumer and industrial
applications. MPL is based in Caerphilly, Wales.
Under terms of the agreement, we agreed to purchase the stock of
MPL for $7.2 million cash and assumed $5.8 million of
debt in addition to $1.4 million of transaction costs. The
acquisition was financed from our existing cash balance. This
facility employed about 165 people at the time of the
acquisition and had 2007 revenues of approximately
$53.4 million.
The following table summarizes the allocation of the purchase
price to assets acquired and liabilities assumed:
| In thousands | ||||||||
|
Assets
|
||||||||
|
Cash
|
$ | 730 | ||||||
|
Accounts receivable
|
7,718 | |||||||
|
Inventory
|
4,731 | |||||||
|
Property and equipment
|
9,663 | |||||||
|
Other assets
|
903 | |||||||
|
Goodwill
|
2,239 | |||||||
|
Total
|
25,984 | |||||||
|
Liabilities
|
||||||||
|
Acquisition related liabilities including accounts payable and
accrued expenses
|
11,783 | |||||||
|
Long term debt
|
5,830 | |||||||
|
Total
|
17,613 | |||||||
|
Total purchase price
|
$ | 8,371 | ||||||
| 5. | ALTERNATIVE FUEL MIXTURE CREDITS |
The U.S. Internal Revenue Code provided a tax credit for
companies that use alternative fuel mixtures to produce energy
to operate their businesses. The credit, equal to $0.50 per
gallon of alternative fuel contained in the mixture, is
refundable to the taxpayer. On May 11, 2009, we were
notified by the Internal Revenue Service that our application to
be registered as an alternative fuel mixer was approved. We
received a payment from the Internal Revenue Service on
June 30, 2009 in the amount of $29.7 million for the
alternative fuel mixture consumed at our Spring Grove, PA and
Chillicothe, OH facilities during the period February 20,
2009 through May 17, 2009. Since we began mixing and
burning eligible alternative fuels, we have earned
$107.8 million of alternative fuel mixture credits of which
$29.7 million has been received in cash, $20.1 million
was used to reduce estimated interim tax payments and
$58.0 million will be claimed as refundable income tax
credits and is expected to be realized in cash primarily in the
first half of 2010. We record all alternative fuel mixture
credits as a reduction to cost of goods sold and the net credit
to be claimed is recorded under the caption “Prepaid and
other Current Assets” in the accompanying Consolidated
Balance Sheets.
The alternative fuel mixture credit expired on December 31,
2009.
| 6. | ENERGY AND RELATED SALES, NET |
We sell excess power generated by the Spring Grove, PA facility
pursuant to a long-term contract that expires March 31,
2010. In addition we sell renewable energy credits generated by
the Spring Grove, PA and
34
Table of Contents
Chillicothe, OH facilities representing sales of certified
credits earned related to burning renewable sources of energy
such as black liquor and wood waste.
The following table summarizes this activity for each of the
past three years:
| In thousands | 2009 | 2008 | 2007 | ||||||||||||
|
Energy sales
|
$20,128 | $19,731 | $19,683 | ||||||||||||
|
Costs to produce
|
(11,883 | ) | (10,367 | ) | (10,238 | ) | |||||||||
|
Net energy sales
|
8,245 | 9,364 | 9,445 | ||||||||||||
|
Renewable energy credits
|
5,087 | – | – | ||||||||||||
|
Total energy and related sales , net
|
$13,332 | $9,364 | $9,445 | ||||||||||||
| 7. | GAIN ON DISPOSITIONS OF PLANT, EQUIPMENT AND TIMBERLANDS |
During 2009, 2008 and 2007, we completed sales of timberlands.
The following table summarizes these transactions:
| Dollars in thousands | Acres | Proceeds | Gain | |||||||||||
|
2009
|
||||||||||||||
|
Timberlands
|
319 | $ | 951 | $ | 906 | |||||||||
|
Other
|
n/a | – | (8 | ) | ||||||||||
|
Total
|
$ | 951 | $ | 898 | ||||||||||
|
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 | ||||||||||
The amounts set forth above for 2008 include a $2.9 million
gain from the sale of 246 acres of timberlands for cash
consideration to George H. Glatfelter II, our chairman and chief
executive officer, and his spouse. The 246 acres of
timberlands had been independently appraised and marketed for
public sale by the Company. Based on those appraisals and the
marketing process that was pursued, the Company and its Board
believed that the sale price agreed to with the Glatfelters
constituted fair market value for the timberland. In accordance
with terms of our credit facility, we are required to use the
proceeds from timberland sales to reduce amounts outstanding
under our term loan.
In connection with 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.
| 8. | EARNINGS PER SHARE |
The following table sets forth the details of basic and diluted
earnings per share (EPS):
| In thousands, except per share | 2009 | 2008 | 2007 | ||||||||||||
|
Net income
|
$123,442 | $57,888 | $63,472 | ||||||||||||
|
Weighted average common shares outstanding used in basic EPS
|
45,678 | 45,247 | 45,035 | ||||||||||||
|
Common shares issuable upon exercise of dilutive stock options,
restricted stock awards and performance awards
|
96 | 325 | 387 | ||||||||||||
|
Weighted average common shares outstanding and common share
equivalents used in diluted EPS
|
45,774 | 45,572 | 45,422 | ||||||||||||
|
Basic EPS
|
$2.70 | $1.28 | $1.41 | ||||||||||||
|
Diluted EPS
|
2.70 | 1.27 | 1.40 | ||||||||||||
The following table sets forth the potential common shares
outstanding for stock options and restricted stock units that
were not included in the computation of diluted EPS for the
period indicated, because their effect would be anti-dilutive:
| In thousands | 2009 | 2008 | 2007 | ||||||||||||
|
Potential common shares
|
2,215 | 1,132 | 438 | ||||||||||||
| 9. | INCOME TAXES |
Income taxes are recognized for the amount of taxes payable or
refundable for the current year and deferred tax liabilities and
assets for the future tax consequences of events that have been
recognized in our consolidated financial statements or tax
returns. The effects of income taxes are measured based on
enacted tax laws and rates.
The provision for income taxes from operations consisted of the
following:
| Year Ended December 31 | |||||||||||||||
| In thousands | 2009 | 2008 | 2007 | ||||||||||||
|
Current taxes
|
|||||||||||||||
|
Federal
|
$29,848 | $5,647 | $8,388 | ||||||||||||
|
State
|
4,050 | 2,609 | 4,422 | ||||||||||||
|
Foreign
|
8,787 | 11,617 | 6,397 | ||||||||||||
| 42,685 | 19,873 | 19,207 | |||||||||||||
|
Deferred taxes and other
|
|||||||||||||||
|
Federal
|
(23,943 | ) | 9,026 | 11,766 | |||||||||||
|
State
|
3,760 | 86 | 2,674 | ||||||||||||
|
Foreign
|
(2,798 | ) | (5,847 | ) | (3,185 | ) | |||||||||
| (22,981 | ) | 3,265 | 11,255 | ||||||||||||
|
Income tax provision
|
$19,704 | $23,138 | $30,462 | ||||||||||||
The amounts set forth above for total deferred taxes and other
included a deferred tax benefit of $23.0 million in 2009
and a deferred tax provision of $3.0 million and
$8.0 million in 2008 and 2007, respectively. Other taxes
totaled $0, $0.2 million, and $3.3 million in 2009,
2008 and 2007, respectively, related to uncertain tax positions
expected to be taken in future tax filings.
Glatfelter 2009 Annual
Report 35
Table of Contents
The following are the domestic and foreign components of pretax
income from operations:
| Year Ended December 31 | |||||||||||||||
| In thousands | 2009 | 2008 | 2007 | ||||||||||||
|
United States
|
$122,657 | $61,387 | $70,051 | ||||||||||||
|
Foreign
|
20,489 | 19,639 | 23,883 | ||||||||||||
|
Total pretax income
|
$143,146 | $81,026 | $93,934 | ||||||||||||
A reconciliation between the income tax provision, computed by
applying the statutory federal income tax rate of 35% to income
before income taxes, and the actual income tax is as follows:
| Year Ended December 31 | |||||||||||||||||
| 2009 | 2008 | 2007 | |||||||||||||||
|
Federal income tax provision at statutory rate
|
35.0 | % | 35.0 | % | 35.0 | % | |||||||||||
|
State income taxes, net of federal income tax benefit
|
0.7 | 3.1 | 3.5 | ||||||||||||||
|
Foreign income tax rate differential
|
(0.5 | ) | (2.5 | ) | 0.2 | ||||||||||||
|
Change in statutory tax rates
|
(0.3 | ) | – | (5.8 | ) | ||||||||||||
|
Tax credits
|
(1.8 | ) | (5.7 | ) | (2.8 | ) | |||||||||||
|
Alternative fuel mixture credits
|
(26.4 | ) | – | – | |||||||||||||
|
Change in unrecognized tax benefits, net
|
8.0 | 2.5 | 4.0 | ||||||||||||||
|
Valuation allowance release
|
– | (1.8 | ) | – | |||||||||||||
|
Other
|
(0.9 | ) | (2.0 | ) | (1.7 | ) | |||||||||||
|
Total provision for income taxes
|
13.8 | % | 28.6 | % | 32.4 | % | |||||||||||
The sources of deferred income taxes were as follows at December
31:
| 2009 | 2008 | ||||||||||||||||||
|
Non
|
Non-
|
||||||||||||||||||
|
Current
|
current
|
Current
|
current
|
||||||||||||||||
|
Asset
|
Asset
|
Asset
|
Asset
|
||||||||||||||||
| In thousands | (Liability) | (Liability) | (Liability) | (Liability) | |||||||||||||||
|
Reserves
|
$ | 7,404 | $ | 9,677 | $ | 8,983 | $ | 11,086 | |||||||||||
|
Compensation
|
3,367 | 3,934 | 3,292 | 3,368 | |||||||||||||||
|
Post-retirement benefits
|
1,708 | 19,637 | 1,619 | 18,748 | |||||||||||||||
|
Property
|
12 | (100,071 | ) | 13 | (107,921 | ) | |||||||||||||
|
Pension
|
660 | (38,000 | ) | 781 | (13,507 | ) | |||||||||||||
|
Installment sales
|
(4 | ) | (14,070 | ) | – | (25,148 | ) | ||||||||||||
|
Inventories
|
438 | – | (803 | ) | – | ||||||||||||||
|
Other
|
258 | 4,608 | 475 | 6,909 | |||||||||||||||
|
Tax carryforwards
|
– | 29,238 | – | 28,006 | |||||||||||||||
|
Subtotal
|
13,843 | (85,047 | ) | 14,360 | (78,459 | ) | |||||||||||||
|
Valuation allowance
|
(2,379 | ) | (9,789 | ) | (2,547 | ) | (10,215 | ) | |||||||||||
|
Total
|
$ | 11,464 | $ | (94,836 | ) | $ | 11,813 | $ | (88,674 | ) | |||||||||
Current and non-current deferred tax assets and liabilities are
included in the following balance sheet captions:
| December 31 | |||||||||||||
| In thousands | 2009 | 2008 | |||||||||||
|
Prepaid expenses and other current assets
|
$ | 11,519 | $ | 14,421 | |||||||||
|
Other long term assets
|
1,832 | 1,484 | |||||||||||
|
Other current liabilities
|
55 | 2,608 | |||||||||||
|
Deferred income taxes
|
96,668 | 90,158 | |||||||||||
At December 31, 2009, we had state and foreign tax net
operating loss (“NOL”) carryforwards of
$92.0 million and $37.0 million, respectively. These
NOL carryforwards are available to offset future taxable income,
if any. The state NOL carryforwards expire between 2015 and
2027; the foreign NOL carryforwards do not expire.
In addition, we had federal foreign tax credit carryforwards of
$0.3 million, which expire in 2013, and various state tax
credit carryforwards totaling $0.4 million, which expire
between 2014 and 2027.
During 2009, we claimed the alternative fuel mixture credits as
a combination of cash refunds through excise tax refund claims
and income tax credits on the federal income tax return to be
filed for the 2009 tax year. For purposes of calculating federal
and state income taxes, we treat the credits claimed as cash
refunds of excise tax and the credits claimed on the federal
income tax return as nontaxable income. In 2009, we recorded a
tax benefit of $27.1 million, net of unrecognized tax
benefits, due to the nontaxable nature of the alternative fuel
mixture credits claimed on the federal and certain state income
tax returns.
We have established a valuation allowance of $12.2 million
against the net deferred tax assets, primarily due to the
uncertainty regarding the ability to utilize state tax
carryforwards and certain deferred foreign tax credits.
Tax credits and other incentives reduce tax expense in the year
the credits are claimed. In 2009, we recorded tax credits of
$2.6 million related to Research and Development credits,
fuels tax, and the electricity production tax credits. In 2008
and 2007 similar tax credits of $4.7 million and
$2.6 million, respectively, were recorded.
At December 31, 2009 and 2008, unremitted earnings of
subsidiaries outside the United States deemed to be permanently
reinvested totaled $134.6 million and $107.4 million,
respectively. Because the unremitted earnings of subsidiaries
are deemed to be permanently reinvested as of December 31,
2009, no deferred tax liability has been recognized in our
consolidated financial statements.
As of December 31, 2009 and December 31, 2008, we had
$40.1 million and $29.2 million of gross unrecognized
tax benefits respectively. As of December 31, 2009, if such
benefits were to be recognized, approximately $36.1 million
would be recorded as a component of income tax expense, thereby
affecting our effective tax rate.
A reconciliation of the beginning and ending balances of the
total amounts of gross unrecognized tax benefits is as follows:
| In millions | 2009 | 2008 | 2007 | ||||||||||||
|
Balance at January 1
|
$ | 29.2 | $ | 26.1 | $ | 20.7 | |||||||||
|
Increases in tax positions for prior years
|
0.7 | 0.4 | 0.3 | ||||||||||||
|
Decreases in tax positions for prior years
|
– | – | (0.5 | ) | |||||||||||
|
Increases in tax positions for current year
|
11.2 | 3.2 | 6.1 | ||||||||||||
|
Settlements
|
(0.8 | ) | – | – | |||||||||||
|
Lapse in statute of limitations
|
(0.2 | ) | (0.5 | ) | (0.5 | ) | |||||||||
|
Balance at December 31
|
$ | 40.1 | $ | 29.2 | $ | 26.1 | |||||||||
36
Table of Contents
The current year increase was primarily due to tax positions
expected to be taken, on the U.S. federal and certain state
income tax returns, related to the alternative fuel mixture
credit.
We, or one of our subsidiaries, file income tax returns with the
United States Internal Revenue Service, as well as various state
and foreign authorities. The following table summarizes tax
years that remain subject to examination by major jurisdiction:
| Open Tax Year | |||||
|
Examination in
|
Examination not yet
|
||||
| Jurisdiction | progress | initiated | |||
|
United States
|
|||||
|
Federal
|
N/A | 2007 – 2009 | |||
|
State
|
2004 | 2004 – 2009 | |||
|
Germany
(1)
|
2003 – 2006 | 2007 – 2009 | |||
|
France
|
N/A | 2006 – 2009 | |||
|
United Kingdom
|
N/A | 2006 – 2009 | |||
|
Philippines
|
2005 – 2008 | 2009 | |||
| (1) | – includes provincial or similar local jurisdictions, as applicable. |
The amount of income taxes we pay is subject to ongoing audits
by federal, state and foreign tax authorities, which often
result in proposed assessments. Management performs a
comprehensive review of its global tax positions on a quarterly
basis and accrues amounts for uncertain tax positions. Based on
these reviews and the result of discussions and resolutions of
matters with certain tax authorities and the closure of tax
years subject to tax audit, reserves are adjusted as necessary.
However, future results may include favorable or unfavorable
adjustments to our estimated tax liabilities in the period the
assessments are determined or resolved or as such statutes are
closed. Due to potential for resolution of federal, state and
foreign examinations, and the expiration of various statutes of
limitation, it is reasonably possible our gross unrecognized tax
benefits balance may decrease within the next twelve months by a
range of zero to $8.8 million. Substantially all of this
range relates to tax positions taken in the U.S. and in
Germany.
We recognize interest and penalties related to uncertain tax
positions as income tax expense. Interest expense recognized in
2009 and 2008, respectively, totaled $3.8 million and
$2.6 million. We did not record any penalties associated
with uncertain tax positions during 2009 or 2008.
| 10. | STOCK-BASED COMPENSATION |
On April 29, 2009, our shareholders approved the P. H.
Glatfelter Amended and Restated Long Term Incentive Plan (the
“LTIP”) to authorize, among other things, the issuance
of up to 5,500,000 shares of Glatfelter common stock to
eligible participants. The LTIP provides for the issuance of
restricted stock units, restricted stock awards, non-qualified
stock options, performance shares, incentive stock options and
performance units. As of December 31, 2009,
3,141,047 shares of common stock were available for future
issuance under the 2005 Plan.
During 2009, 2008 and 2007, we recognized non-cash stock-based
compensation expense totaling $4.6 million,
$4.4 million and $3.8 million, respectively. Since the
approval of the 2005 Plan, we have issued to eligible
participants restricted stock units and stock only stock
appreciation rights.
Restricted Stock Units
(“RSU”)
Awards of RSUs are made under
our 2005 Plan. Under terms of the awards, the RSUs vest based
solely on the passage of time on a graded scale over a three,
four, and five-year period. The following table summarizes RSU
activity during the past three years:
| Units | 2009 | 2008 | 2007 | ||||||||||||
|
Beginning balance
|
486,988 | 505,173 | 411,154 | ||||||||||||
|
Granted
|
205,360 | 137,649 | 127,423 | ||||||||||||
|
Forfeited
|
(8,700 | ) | (25,214 | ) | (33,404 | ) | |||||||||
|
Restriction lapsed/shares delivered
|
(119,611 | ) | (130,620 | ) | – | ||||||||||
|
Ending balance
|
564,037 | 486,988 | 505,173 | ||||||||||||
|
Dollars in thousands
|
|||||||||||||||
|
Compensation expense
|
$ | 1,622 | $ | 1,772 | $ | 1,768 | |||||||||
The weighted average grant fair value per unit for awards in
2009, 2008 and 2007 was $10.11, $14.82, and $15.32,
respectively. As of December 31, 2009, unrecognized
compensation expense for outstanding RSUs totaled
$2.9 million. The weighted average remaining period over
which the expense will be recognized is 3.5 years.
Non-Qualified Stock Options
The following
table summarizes the activity with respect to non-qualified
stock options:
| 2009 | 2008 | 2007 | |||||||||||||||||||||||||
|
Weighted-
|
Weighted-
|
Weighted-
|
|||||||||||||||||||||||||
|
Average
|
Average
|
Average
|
|||||||||||||||||||||||||
| Non-Qualified Options | Shares | Exercise Price | Shares | Exercise Price | Shares | Exercise Price | |||||||||||||||||||||
|
Outstanding at beginning of year
|
537,700 | $ | 14.08 | 700,270 | $ | 13.81 | 906,210 | $ | 14.06 | ||||||||||||||||||
|
Granted
|
– | – | – | – | – | ||||||||||||||||||||||
|
Exercised
|
– | – | (64,400 | ) | 12.64 | (105,190 | ) | 13.78 | |||||||||||||||||||
|
Canceled
|
(84,650 | ) | 13.46 | (98,170 | ) | 13.08 | (100,750 | ) | 17.07 | ||||||||||||||||||
|
Outstanding and exercisable at end of year
|
453,050 | $ | 14.20 | 537,700 | $ | 14.08 | 700,270 | $ | 13.81 | ||||||||||||||||||
Glatfelter 2009 Annual
Report 37
Table of Contents
| Options Outstanding | ||||||||||||||||||||||
|
Weighted-
|
Options Exercisable | |||||||||||||||||||||
|
Average
|
Weighted-
|
Weighted-
|
||||||||||||||||||||
|
Remaining
|
Average
|
Average
|
||||||||||||||||||||
| Non-Qualified Options | Shares | Contractual Life | Exercise Price | Shares | Exercise Price | |||||||||||||||||
|
$10.78 to $12.41
|
37,750 | 3.9 | $ | 11.22 | 37,750 | $ | 11.22 | |||||||||||||||
|
12.95 to 14.44
|
219,700 | 2.2 | 13.42 | 219,700 | 13.42 | |||||||||||||||||
|
15.44 to 17.16
|
178,100 | 2.0 | 15.47 | 178,100 | 15.47 | |||||||||||||||||
|
17.54 to 18.78
|
17,500 | 2.3 | 17.54 | 17,500 | 17.54 | |||||||||||||||||
| 453,050 | 2.2 | 453,050 | ||||||||||||||||||||
All options expire on the earlier of termination or, in some
instances, a defined period subsequent to termination of
employment, or ten years from the date of grant. The exercise
price represents the quoted market price of Glatfelter common
stock on the date of grant, or the average quoted market prices
of Glatfelter common stock on the first day before and after the
date of grant for which quoted market price information was
available if such information was not available on the date of
grant.
Under terms of the SOSAR, the recipients received the right to
receive a payment in the form of shares of common stock equal to
the difference, if any, in the fair market value of one share of
common stock at the time of exercising the SOSAR and the strike
price. The SOSARs vest ratably over a three year period.
The following table sets forth information related to
outstanding SOSARS.
| 2009 | 2008 | ||||||||||||||||||
|
Wtd Avg
|
Wtd Avg
|
||||||||||||||||||
|
Exercise
|
Exercise
|
||||||||||||||||||
| SOSARS | Shares | Price | Shares | Price | |||||||||||||||
|
Outstanding at Jan. 1,
|
718,810 | $ | 14.63 | 484,800 | $ | 15.30 | |||||||||||||
|
Granted
|
1,043,210 | 9.91 | 284,240 | 13.49 | |||||||||||||||
|
Exercised
|
– | – | – | – | |||||||||||||||
|
Canceled
|
– | – | (50,230 | ) | 14.63 | ||||||||||||||
|
Outstanding at Dec. 31,
|
1,762,020 | $ | 11.84 | 718,810 | $ | 14.63 | |||||||||||||
|
Exercisable at Dec. 31,
|
390,575 | 150,967 | 15.30 | ||||||||||||||||
|
Vested and expected to vest
|
1,676,227 | 690,418 | |||||||||||||||||
|
Weighted average grant date fair value per share
|
$ | 2.83 | $ | 3.77 | |||||||||||||||
|
Aggregate grant date fair value
(in thousands)
|
$ | 2,957 | $ | 1,002 | |||||||||||||||
|
Black-Scholes Assumptions
|
|||||||||||||||||||
|
Dividend yield
|
3.63 | % | 2.67 | % | |||||||||||||||
|
Risk free rate of return
|
2.26 | 3.71 | |||||||||||||||||
|
Volatility
|
40.59 | 32.09 | |||||||||||||||||
|
Expected life
|
6 yrs | 6 yrs | |||||||||||||||||
| 11. | RETIREMENT PLANS AND OTHER POST-RETIREMENT BENEFITS |
We have both funded and, with respect to our international
operations, unfunded noncontributory defined-benefit pension
plans covering substantially all of our employees. The benefits
are based, in the case of certain plans, on average salary and
years of service and, in the case of other plans, on a fixed
amount for each year of service. U.S. Plan provisions and
funding meet the requirements of the Employee Retirement Income
Security Act of 1974. We use a December 31-measurement date for
all of our defined benefit plans.
We also provide certain health care benefits to eligible retired
employees. These benefits include a comprehensive medical plan
for retirees prior to age 65 and fixed supplemental premium
payments to certain retirees over age 65 to help defray the
costs of Medicare. The plan is partially funded and claims are
paid as reported.
| Pension Benefits | Other Benefits | |||||||||||||||||||
| In millions | 2009 | 2008 | 2009 | 2008 | ||||||||||||||||
|
Change in Benefit Obligation
|
||||||||||||||||||||
|
Balance at beginning of year
|
$ | 386.3 | $ | 373.3 | $58.6 | $55.3 | ||||||||||||||
|
Service cost
|
8.6 | 8.3 | 2.6 | 2.1 | ||||||||||||||||
|
Interest cost
|
23.4 | 23.1 | 3.5 | 3.2 | ||||||||||||||||
|
Plan amendments
|
1.9 | 6.5 | – | – | ||||||||||||||||
|
Actuarial (gain)/loss
|
12.9 | 2.6 | 1.3 | 2.5 | ||||||||||||||||
|
Participant contributions
|
– | – | – | 0.9 | ||||||||||||||||
|
Benefits paid
|
(27.0 | ) | (27.5 | ) | (3.4 | ) | (5.4 | ) | ||||||||||||
|
Balance at end of year
|
$ | 406.1 | $ | 386.3 | $62.6 | $58.6 | ||||||||||||||
|
Change in Plan Assets
|
||||||||||||||||||||
|
Fair value of plan assets at beginning of year
|
$ | 400.6 | $ | 603.6 | $5.7 | $9.9 | ||||||||||||||
|
Actual return on plan assets
|
110.0 | (177.7 | ) | 1.6 | (2.9 | ) | ||||||||||||||
|
Employer contributions
|
2.1 | 2.2 | 2.4 | 3.2 | ||||||||||||||||
|
Participant contributions
|
– | – | – | 0.9 | ||||||||||||||||
|
Benefits paid
|
(27.0 | ) | (27.5 | ) | (3.4 | ) | (5.4 | ) | ||||||||||||
|
Fair value of plan assets at end of year
|
485.7 | 400.6 | 6.3 | 5.7 | ||||||||||||||||
|
Funded status at end of year
|
$ | 79.6 | $ | 14.3 | $(56.3 | ) | $(52.9 | ) | ||||||||||||
The net prepaid pension cost for qualified pension plans is
primarily included in “Other assets,” and the accrued
pension cost for non-qualified pension plans and accrued
post-retirement benefit costs are primarily included in
“Other long-term liabilities” on the Consolidated
Balance Sheets at December 31, 2009 and 2008.
Amounts recognized in the consolidated balance sheets consist of
the following as of December 31:
| Pension Benefits | Other Benefits | |||||||||||||||||||
| In millions | 2009 | 2008 | 2009 | 2008 | ||||||||||||||||
|
Other long-term assets
|
$ | 112.9 | $ | 44.5 | $– | $– | ||||||||||||||
|
Current liabilities
|
(1.8 | ) | (1.2 | ) | (4.6 | ) | (4.2 | ) | ||||||||||||
|
Other long-term liabilities
|
(31.5 | ) | (29.0 | ) | (51.7 | ) | (48.7 | ) | ||||||||||||
|
Net amount recognized
|
$ | 79.6 | $ | 14.3 | $(56.3 | ) | $(52.9 | ) | ||||||||||||
The components of amounts recognized as “Accumulated other
comprehensive income” consist of the following on a pre-tax
basis:
| Pension Benefits | Other Benefits | |||||||||||||||||||
| In millions | 2009 | 2008 | 2009 | 2008 | ||||||||||||||||
|
Prior service cost/(credit)
|
$ | 16.5 | $ | 16.5 | $ | (5.3 | ) | $ | (6.5 | ) | ||||||||||
|
Net actuarial loss
|
189.2 | 259.9 | 21.5 | 23.4 | ||||||||||||||||
38
Table of Contents
The accumulated benefit obligation for all defined benefit
pension plans was $390.9 million and $367.3 million at
December 31, 2009 and 2008, respectively.
The weighted-average assumptions used in computing the benefit
obligations above were as follows:
| Pension Benefits | Other Benefits | |||||||||||||||||||
| 2009 | 2008 | 2009 | 2008 | |||||||||||||||||
|
Discount rate – benefit obligation
|
6.10 | % | 6.25 | % | 5.90 | % | 6.25 | % | ||||||||||||
|
Future compensation growth rate
|
4.0 | 4.0 | 4.0 | 4.0 | ||||||||||||||||
The discount rates set forth above were estimated based on the
modeling of expected cash flows for each of our benefit plans
and selecting a portfolio of high-quality debt instruments with
maturities matching the respective cash flows of each plan. The
resulting discount rates ranged from 5.90% to 6.20% for the
pension plans and were 5.90% for the other benefit plans.
Information for pension plans with an accumulated benefit
obligation in excess of plan assets was as follows:
| In millions | 2009 | 2008 | |||||||||
|
Projected benefit obligation
|
$ | 33.3 | $ | 30.2 | |||||||
|
Accumulated benefit obligation
|
29.2 | 27.2 | |||||||||
|
Fair value of plan assets
|
– | – | |||||||||
Net periodic benefit cost (income) includes the following
components:
| Year Ended December 31 | |||||||||||||||
| In millions | 2009 | 2008 | 2007 | ||||||||||||
|
Pension Benefits
|
|||||||||||||||
|
Service cost
|
$8.6 | $8.3 | $9.6 | ||||||||||||
|
Interest cost
|
23.4 | 23.1 | 21.8 | ||||||||||||
|
Expected return on plan assets
|
(39.8 | ) | (50.1 | ) | (47.5 | ) | |||||||||
|
Amortization of prior service cost
|
2.2 | 2.3 | 2.4 | ||||||||||||
|
Amortization of actuarial loss
|
12.6 | 0.3 | 0.8 | ||||||||||||
|
Total net periodic benefit cost (income)
|
$7.0 | $(16.1 | ) | $(12.9 | ) | ||||||||||
|
Other Benefits
|
|||||||||||||||
|
Service cost
|
$2.6 | $2.1 | $2.0 | ||||||||||||
|
Interest cost
|
3.5 | 3.2 | 3.0 | ||||||||||||
|
Expected return on plan assets
|
(0.5 | ) | (0.8 | ) | (0.9 | ) | |||||||||
|
Amortization of prior service cost
|
(1.2 | ) | (1.3 | ) | (1.0 | ) | |||||||||
|
Amortization of actuarial loss
|
2.1 | 1.3 | 1.0 | ||||||||||||
|
Total net periodic benefit cost
|
$6.5 | $4.5 | $4.1 | ||||||||||||
The estimated net loss and prior service cost for our defined
benefit pension plans that will be amortized from accumulated
other comprehensive income into net periodic benefit cost over
the next fiscal year are $13.6 million and
$2.4 million, respectively. The comparable amounts of
expected amortization for other benefit plans are
$1.8 million and $(1.2) million, respectively.
Other changes in plan assets and benefit obligations recognized
in other comprehensive income (loss) were as follows:
| Year Ended December 31 | |||||||||||
| In millions | 2009 | 2008 | |||||||||
|
Pension Benefits
|
|||||||||||
|
Actuarial (gain) loss
|
$ | (57.7 | ) | $230.6 | |||||||
|
Prior service cost
|
1.9 | 7.0 | |||||||||
|
Amortization of prior service cost
|
(2.2 | ) | (2.4 | ) | |||||||
|
Amortization of actuarial losses
|
(12.6 | ) | (0.4 | ) | |||||||
|
Total recognized in other comprehensive (income) loss
|
$ | (70.6 | ) | $234.8 | |||||||
|
Total recognized in net periodic benefit cost and other
comprehensive (income) loss
|
$ | (63.6 | ) | $218.7 | |||||||
|
Other Benefits
|
|||||||||||
|
Actuarial (gain) loss
|
$ | 0.2 | $6.4 | ||||||||
|
Amortization of prior service cost
|
1.2 | 1.3 | |||||||||
|
Amortization of actuarial losses
|
(2.1 | ) | (1.3 | ) | |||||||
|
Total recognized in other comprehensive (income) loss
|
(0.7 | ) | 6.4 | ||||||||
|
Total recognized in net periodic benefit cost and other
comprehensive loss
|
$ | 5.8 | $10.9 | ||||||||
The weighted-average assumptions used in computing the net
periodic benefit (income) cost information above were as follows:
| Year Ended December 31 | |||||||||||||||
| In millions | 2009 | 2008 | 2007 | ||||||||||||
|
Pension Benefits
|
|||||||||||||||
|
Discount rate – benefit expense
|
6.25 | % | 6.25 | % | 5.75 | % | |||||||||
|
Future compensation growth rate
|
4.0 | 4.0 | 4.0 | ||||||||||||
|
Expected long-term rate of return on plan assets
|
8.5 | 8.5 | 8.5 | ||||||||||||
|
Other Benefits
|
|||||||||||||||
|
Discount rate – benefit expense
|
6.25 | % | 6.25 | % | 5.75 | % | |||||||||
|
Expected long-term rate of return on plan assets
|
8.5 | 8.5 | 8.5 | ||||||||||||
To develop the expected long-term rate of return assumption, we
considered the historical returns and the future expected
returns for each asset class, as well as the target asset
allocation of the pension portfolio.
Assumed health care cost trend rates used to determine benefit
obligations at December 31 were as follows:
| 2009 | 2008 | ||||||||||
|
Health care cost trend rate assumed for next year
|
8.75 | % | 8.75 | % | |||||||
|
Rate to which the cost trend rate is assumed to decline (the
ultimate trend rate)
|
4.5 | 4.5 | |||||||||
|
Year that the rate reaches the ultimate rate
|
2021 | 2021 | |||||||||
Assumed health care cost trend rates have a significant effect
on the amounts reported for health care plans. A one
percentage-point change in assumed health care cost trend rates
would have the following effects:
| One Percentage Point | ||||||||||
| In millions | increase | decrease | ||||||||
|
Effect on:
|
||||||||||
|
Post-retirement benefit obligation
|
$ | 4.1 | $ | 3.7 | ||||||
|
Total of service and interest cost components
|
0.5 | 0.4 | ||||||||
Plan Assets
On December 31, 2009, we prospectively
implemented new disclosure requirements which expand disclosure
for assets held by employer defined benefit pension and other
postretirement benefit plans.
All pension plan assets in the U.S. are invested through a
single master trust fund. The strategic asset
Glatfelter 2009 Annual
Report 39
Table of Contents
allocation for this trust fund is selected by management,
reflecting the results of comprehensive asset liability
modeling. The general principles guiding U.S. pension asset
investment policies are those embodied in the Employee
Retirement Income Security Act of 1974 (ERISA). These principles
include discharging our investment responsibilities for the
exclusive benefit of plan participants and in accordance with
the “prudent expert” standard and other ERISA rules
and regulations. We establish strategic asset allocation
percentage targets and appropriate benchmarks for significant
asset classes with the aim of achieving a prudent balance
between return and risk.
Investments and decisions will be made solely in the interest of
the Plan’s participants and beneficiaries, and for the
exclusive purpose of providing benefits accrued there under. The
primary goal of the Plan is to ensure the solvency of the Plan
over time and thereby meet its distribution objectives. Plan
assets will be diversified. All investments in the Plan will be
made in accordance with ERISA and other applicable statutes.
Risk is minimized by diversification by asset class by style of
each manager and by sector and industry limits when applicable.
The target allocation for the Plan assets are:
|
Domestic Equity –
|
||||||
|
Large cap
|
39 | % | ||||
|
Small and mid cap
|
13 | |||||
|
International equity
|
13 | |||||
|
Real Estate Investment Trust (REIT)
|
5 | |||||
|
Fixed income
|
30 | |||||
Diversification is achieved by:
| i. | placing restrictions on the percentage of equity investments in any one company, percentage of investment in any one industry, limiting the amount of assets placed with any one manager; and | |
| ii. | setting targets for duration of fixed income securities, maintaining a certain level of credit quality, and limiting the amount of investment in non-investment grade paper. |
A formal asset allocation review is done periodically to ensure
that the Plan has an appropriate asset allocation based on the
Plan’s projected benefit obligations. The target return for
each equity and fixed income manager will be one that places the
manager’s performance in the top 40% of its peers and on a
gross basis, exceeds that of the manager’s respective
benchmark index. The target return for cash and cash equivalents
is a return that at least equals that of the
90-day
T-bills.
The Investment Policy statement lists specific categories of
securities or activities that are prohibited –
examples are options, futures, commodities, hedge funds, limited
partnerships, and our stock.
The table below presents the fair values of our pension assets
by level within the fair value hierarchy, as described in
Note 2:
|
Fair Value Measurements at December 31,
|
||||||||||||||||||||||
| 2009 | ||||||||||||||||||||||
| In millions | Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||||
|
Domestic Equity
|
||||||||||||||||||||||
|
Large cap
|
$ | 176.0 | $ | 175.6 | $0.4 | $– | ||||||||||||||||
|
Small and mid cap
|
77.6 | 77.6 | – | – | ||||||||||||||||||
|
International equity
|
64.2 | 33.1 | 31.1 | – | ||||||||||||||||||
|
REIT
|
25.7 | 25.7 | – | – | ||||||||||||||||||
|
Fixed income
|
134.5 | 71.0 | 63.5 | – | ||||||||||||||||||
|
Cash and equivalents
|
14.0 | 14.0 | – | – | ||||||||||||||||||
|
Total
|
$ | 492.0 | $ | 397.0 | $95.0 | $– | ||||||||||||||||
Cash Flow
We did not make contributions to our
qualified pension plans in 2009. Contributions expected to be
made in 2010 under our non-qualified pension plans and other
benefit plans are summarized below:
| In thousands | ||||||
|
Nonqualified pension plans
|
$ | 1,287 | ||||
|
Other benefit plans
|
4,327 | |||||
The following benefit payments, which reflect expected future
service, as appropriate, are expected to be paid:
| In thousands | Pension Benefits | Other Benefits | ||||||||||
|
2010
|
$ | 30,316 | $ | 6,009 | ||||||||
|
2011
|
29,918 | 6,182 | ||||||||||
|
2012
|
30,166 | 6,052 | ||||||||||
|
2013
|
30,459 | 5,958 | ||||||||||
|
2014
|
30,743 | 6,182 | ||||||||||
|
2015 through 2019
|
160,153 | 32,133 | ||||||||||
Defined Contribution Plans
We maintain 401(k)
plans for certain hourly and salaried employees. Employees may
contribute up to 15% of their salary to these plans, subject to
certain restrictions. We will match a portion of the
employee’s contribution, subject to certain limitations, in
the form of shares of Glatfelter common stock. The expense
associated with our 401(k) match was $0.9 million,
$0.9 million and $1.5 million in 2009, 2008 and 2007,
respectively.
| 12. | INVENTORIES |
Inventories, net of reserves were as follows:
| In thousands | 2009 | 2008 | ||||||||||
|
Raw materials
|
$ | 44,150 | $ | 49,083 | ||||||||
|
In-process and finished
|
78,340 | 97,390 | ||||||||||
|
Supplies
|
45,880 | 46,881 | ||||||||||
|
Total
|
$ | 168,370 | $ | 193,354 | ||||||||
If we had valued all inventories using the average-cost method,
inventories would have been $6.4 million and
$16.9 million higher than reported at December 31,
2009 and 2008, respectively. During 2009 and 2008, we
40
Table of Contents
liquidated certain LIFO inventories, the effect of which did not
have a significant impact on results of operations.
| 13. | PLANT, EQUIPMENT AND TIMBERLANDS |
Plant, equipment and timberlands at December 31 were as follows:
| In thousands | 2009 | 2008 | ||||||||||
|
Land and buildings
|
$ | 136,260 | $ | 131,258 | ||||||||
|
Machinery and equipment
|
970,708 | 964,502 | ||||||||||
|
Furniture, fixtures, and other
|
101,327 | 90,535 | ||||||||||
|
Accumulated depreciation
|
(773,057 | ) | (722,630 | ) | ||||||||
| 435,238 | 463,665 | |||||||||||
|
Construction in progress
|
23,947 | 17,141 | ||||||||||
|
Asset retirement – Lagoons
|
10,300 | 11,085 | ||||||||||
|
Timberlands, less depletion
|
1,147 | 1,673 | ||||||||||
|
Total
|
$ | 470,632 | $ | 493,564 | ||||||||
| 14. | GOODWILL AND INTANGIBLE ASSETS |
The following table sets forth information with respect to
goodwill and other intangible assets which are recorded in the
caption “Other long-term assets” in the accompanying
Consolidated Balance Sheets:
| December 31 | ||||||||||||
| In thousands | 2009 | 2008 | ||||||||||
|
Goodwill – Composite Fibers
|
$ | 17,331 | $ | 16,513 | ||||||||
|
Specialty Papers
|
||||||||||||
|
Customer relationships
|
$ | 6,155 | $ | 6,155 | ||||||||
|
Composite Fibers
|
||||||||||||
|
Technology and related
|
4,373 | 3,931 | ||||||||||
|
Customer relationships and related
|
1,867 | 291 | ||||||||||
|
Total intangibles
|
12,395 | 10,377 | ||||||||||
|
Accumulated amortization
|
(3,525 | ) | (2,534 | ) | ||||||||
|
Net intangibles
|
$ | 8,870 | $ | 7,843 | ||||||||
The increase in goodwill was due to foreign currency translation
adjustments. Other than
non-amortizable
goodwill, intangible assets are amortized on a straight-line
basis. Customer relationships are amortized over periods ranging
from 3 years to 14 years and technology and related
intangible assets are amortized over a 14 year period.
During 2009, we purchased certain intangible assets primarily
consisting of Russian-based customer lists previously served by
a distributor.
| In thousands | 2009 | 2008 | ||||||||||
|
Aggregate amortization expense:
|
$ | 981 | $ | 999 | ||||||||
|
Estimated amortization expense:
|
||||||||||||
|
2010
|
1,436 | |||||||||||
|
2011
|
1,436 | |||||||||||
|
2012
|
1,395 | |||||||||||
|
2013
|
940 | |||||||||||
|
2014
|
940 | |||||||||||
The remaining weighted average useful life of intangible assets
was 8 years at December 31, 2009.
| 15. | OTHER LONG-TERM ASSETS |
Other long-term assets consist of the following:
| December 31 | ||||||||||||
| In thousands | 2009 | 2008 | ||||||||||
|
Pension
|
$ | 112,903 | $ | 44,460 | ||||||||
|
Installment notes receivable
|
43,183 | 81,033 | ||||||||||
|
Goodwill and intangibles
|
26,201 | 24,356 | ||||||||||
|
Other
|
17,319 | 22,077 | ||||||||||
|
Total
|
$ | 199,606 | $ | 171,926 | ||||||||
| 16. | OTHER CURRENT LIABILITIES |
Other current liabilities consist of the following:
| December 31 | ||||||||||||
| In thousands | 2009 | 2008 | ||||||||||
|
Accrued payroll and benefits
|
$ | 46,141 | $ | 39,672 | ||||||||
|
Other accrued compensation and retirement benefits
|
6,476 | 6,560 | ||||||||||
|
Income taxes payable
|
4,684 | 6,163 | ||||||||||
|
Accrued rebates
|
14,195 | 16,205 | ||||||||||
|
Other accrued expenses
|
28,753 | 32,304 | ||||||||||
|
Total
|
$ | 100,249 | $ | 100,904 | ||||||||
| 17. |
|
Long-term debt is summarized as follows:
| December 31 | ||||||||||||
| In thousands | 2009 | 2008 | ||||||||||
|
Revolving credit facility, due April 2011
|
$ | – | $ | 6,724 | ||||||||
|
Term Loan, due April 2011
|
14,000 | 30,000 | ||||||||||
|
7
1
/
8
% Notes,
due May 2016
|
200,000 | 200,000 | ||||||||||
|
Term Loan, due January 2013
|
36,695 | 36,695 | ||||||||||
|
Note payable due March 2013
|
– | 34,000 | ||||||||||
|
Total long-term debt
|
250,695 | 307,419 | ||||||||||
|
Less current portion
|
(13,759 | ) | (13,759 | ) | ||||||||
|
Long-term debt, excluding current portion
|
$ | 236,936 | $ | 293,660 | ||||||||
On April 3, 2006, we, along with certain of our
subsidiaries as borrowers and certain of our subsidiaries as
guarantors, entered into a credit agreement with certain
financial institutions. Pursuant to the credit agreement, we may
borrow, repay and reborrow revolving credit loans in an
aggregate principal amount not to exceed $200 million
outstanding at any time. All borrowings under our credit
facility are unsecured. The revolving credit commitment expires
on April 2, 2011.
In addition, on April 3, 2006, pursuant to the credit
agreement, we received a term loan in the principal amount of
$100 million. Quarterly repayments of principal outstanding
under the term loan began on March 31, 2007 with the final
principal payment due on April 2, 2011. In addition, if
certain prepayment events occur, such as a sale of assets, the
incurrence of additional indebtedness in excess of
$30.0 million in the aggregate, or issuance of additional
equity; we must repay a specified portion of the term loan
within five days of the prepayment event.
Glatfelter 2009 Annual
Report 41
Table of Contents
Borrowings under the credit agreement bear interest, at our
option, at either (a) the bank’s base rate described
in the credit agreement as the greater of the prime rate or the
federal funds rate plus 50 basis points, or (b) the
EURO rate based generally on the London Interbank Offer Rate,
plus an applicable margin that varies from 67.5 basis
points to 137.5 basis points according to our corporate
credit rating determined by S&P and Moody’s.
We have the right to prepay the term loan and revolving credit
borrowings in whole or in part without premium or penalty,
subject to timing conditions related to the interest rate option
chosen.
The credit agreement contains a number of customary covenants
for financings of this type that, among other things, restrict
our ability to dispose of or create liens on assets, incur
additional indebtedness, repay other indebtedness, make
acquisitions and engage in mergers or consolidations. We are
also required to comply with specified financial tests and
ratios, each as defined in the credit agreement, including a
consolidated minimum net worth test and a maximum debt to
earnings before interest, taxes, depreciation and amortization
(“EBITDA”) ratio. A breach of these requirements, of
which we were not aware of any at December 31, 2009, would
give rise to certain remedies under the credit agreement as
amended, among which are the termination of the agreement and
accelerated repayment of the outstanding borrowings plus accrued
and unpaid interest under the credit facility.
On April 28, 2006 we completed an offering of
$200.0 million aggregate principal amount of our
7
1
/
8
% Senior
Notes due 2016
(“7
1
/
8
% Notes”).
Net proceeds from this offering totaled approximately
$196.4 million, after deducting the commissions and other
fees and expenses relating to the offering. The proceeds were
primarily used to redeem $150.0 million aggregate principal
amount of our then outstanding
6
7
/
8
% notes
due July 2007, plus the payment of applicable redemption premium
and accrued interest.
Interest on these Senior Notes accrues at the rate of
7
1
/
8
%
per annum and is payable semiannually in arrears on May 1 and
November 1.
Prior to May 1, 2011, we may redeem all, but not less than
all, of the notes at a redemption price equal to 100% of the
principal amount thereof plus accrued and unpaid interest, if
any, plus a “make-whole” premium. On or after
May 1, 2011, we may redeem some or all of the notes at
specified redemption prices. This feature expired in 2009.
Our credit agreement, as amended, contains a number of customary
compliance covenants. In addition, both the Notes and our
previously issued $200 million in aggregate principal
amount of
7
1
/
8
% Senior
Notes due 2016 contain cross default provisions that could
result in all such notes becoming due and payable in the event
of a failure to repay debt outstanding under the credit
agreement at maturity or a default under the credit agreement,
that accelerates the debt outstanding thereunder. As of
December 31, 2009, we met all of the requirements of our
debt covenants.
In November 2007, we sold approximately 26,000 acres of
timberland. In connection with that transaction, we formed GPW
Virginia Timberlands LLC (“GPW Virginia”) as an
indirect, wholly owned and bankruptcy-remote subsidiary of ours.
GPW Virginia received as consideration for the timberland sold
in that transaction a $43.2 million, interest-bearing note
that matures in 2027 from the buyer, Glawson Investments Corp.
(“Glawson”), a Georgia corporation, and GIC
Investments LLC, a Delaware limited liability company owned by
Glawson. The Glawson note receivable is fully secured by a
letter of credit issued by The Royal Bank of Scotland plc. In
January 2008, GPW Virginia monetized the Glawson note receivable
by entering into a $36.7 million term loan agreement (the
“2008 Term Loan”) with a financial institution. The
2008 Term Loan is secured by all of the assets of GPW Virginia,
including the Glawson note receivable, the related letter of
credit and additional notes with an aggregate principal amount
of $9.2 million that we issued in favor of GPW Virginia
(the “Company Note”). The 2008 Term Loan bears
interest at a six month reserve adjusted LIBOR rate plus a
margin rate of 1.20% per annum. Interest on the 2008 Term Loan
is payable semiannually. The principal amount of the 2008 Term
Loan is due on January 15, 2013, but GPW Virginia may
prepay the 2008 Term Loan at any time, in whole or in part,
without premium or penalty. During 2009, GPW Virginia received
aggregate interest payments of $1.5 million under the
Glawson note receivable and the Company Note and, in turn, made
interest payments of $1.1 million under the 2008 Term Loan.
On March 21, 2003, we sold timberlands and received as
consideration a $37.9 million
10-year
interest bearing note receivable from the timberland buyer
Sustainable Conservation, Inc. (the “Sustainable
Note”). We pledged this note as collateral under a
$34.0 million promissory note payable to a financial
institution (the “Note Payable”). The Note Payable, as
amended was scheduled to mature in March 2013 and was secured by
a letter of credit issued in our favor by SunTrust Bank backing
the collectability of the Sustainable Note.
42
Table of Contents
Under terms of each of the above transactions, minimum credit
ratings must be maintained by the respective financial
institution issuing the letters of credit. If, after
60 days from the date such credit rating falls below the
specified minimum, an “event of default” is deemed to
have occurred under the respective debt instrument owed by us to
the financial institution unless actions are taken to cure such
default. Potential remedial actions include: (i) amending
the terms of the applicable debt instrument; (ii) a
replacement of the letter of credit with an appropriately rated
institution; or (iii) repaying the Note Payable.
On April 23, 2009, the credit rating of the financial
institution that issued the letter of credit behind the
Sustainable Note fell below the required minimum level. To avoid
the occurrence of an event of default associated with the credit
downgrade of SunTrust, on June 10, 2009, we, Sustainable
Conservation and SunTrust agreed to collapse the transaction,
the effect of which was: i) the acceleration of the
maturity date of the Sustainable Note to June 10, 2009;
(ii) satisfaction in full of the $37.9 million
Sustainable Note owed to us; and iii) the satisfaction in
full of the $34 million indebtedness owed by us to SunTrust
under the Term Loan Agreement. As a result, we received net
proceeds of approximately $3.5 million, after transaction
costs.
The following schedule sets forth the maturity of our long-term
debt during the indicated year.
| In thousands | ||||||
|
2010
|
$13,759 | |||||
|
2011
|
241 | |||||
|
2012
|
– | |||||
|
2013
|
36,695 | |||||
|
2014
|
– | |||||
|
Thereafter
|
200,000 | |||||
P. H. Glatfelter Company guarantees all debt obligations of
its subsidiaries. All such obligations are recorded in these
consolidated financial statements.
At December 31, 2009 and 2008, we had $5.7 million and
$12.1 million, respectively, of letters of credit issued to
us by a financial institution. Such letters of credit reduce
amounts available under our revolving credit facility. The
letters of credit provide financial assurances for i) the
benefit of certain state workers compensation insurance agencies
in conjunction with our self-insurance program, and
ii) assurance related to the purchase of certain utilities
for our manufacturing facilities. We bear the credit risk on
this amount to the extent that we do not comply with the
provisions of certain agreements.
| 18. | ASSET RETIREMENT OBLIGATION |
During 2008, we recorded $11.5 million, net present value,
of asset retirement obligations related to the legal requirement
to close several lagoons at the Spring Grove, PA facility.
Historically, lagoons were used to dispose of residual waste
material. Closure of the lagoons, which is expected to occur
over the next seven years, will be accomplished by filling the
lagoons, installing a non-permeable liner which will be covered
with soil to construct the required cap over the lagoons. The
amount referred to above, in addition to the upward revision in
2009, was accrued with a corresponding increase in the carrying
value of the property, equipment and timberlands caption on the
consolidated balance sheet. The amount capitalized is being
amortized as a charge to operations on the straight-line basis
in relation to the expected closure period. Following is a
summary of activity recorded during 2009 and 2008:
| In thousands | 2009 | 2008 | ||||||||||
|
Beginning balance
|
$ | (11,606 | ) | $ | (11,487 | ) | ||||||
|
Upward revision
|
(600 | ) | – | |||||||||
|
Payments
|
1,535 | 110 | ||||||||||
|
Accretion
|
(621 | ) | (229 | ) | ||||||||
|
Ending balance
|
$ | (11,292 | ) | $ | (11,606 | ) | ||||||
Of the total liability at the end of 2009, $2.4 million is
recorded in the accompanying consolidated balance sheet under
the caption “Other current liabilities” and
$8.9 million is recorded under the caption “Other
long-term liabilities.” The comparable amounts as of
December 31, 2008 were $1.6 million and
$10.0 million, respectively.
| 19. | FAIR VALUE OF FINANCIAL INSTRUMENTS |
The amounts reported on the consolidated balance sheets for cash
and cash equivalents, accounts receivable and short-term debt
approximate fair value. The following table sets forth carrying
value and fair value of long-term debt:
| December 31, 2009 | December 31, 2008 | ||||||||||||||||||
|
Carrying
|
Fair
|
Carrying
|
Fair
|
||||||||||||||||
| In thousands | Value | Value | Value | Value | |||||||||||||||
|
Fixed-rate Bonds
|
$ | 200,000 | $ | 196,750 | $200,000 | $167,727 | |||||||||||||
|
Fixed rate note payable
|
– | – | 34,000 | 36,164 | |||||||||||||||
|
Variable rate debt
|
50,695 | 51,209 | 73,419 | 75,202 | |||||||||||||||
|
Total
|
$ | 250,695 | $ | 247,959 | $307,419 | $279,093 | |||||||||||||
As of December 31, 2009 and 2008, we had
$200.0 million of
7
1
/
8
%
fixed rate debt that is publicly registered, but is thinly
traded. Accordingly, the values set forth above are based on
debt instruments with similar characteristics, or Level 2.
The fair value of the remaining debt instruments was estimated
using discounted cash flow models based on interest rates
obtained from readily available, independent sources, or
Level 3.
Glatfelter 2009 Annual
Report 43
Table of Contents
| 20. | SHAREHOLDERS’ EQUITY |
The following table summarizes outstanding shares of common
stock:
| Year Ended December 31, | ||||||||||||||||
| In thousands | 2009 | 2008 | 2007 | |||||||||||||
|
Shares outstanding at beginning of year
|
45,434 | 45,143 | 44,821 | |||||||||||||
|
Treasury shares issued for:
|
||||||||||||||||
|
Restricted stock performance awards
|
86 | 94 | – | |||||||||||||
|
401(k) plan
|
169 | 119 | 206 | |||||||||||||
|
Director compensation
|
17 | 14 | 11 | |||||||||||||
|
Employee stock options exercised
|
– | 64 | 105 | |||||||||||||
|
Shares outstanding at end of year
|
45,706 | 45,434 | 45,143 | |||||||||||||
| 21. | COMMITMENTS, CONTINGENCIES AND LEGAL PROCEEDINGS |
Contractual Commitments
The following table
summarizes the minimum annual payments due on noncancelable
operating leases and other similar contractual obligations
having initial or remaining terms in excess of one year:
| In thousands | Leases | Other | ||||||||||
|
2010
|
$ | 5,022 | $ | 93,646 | ||||||||
|
2011
|
3,098 | 40,563 | ||||||||||
|
2012
|
1,905 | 28,550 | ||||||||||
|
2013
|
1,685 | — | ||||||||||
|
2014
|
1,059 | — | ||||||||||
|
Thereafter
|
7,480 | — | ||||||||||
Other contractual obligations primarily represent minimum
purchase commitments under energy and pulp wood supply contracts
and other purchase obligations.
At December 31, 2009, required minimum annual payments due
under operating leases and other similar contractual obligations
aggregated $20.2 million and $162.8 million,
respectively.
Fox
River – Neenah, Wisconsin
Background
We have significant
uncertainties associated with environmental claims arising out
of the presence of polychlorinated biphenyls (“PCBs”)
in sediments in the lower Fox River and in the Bay of Green Bay
Wisconsin (“Site”). As part of the 1979 acquisition of
the Bergstrom Paper Company we acquired a facility located at
the Site (the “Neenah Facility”). In part, the Neenah
Facility used wastepaper as a source of fiber. At no time did
the Neenah Facility utilize PCBs in the pulp and paper making
process, but discharges to the lower Fox River from the Neenah
Facility which may have contained PCBs from wastepaper may have
occurred from 1954 to the late 1970s. Any PCBs that our Neenah
Facility discharged into the lower Fox River resulted from the
presence of PCBs in
NCR
®
-brand
carbonless copy paper in the wastepaper that was recycled at the
Neenah Facility. We closed the Neenah Facility in June 2006.
The United States, the State of Wisconsin and various state and
federal governmental agencies (collectively, the
“Governments”), as well as private parties, have found
PCBs in sediments in the bed of the Fox River, apparently from a
number of sources at municipal and industrial facilities along
the upstream and downstream portions of the Site. The
Governments have identified manufacturing and recycling of
NCR
®
-brand
carbonless copy paper as the principal source of that
contamination.
The United States Environmental Protection Agency
(“EPA”) has divided the lower Fox River and the Bay of
Green Bay site into five “operable units” numbered
from the most upstream (“OU1”) to the most downstream
(“OU5”). OU1 is the reach from primarily Lake
Winnebago to the dam at Appleton, and is comprised of Little
Lake Butte des Morts. Our Neenah Facility discharged its
wastewater into OU1. OU2 extends from the dam at Appleton to the
dam at Little Rapids, OU3 from the dam at Little Rapids to the
dam at De Pere, OU4 from the dam at De Pere to the mouth of the
river, and OU5 from the mouth into the lower portion of Green
Bay. The river extends 39 miles from the upstream end of
OU1 to the downstream end of OU4.
Our liabilities, if any, for this contamination primarily arise
under the federal Comprehensive Environmental, Response,
Compensation and Liability Act (“CERCLA” or
“Superfund”). The Governments have sought to recover
“response actions” or “response costs,”
which are the costs of studying and cleaning up contamination,
from various “responsible parties.” In addition,
various natural resource trustee agencies of the United States,
the States of Wisconsin and Michigan, and several Indian Tribes
(the “Natural Resources Trustees” or
“Trustees”) have sought to recover natural resource
damages (“NRDs”), including natural resource damage
assessment costs. Parties that have incurred response costs or
NRDs either voluntarily or in response to the governments’
and Trustees’ demands may have an opportunity to seek
contribution or other recovery of some or all of those costs
from other parties who are jointly and severally responsible
under Superfund for those costs. Therefore, as we incur costs,
we also acquire a claim against other parties who may not have
paid their equitable share of those costs. As others incur
costs, they acquire a claim against us to the extent that they
claim that we have not paid our equitable share of the total.
Any party that resolves its liability to the United States or a
state in a judicially or administratively approved settlement
agreement obtains protection from contribution claims for
matters addressed in the settlement.
44
Table of Contents
For these reasons, all of the parties who are potentially
responsible (“PRPs”) under CERCLA for response costs
or NRDs have exposure to liability for: (a) the cost of
past response actions taken by anyone else, (b) the cost of
past NRD payments or restoration projects incurred by anyone
else, (c) the cost of response actions to be taken in the
future, and (d) NRDs. All of this exposure is subject to
substantial defenses, including, for example, that the PRP is
not liable or not jointly and severally liable for any
particular cost or damage, that the cost or damage is not
recoverable under CERCLA or any other law, or that the recovery
is barred by the passage of time. In addition, a party that has
incurred or committed to incur costs or has paid NRDs may be
able to claim credit for that cost or payment in any equitable
allocation of response costs or NRDs in any action for
reallocation of costs.
Cleanup Decisions.
Our liability exposure
depends importantly on the decisions made by EPA and the
Wisconsin Department of Natural Resources (“WDNR”) as
to how the Site will be cleaned up, and consequently the costs
and timing of those response actions. The nature of the response
actions has been highly controversial. EPA issued a record of
decision (“ROD”) selecting response actions for OU1
and OU2 in December 2002. EPA issued a separate ROD selecting
response actions for OU3, OU4, and OU5 in March 2004 and in June
2007.
EPA amended the RODs for OUs 2-5 in June 2007 to require less
dredging and more capping and covering of sediments containing
PCBs. The governments have concluded that these methods will
result in a reduction in the costs for this portion of the
cleanup. Others disagree. Likewise, in June 2008, EPA also
amended the ROD for OU1.
NRD Assessment.
The Natural Resources Trustees
have engaged in work to assess NRDs at and arising from the
Site. However, they have not completed a required NRD Assessment
under the pertinent regulations. The Trustees’ 2009
estimate of NRDs and associated costs ranges from
$287 million to $423 million, some of which has
already been satisfied. With specific respect to NRD claims, we
and others contended that the Trustees’ claims are barred
by the applicable 3 year statute of limitations.
Past Costs Demand.
By letter dated
January 15, 2009, EPA demanded that we and six other
parties reimburse EPA for approximately $17.6 million in
costs that EPA claims it incurred as necessary costs of response
not subject to any other agreement in this matter. In response,
we and the other parties which were contacted, notified the EPA
that the supporting documentation provided by EPA did not allow
us to fully evaluate this demand and we requested that the EPA
provide additional supporting information for the claimed costs.
EPA has not yet responded to this request. Accordingly, we are
unable to reasonably estimate our potential liability for these
costs.
Work Under Agreements, Orders, and Decrees.
As
we mention above, our exposure to liability depends on the
amount of work done, costs incurred, and damages paid both by us
and by others. The procedural context of any work done, costs
incurred, and damages paid also impact are ultimate exposure.
Since 1991, the Governments and various groups of potentially
responsible parties, including us, have entered into a series of
agreements, orders, and decrees under which we and others have
performed work, incurred costs, or paid damages in connection
with the Site. As a result, some parties have contributed or
performed substantial work at the Site and at least one party,
Fort Howard Corporation (whose successor is either the
Fort James Operating Company or Georgia Pacific
Corporation) has resolved its NRD liability at the Site.
Notably, in April 2004, the United States District Court for the
Eastern District of Wisconsin entered a consent decree
(“OU1 Consent Decree”) in
United States v.
P.H. Glatfelter Co.
,
No. 2:03-cv-949,
under which we and WTM I Corp. have been implementing the remedy
in OU1, dividing costs evenly in addition to a $7 million
contribution from Menasha Corp. and a $10 million
contribution that the United States contributed from a separate
settlement in
United States v. Appleton Papers Inc.
,
No. 2:01-cv-816,
obligating NCR and Appleton Papers to contribute to certain NRD
projects. In June 2008, the parties entered into an amendment to
the OU1 Consent Decree (“Amended OU1 Consent Decree”).
That amendment allowed for implementation of the amended remedy
for OU1 and committed us and WTM I to implement that remedy
without a cost limitation on that commitment. We and WTM I have
substantially completed the amended remedy for OU1. We
anticipate that the remaining tasks, other than monitoring and
maintenance, will be completed by the second quarter of 2010.
Further, in November 2007, EPA issued an administrative order
for remedial action (“UAO”) to Appleton Papers Inc.,
CBC Coating, Inc. (formerly known as Riverside Paper
Corporation), Georgia-Pacific Consumer Products, L.P. (formerly
known as Fort James Operating Company), Menasha
Corporation, NCR Corporation, us, U.S. Paper Mills Corp.,
and WTM I Company directing those respondents to implement the
amended remedy in OU2-5. Shortly following issuance of the UAO,
Appleton Papers Inc. and NCR Corp. commenced litigation against
us and others, as described below. Accordingly, we have
Glatfelter 2009 Annual
Report 45
Table of Contents
no vehicle for complying with the UAO’s overall
requirements other than answering a judgment in the litigation,
and we have so informed EPA. However, in February 2009, the EPA
sent a demand to each of the respondents on the UAO other than
WTM I demanding payment of the government’s oversight costs
under the UAO for the period from November 2007 through August
2008. In February 2009, we notified the EPA that we believed
that its demand could prove distracting to litigation commenced
by Appleton Papers and NCR against the other UAO respondents. In
order to remove this distraction, and in the spirit of
cooperation, we stated that we would satisfy the EPA’s
demand, an amount which was insignificant, in full. We paid this
amount.
Cost estimates.
Estimates of the Site
remediation change over time as we, or others, gain additional
data and experience at the Site. In addition, disagreement
exists over the likely costs for some of this work. The
Governments estimate that the total cost of implementing the
amended remedy in OU1 will be approximately $102 million.
Because we have completed a significant amount of work in this
portion of the river, we believe the costs of completing the
remedial actions specified in the amended ROD can be completed
for this amount. On February 26, 2010, EPA issued an
“explanation of Significant Differences” – a
document explaining changes to a remedy, including changes in
cost, that are significant but which do not require the issuance
of a new Record of Decision. In that ESD, EPA estimated the cost
for the OU 2-5 remedy to be $701 million. EPA estimates
costs as a range, in this case from $491 million to
$1.05 billion. This estimate is slightly different than,
but not inconsistent with, an estimate of the total cost for
remediation of the Site that the Governments prepared for
purposes of justifying a recent “
de minimis
”
settlement with certain parties whose liability at the Site the
United States and the Governments believe to be insignificant.
That settlement was approved by the federal court in Green Bay
on December 16, 2009. In their brief in support of that
settlement, the Governments estimated the total past costs
incurred at the Site – including the OU1
project – to be $200 million. In addition, they
estimated the cost of implementing the remedy set forth in the
amended ROD for OU2-5 (the downstream portions of the Site) to
total between $600 million and $700 million exclusive
of amounts already spent. For purposes of the settlement, the
Governments took the high end of that range and applied a 50%
contingency to arrive at a cost estimate for future cleanup work
of $1.05 billion. Based upon independent estimates
commissioned by various potentially responsible parties, we have
no reason to disagree with the Governments’ assertion that
future costs to implement the amended remedy for OU2-5 are
likely to fall between $700 million and $1.05 billion.
NRDs.
The Trustees claimed that we were
jointly and severally responsible for NRDs with a value between
$176 million and $333 million. In their recently filed
brief, they further claim that this range should be inflated to
2009 dollars and then certain unreimbursed past assessment costs
should be added, so that the range of their claim would be
$287 million to $423 million. We deny
(a) liability for most of these NRDs, (b) that if
anyone is liable, that we are jointly and severally liable for
the full amount; and (c) that the Trustees can pursue this
claim at this late date as the limitations period for NRD claims
is three years from discovery.
Allocation.
Since 1991, various potentially
responsible parties have, without success, attempted to agree on
a binding, final, allocation of costs and damages among
themselves. All costs that they have incurred to date have been
incurred individually, or under interim, nonbinding allocations.
However, the consent decree in
United States v. P. H.
Glatfelter Co.
affords us and WTM I contribution protection
for claims seeking to reallocate costs of implementing the OU1
remedy, and Fort James Operating Co. (now Georgia-Pacific)
has certain rights under its consent decree. Otherwise, the
parties have not litigated their internal allocation with us
except as described below.
NCR and Appleton Papers Inc. commenced litigation in the United
States District Court for the Eastern District of Wisconsin
captioned
Appleton Papers Inc. v. George A. Whiting
Paper Co.
,
No. 2:08-cv-16,
seeking to reallocate costs and damages allegedly incurred or
paid or to be incurred or paid by NCR or Appleton Papers (the
“Whiting Litigation”). They have to date joined a
number of defendants, dismissed some of those, filed a parallel
action, and consolidated the two cases. At present, the case
involves allocation claims among the two plaintiffs and 28
defendants
:
us, George A. Whiting Paper Co., Menasha
Corporation, Green Bay Packaging Inc., International Paper
Company, Leicht Transfer & Storage Company, Neenah
Foundry Company, Newpage Wisconsin System Inc., The
Procter & Gamble Paper Products Company, Wisconsin
Public Service Corp., the Cities of Appleton, De Pere, and Green
Bay, Brown County, Green Bay Metropolitan Sewerage District,
Heart of the Valley Metropolitan Sewerage District,
Neenah-Menasha Sewerage Commission, WTM I Company,
U.S. Paper Mills Corporation, Georgia-Pacific Consumer
Products LP, Georgia-Pacific LLC, Fort James Operating
Company, CBC Coating Company, Inc., Fort James Corporation,
Kimberly-Clark Corporation, LaFarge North America Inc., Union
Pacific Railroad Company, and the United States Army Corps of
Engineers. As the result of certain third-party claims,
46
Table of Contents
federal agencies other than the Corps of Engineers are also
involved in this allocation.
On December 16, 2009, the Court granted motions for summary
judgment in our favor on the contribution claims brought by NCR
and Appleton Papers Inc. in the Whiting litigation. The Court
held that neither NCR nor Appleton Papers may seek contribution
from us or other recyclers under CERCLA. The Court made no
ruling as to any other allocation, the liability of NCR or
Appleton Papers to us for costs we have incurred, or our
liability to the governments or Trustees. NCR and Appleton
Papers have stated their intention to appeal, but an appeal is
not yet timely because the Court has not entered a final
judgment.
As described above, we have counterclaims against NCR and
Appleton Papers Inc. to recover the costs we have incurred and
may later incur and the damages we have paid and may later pay
in connection with the Fox River site. Other defendants have
similar claims. On January 20, 2010, the Court issued an
order inviting submissions from the parties as to whether the
counterclaims of the defendants, as well as certain additional
claims, could be resolved without a trial within approximately
six months. If the Court is convinced that the case may be
resolvable on that basis, it will establish a briefing schedule
and attempt to decide the remaining issues on our claims before
an appeal will become timely.
As noted above, on December 16, 2009, the Court approved a
de minimis
party consent decree (“Consent
Decree”) settlement among the United States, the State of
Wisconsin, and eleven defendants resolving those
defendants’ liability for this site. The eleven settling
defendants are: George A. Whiting Paper Co.; Green Bay
Metropolitan Sewerage District; Green Bay Packaging, Inc.; Heart
of the Valley Metropolitan Sewerage District; International
Paper Co.; LaFarge North America Inc.; Leicht Transfer and
Storage Co.; Neenah Foundry Co.; Procter & Gamble
Paper Products Co.; Union Pacific Railroad Co.; and Wisconsin
Public Service Corp. (collectively, the “Eleven Settling
Defendants”). The Consent Decree reflects the conclusion by
the United States and the State of Wisconsin that each of the
Eleven Settling Defendants qualifies for treatment as a
de
minimis
party under CERCLA. The Consent Decree requires the
Settling Defendants to make a collective payment of $1,875,000.
Those Eleven Settling Defendants have moved for judgment in the
Whiting Litigation based upon the protections in the Consent
Decree. In addition, the Governments on September 25, 2009,
lodged a separate consent decree in the same case that would, if
entered, resolve the liabilities of the City of DePere. Under
that consent decree, the City of DePere would pay $210,000 to
resolve its liability at the Site. That Consent Decree has not
yet been approved.
We contend that we are not jointly and severally liable for
costs or damages arising from the presence of PCBs downstream of
OU1. In addition, we contend that NCR or other sources of
NCR
®
-brand
carbonless copy paper that our Neenah Mill recycled bear most of
the responsibility for costs and damages arising from the
presence of PCBs in OU1. Other parties disagree. Our
counterclaims for a re-allocation of costs we have incurred or
may incur remain pending.
Reserves for the Fox River Site.
As of
December 31, 2009, our reserve for our claimed liability at
the Fox River, including our remediation and ongoing monitoring
obligations at OU1, our claimed liability for the remediation of
OU2-5, our claimed liability for NRDs associated with PCB
contamination at the Site and all pending, threatened or
asserted and unasserted claims against us relating to PCB
contamination at the Site totaled $17.4 million. No
additional amounts were accrued during 2009 or 2008. Of our
total reserve for the Fox River, $0.4 million is recorded
in the accompanying consolidated balance sheets under the
caption “Environmental liabilities” and the remaining
$17.0 million is recorded under the caption “Other
long term liabilities.”
Under the OU1 Consent Decree which was signed in 2004, we
contributed $27.0 million to past and future costs and
NRDs. We later contributed $6.0 million under an agreed
supplement to the OU1 Consent Decree and have since contributed
an additional $9.5 million under the Amended Consent
Decree. WTM I has contributed parallel amounts. These funds are
placed into an escrow account from which we and WTM I pay for
work on the project. As required by the Amended Consent Decree,
in a quarterly report submitted to EPA in November 2009, we and
WTM I concluded that the amounts in the escrow account would be
sufficient to pay for the estimated cost of the work at OU1,
including operation, maintenance, and other post-construction
expenses. However, there can be no assurance that these amounts
will in fact suffice. WTM I has filed a bankruptcy petition in
the Bankruptcy Court in Richmond. There can be no assurance
should additional amounts be required to complete the project
that WTM I will be able to fulfill its obligation to pay half
the additional cost.
We believe that we have strong defenses to liability for
remediation of OU2-5 including the existence of ample data that
indicate that PCBs did not leave OU1 in concentrations that
could have caused or contributed to the need for cleanup in
OU2-5. Others, including the EPA and other PRPs, disagree with
us and, as a result, the EPA has issued a UAO to us and to
others to perform the OU2-5 work. NCR and Appleton Papers
commenced
Glatfelter 2009 Annual
Report 47
Table of Contents
the Whiting Litigation and joined us and others as defendants,
but did not prevail. Additional litigation associated with the
remediation of the Site is likely. As illustrated by the Whiting
Litigation, we believe that there are additional potentially
responsible parties other than the PRPs who were named in the
UAO or who have been joined in the Whiting Litigation, including
the owners of public wastewater treatment facilities who
discharged PCB-contaminated wastewater to the Fox River and
entities providing PCB-containing wastepaper to each of the
recycling mills.
Even if we are not successful in establishing that we are not
liable for the remediation of OU2-5, we do not believe that we
would be allocated a significant percentage share of liability
in any equitable allocation of the remediation costs and other
potential damages associated with OU2-5. The accompanying
consolidated financial statements do not include reserves for
defense costs for the Whiting Litigation or any future defense
costs related to our involvement at the Fox River which could be
significant.
In setting our reserve for the Fox River, we have assessed our
legal defenses, including our successful defenses to the
allegations made in the Whiting Litigation, and assumed that we
will not bear the entire cost of remediation and damages to the
exclusion of other known PRPs at the Site who are also
potentially jointly and severally liable. The existence and
ability of other PRPs to participate has also been taken into
account in setting our reserve, and is generally based on our
evaluation of recent publicly available financial information on
each PRP, and any known insurance, indemnity or cost sharing
agreements between PRPs and third parties. In addition, our
assessment is based upon the magnitude, nature, location and
circumstances associated with the various discharges of PCBs to
the river and the relationship of those discharges to identified
contamination. We will continue to evaluate our exposure and the
level of our reserves, including, but not limited to, our
potential share of the costs and NRDs, if any, associated with
the Fox River site.
Other than with respect to the Amended OU1 Consent Decree, the
amount and timing of future expenditures for environmental
compliance, cleanup, remediation and personal injury, NRDs and
property damage liabilities cannot be ascertained with any
certainty due to, among other things, the unknown extent and
nature of any contamination, the response actions that may
ultimately be required, the availability of remediation
equipment, and landfill space, and the number and financial
resources of any other PRPs.
Other Information.
Based in part upon the
Court’s December 16, 2009, ruling and the Court’s
January 10, 2010 order in the Whiting Litigation, we
continue to believe that a volumetric allocation would not
constitute an equitable allocation of the potential liability
for the contamination at the Fox River. We contend that other
factors, such as the location of contamination, the location of
discharge, and a party’s role in causing discharge, must be
considered in order for the allocation to be equitable.
The Wisconsin DNR and FWS have each published studies, the
latter in draft form, estimating the amount of PCBs discharged
by each identified PRP’s facility to the lower Fox River
and the Bay of Green Bay. These reports estimate the Neenah
Facility’s share of the volumetric discharge to be as high
as 27%. We do not believe the volumetric estimates used in these
studies are accurate because (a) the studies themselves
disclose that they are not accurate and (b) the volumetric
estimates contained in the studies are based on assumptions that
are unsupported by existing data on the Site. We believe that
the Neenah Facility’s volumetric contribution is
significantly lower than the estimates set forth in these
studies.
We previously entered into interim cost-sharing agreements with
four of the other PRPs, which provided for those PRPs to share
certain costs relating to scientific studies of PCBs discharged
at the Site (“Interim Cost Sharing Agreements”). These
interim cost-sharing agreements do not establish the final
allocation of remediation costs incurred at the Site. Based upon
our evaluation of the Court’s December 16, 2009,
ruling in the Whiting Litigation as well as the volume, nature
and location of the various discharges of PCBs at the Site and
the relationship of those discharges to identified
contamination, we believe our allocable share of liability at
the Site is less than our share of costs under the Interim Cost
Sharing Agreements.
While the Amended OU1 Consent Decree provides a negotiated
framework for resolving both our and WTM I’s liability for
the remediation of OU1, it does not resolve our exposure at the
Site. The OU1 Consent Decree does not address response costs
necessary to remediate the remainder of the Site and only
addresses NRDs and claims for reimbursement of government
expenses to a limited extent. Because CERCLA imposes strict and
often joint and several liability, uncertainty persists
regarding our exposure with respect to the remainder of the Fox
River site. In addition, as mentioned previously, EPA has issued
a UAO to us and others calling for further work in OU2-5, and
Appleton Papers and NCR have commenced the Whiting Litigation
that may become more complicated and involve additional parties.
We cannot predict the ultimate outcome of the Whiting Litigation
or any other litigation or regulatory actions related to this
matter.
48
Table of Contents
Range of Reasonably Possible Outcomes.
Our
analysis of the range of reasonably possible outcomes is derived
from all available information, including but not limited to
official documents such as RODs, discussions with the United
States and other PRPs, as well as legal counsel and engineering
consultants. Based on our analysis of the current RODs and cost
estimates for work to be performed at the Site, we believe that
it is reasonably possible that our liability associated with the
Fox River matter may exceed the aggregate amounts which we have
accrued for the Fox River matter by amounts that are
insignificant or that could range up to $265 million over a
period that is currently undeterminable but that could range
beyond 15 years. We believe that the likelihood of an
outcome in the upper end of the monetary range is significantly
less than other possible outcomes within the range and that the
possibility of an outcome in excess of the upper end of the
monetary range is remote. The summary judgment in our favor in
the
Whiting Litigation,
if sustained on appeal, suggests
that outcomes in the upper end of the monetary range have become
somewhat less probable, while increases in cost estimates for
some of the work may militate in the opposite direction.
All remedial work in OU-1 has been completed and we and WTM I
are in the process of decommissioning and performing the
restoration of the staging area from which the remediation
activity occurred and completing all required reports for the
project. We believe that these activities can be completed with
the funds that remain in the OU1 Escrow Account.
Summary.
Our current assessment is that we
will be able to manage this environmental matter without a
long-term, material adverse impact on the Company. This matter
could, however, at any particular time or for any particular
year or years, have a material adverse effect on our
consolidated financial position, liquidity
and/or
results of operations or could result in a default under our
loan covenants. Moreover, there can be no assurance that our
reserves will be adequate to provide for future obligations
related to this matter, that our share of costs
and/or
damages 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. If we are not successful in obtaining acknowledgment
that the remedial work at OU1 has been substantially completed
and/or
should the United States seek to enforce the UAO for OU2-5
against us which requires us either to perform directly or to
contribute significant amounts towards the performance of that
work, those developments could have a material adverse effect on
our consolidated financial position, liquidity and results of
operations and might result in a default under our loan
covenants.
Ecusta Environmental Matters
Beginning
in April 2003, government authorities, including the North
Carolina Department of Environment and Natural Resources
(“NCDENR”), initiated discussions with us and other
parties regarding, among other environmental issues, certain
landfill closure liabilities associated with our former Ecusta
mill and its properties (the “Ecusta Property”). The
discussions focused on NCDENR’s desire to establish a plan
and secure financial resources to close three landfills located
at the Ecusta Property and to address other environmental
matters at the facility. During the third quarter of 2003, the
discussions ended with NCDENR’s conclusion to hold us
responsible for the closure of three landfills. Accordingly, in
2003 we established reserves totaling approximately
$7.6 million representing estimated landfill closure costs.
During 2009, we completed the closure of the last of those three
landfills (collectively, the “Landfill Closure and
Post-Closure Obligations”).
In September 2005, we established an additional
$2.7 million reserve for potential environmental
liabilities associated with the Ecusta Property relating to:
(i) mercury releases from the Electro-Chemical Building;
(ii) contamination in and operation of the aeration and
stabilization basin (the “ASB”), which is part of the
Ecusta Property’s wastewater treatment system; (iii) a
previously closed ash landfill (“Brown #1
Landfill”); and (iv) contamination in the vicinity of
a former caustic building.
On January 25, 2008, we entered into a series of agreements
with, among others, Davidson River Village, LLC
(“DRV”)- the current owner of the Ecusta Property
pursuant to which we transferred potential liabilities for
certain environmental matters at the Ecusta Property to DRV (the
“DRV Transaction”). In connection with the DRV
Transaction, DRV assumed, and indemnified us for, liability
arising from environmental matters and conditions at the Ecusta
Property with certain exceptions, including the Landfill Closure
and Post-Closure Obligations and investigation and remediation
(if necessary) of any pollutants that may have migrated from the
Ecusta Property to the Davidson and French Broad Rivers (the
“River Areas”), which liabilities were retained by us.
Glatfelter 2009 Annual
Report 49
Table of Contents
| 22. | SEGMENT AND GEOGRAPHIC INFORMATION |
The following table sets forth profitability and other
information by business unit for the year ended December 31:
| Specialty Papers | Composite Fibers | Other and Unallocated | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
| In thousands | 2009 | 2008 | 2007 | 2009 | 2008 | 2007 | 2009 | 2008 | 2007 | 2009 | 2008 | 2007 | ||||||||||||||||||||||||||||||||||||||||||
|
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Net sales
|
$791,915 | $833,899 | $802,293 | $392,095 | $429,952 | $346,030 | $– | $(1 | ) | $– | $1,184,010 | $1,263,850 | $1,148,323 | |||||||||||||||||||||||||||||||||||||||||
|
Energy sales, net
|
13,332 | 9,364 | 9,445 | – | – | – | – | – | – | 13,332 | 9,364 | 9,445 | ||||||||||||||||||||||||||||||||||||||||||
|
Total revenue
|
805,247 | 843,263 | 811,738 | 392,095 | 429,952 | 346,030 | – | (1 | ) | – | 1,197,342 | 1,273,214 | 1,157,768 | |||||||||||||||||||||||||||||||||||||||||
|
Cost of products sold
|
693,949 | 739,481 | 721,216 | 334,378 | 366,791 | 287,606 | (100,749 | ) | (10,840 | ) | (7,366 | ) | 927,578 | 1,095,432 | 1,001,456 | |||||||||||||||||||||||||||||||||||||||
|
Gross profit
|
111,298 | 103,782 | 90,522 | 57,717 | 63,161 | 58,424 | 100,749 | 10,839 | 7,366 | 269,764 | 177,782 | 156,312 | ||||||||||||||||||||||||||||||||||||||||||
|
SG&A
|
55,408 | 54,596 | 56,561 | 35,779 | 38,206 | 32,541 | 19,070 | 5,095 | 27,042 | 110,257 | 97,897 | 116,144 | ||||||||||||||||||||||||||||||||||||||||||
|
Restructuring charges
|
– | – | – | – | – | – | – | (856 | ) | 35 | – | (856 | ) | 35 | ||||||||||||||||||||||||||||||||||||||||
|
Gains on dispositions of plant, equipment and timberlands
|
– | – | – | – | – | – | (898 | ) | (18,468 | ) | (78,685 | ) | (898 | ) | (18,468 | ) | (78,685 | ) | ||||||||||||||||||||||||||||||||||||
|
Total operating income
|
55,890 | 49,186 | 33,961 | 21,938 | 24,955 | 25,883 | 82,577 | 25,068 | 58,974 | 160,405 | 99,209 | 118,818 | ||||||||||||||||||||||||||||||||||||||||||
|
Nonoperating income (expense)
|
– | – | – | – | – | – | (17,259 | ) | (18,183 | ) | (24,884 | ) | (17,259 | ) | (18,183 | ) | (24,884 | ) | ||||||||||||||||||||||||||||||||||||
|
Income before income taxes
|
$55,890 | $49,186 | $33,961 | $21,938 | $24,955 | $25,883 | $65,318 | $6,885 | $34,090 | $143,146 | $81,026 | $93,934 | ||||||||||||||||||||||||||||||||||||||||||
|
Supplemental Data
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Plant, equipment and timberlands, net
|
$262,807 | $284,689 | $287,107 | $207,825 | $208,875 | $232,759 | $– | $– | $– | $470,632 | $493,564 | $519,866 | ||||||||||||||||||||||||||||||||||||||||||
|
Capital expenditures
|
14,077 | 20,878 | 17,395 | 12,080 | 31,591 | 11,565 | – | – | – | 26,257 | 52,469 | 28,960 | ||||||||||||||||||||||||||||||||||||||||||
|
Depreciation, depletion and amortization
|
37,520 | 35,010 | 34,882 | 23,736 | 25,601 | 21,119 | – | – | – | 61,256 | 60,611 | 56,001 | ||||||||||||||||||||||||||||||||||||||||||
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.
Management evaluates results of operations of the business units
before pension income or expense, alternative fuel mixture
credits, charges related to the Fox River environmental
reserves, restructuring related charges, unusual items, certain
corporate level costs, and the effects of asset dispositions.
Management believes that 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 these core operations.
Such amounts are presented under the caption “Other and
Unallocated.” This presentation is aligned with the
management and operating structure of our company. It is also on
this basis that our performance is evaluated internally and by
our Board of Directors.
Our North America-based Specialty Papers business unit focuses
on producing papers for the following markets:
| • | Carbonless and forms papers for credit card receipts, multi-part forms, security papers and other end-user applications; | |
| • | Book publishing papers for the production of high quality hardbound books and other book publishing needs; | |
| • | Envelope and converting papers for the direct mail market, shopping bags, and other converting applications; and | |
| • | Engineered products for digital imaging, transfer, casting, release, postal, playing card and other niche specialty applications. |
Specialty Papers’ revenue composition by market consisted
of the following for the years indicated:
| In thousands | 2009 | 2008 | 2007 | ||||||||||||
|
Carbonless & forms
|
$ | 320,088 | $ | 338,067 | $ | 345,785 | |||||||||
|
Book publishing
|
176,646 | 201,040 | 185,343 | ||||||||||||
|
Envelope & converting
|
146,812 | 138,293 | 116,797 | ||||||||||||
|
Engineered products
|
143,490 | 149,372 | 136,785 | ||||||||||||
|
Other
|
4,879 | 7,127 | 17,583 | ||||||||||||
|
Total
|
$ | 791,915 | $ | 833,899 | $ | 802,293 | |||||||||
50
Table of Contents
Our Composite Fibers business unit, based in Gernsbach, Germany,
serves customers globally and focuses on higher-value-added
products in the following markets:
| • | Food & Beverage paper used for tea bags and coffee pods/pads and filters; | |
| • | Metallized products used in the labeling of beer bottles, innerliners, gift wrap, self-adhesive labels and other consumer products applications; | |
| • | Composite Laminates papers used in production of decorative laminates for furniture and flooring; and | |
| • | Technical Specialties is a diverse line of paper products used in batteries, medical masks and other highly engineered applications. |
Composite Fibers’ revenue composition by market consisted
of the following for the years indicated:
| In thousands | 2009 | 2008 | 2007 | ||||||||||||
|
Food & beverage
|
$ | 233,899 | $ | 252,545 | $ | 218,961 | |||||||||
|
Metallized
|
81,388 | 85,719 | 45,426 | ||||||||||||
|
Composite laminates
|
46,442 | 58,705 | 52,972 | ||||||||||||
|
Technical specialties and other
|
30,366 | 32,983 | 28,671 | ||||||||||||
|
Total
|
$ | 392,095 | $ | 429,952 | $ | 346,030 | |||||||||
We sell a significant portion of our specialty papers through
wholesale paper merchants. No individual customer accounted for
more than 10% of our consolidated net sales in 2009, 2008 or
2007.
Our net sales to external customers and location of net plant,
equipment and timberlands are summarized below. Net sales are
attributed to countries based upon origin of shipment.
| 2009 | 2008 | 2007 | |||||||||||||||||||||||||
|
Plant,
|
Plant,
|
Plant,
|
|||||||||||||||||||||||||
|
Equipment and
|
Equipment and
|
Equipment and
|
|||||||||||||||||||||||||
| In thousands | Net sales | Timberlands – Net | Net sales | Timberlands – Net | Net sales | Timberlands – Net | |||||||||||||||||||||
|
United States
|
$ | 824,833 | $ | 262,807 | $ | 869,325 | $ | 284,689 | $ | 832,724 | $ | 287,107 | |||||||||||||||
|
Germany
|
191,660 | 124,881 | 216,011 | 131,304 | 190,796 | 133,505 | |||||||||||||||||||||
|
United Kingdom
|
125,047 | 60,104 | 134,212 | 53,054 | 87,054 | 74,000 | |||||||||||||||||||||
|
Other
|
42,470 | 22,840 | 44,302 | 24,517 | 37,749 | 25,254 | |||||||||||||||||||||
|
Total
|
$ | 1,184,010 | $ | 470,632 | $ | 1,263,850 | $ | 493,564 | $ | 1,148,323 | $ | 519,866 | |||||||||||||||
Glatfelter 2009 Annual
Report 51
Table of Contents
| 23. | GUARANTOR FINANCIAL STATEMENTS |
Our
7
1
/
8
% Notes
have been fully and unconditionally guaranteed, on a joint and
several basis, by certain of our 100%-owned domestic
subsidiaries, PHG Tea Leaves, Inc., Mollanvick, Inc., The
Glatfelter Pulp Wood Company, and Glatfelter Holdings, LLC.
The following presents our consolidating statements of income
and cash flow for the years ended December 31, 2009, 2008
and 2007 and our consolidating balance sheets as of
December 31, 2009 and 2008. These financial statements
reflect P. H. Glatfelter Company (the parent), the guarantor
subsidiaries (on a combined basis), the non-guarantor
subsidiaries (on a combined basis) and elimination entries
necessary to combine such entities on a consolidated basis.
Condensed
Consolidating Statement of Income for the
year ended December 31, 2009
year ended December 31, 2009
|
Parent
|
Non
|
Adjustments/
|
||||||||||||||||||||
| In thousands | Company | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||
|
Net sales
|
$791,915 | $46,796 | $392,095 | $(46,796 | ) | $1,184,010 | ||||||||||||||||
|
Energy sales – net
|
13,332 | – | – | – | 13,332 | |||||||||||||||||
|
Total revenues
|
805,247 | 46,796 | 392,095 | (46,796 | ) | 1,197,342 | ||||||||||||||||
|
Costs of products sold
|
597,693 | 42,320 | 334,544 | (46,979 | ) | 927,578 | ||||||||||||||||
|
Gross profit
|
207,554 | 4,476 | 57,551 | 183 | 269,764 | |||||||||||||||||
|
Selling, general and administrative expenses
|
71,484 | 2,304 | 36,469 | – | 110,257 | |||||||||||||||||
|
Gains on dispositions of plant, equipment and timberlands, net
|
9 | (907 | ) | – | – | (898 | ) | |||||||||||||||
|
Operating income
|
136,061 | 3,079 | 21,082 | 183 | 160,405 | |||||||||||||||||
|
Non-operating income (expense)
|
||||||||||||||||||||||
|
Interest expense
|
(16,324 | ) | 5,025 | (2,810 | ) | (3,225 | ) | (17,334 | ) | |||||||||||||
|
Other income (expense) – net
|
15,000 | 1,470 | (144 | ) | (16,251 | ) | 75 | |||||||||||||||
|
Total other income (expense)
|
(1,324 | ) | 6,495 | (2,954 | ) | (19,476 | ) | (17,259 | ) | |||||||||||||
|
Income (loss) before income taxes
|
134,737 | 9,574 | 18,128 | (19,293 | ) | 143,146 | ||||||||||||||||
|
Income tax provision (benefit)
|
11,295 | 3,382 | 6,171 | (1,144 | ) | 19,704 | ||||||||||||||||
|
Net income (loss)
|
$123,442 | $6,192 | $11,957 | $(18,149 | ) | $123,442 | ||||||||||||||||
Condensed
Consolidating Statement of Income for the
year ended December 31, 2008
year ended December 31, 2008
|
Parent
|
Non
|
Adjustments/
|
||||||||||||||||||||
| In thousands | Company | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||
|
Net sales
|
$833,900 | $45,640 | $429,950 | $(45,640 | ) | $1,263,850 | ||||||||||||||||
|
Energy sales – net
|
9,364 | – | – | – | 9,364 | |||||||||||||||||
|
Total revenues
|
843,264 | 45,640 | 429,950 | (45,640 | ) | 1,273,214 | ||||||||||||||||
|
Costs of products sold
|
729,425 | 44,448 | 367,005 | (45,446 | ) | 1,095,432 | ||||||||||||||||
|
Gross profit
|
113,839 | 1,192 | 62,945 | (194 | ) | 177,782 | ||||||||||||||||
|
Selling, general and administrative expenses
|
56,425 | 1,910 | 39,562 | – | 97,897 | |||||||||||||||||
|
Reversal of shutdown and restructuring charges
|
(856 | ) | – | – | – | (856 | ) | |||||||||||||||
|
Gains on dispositions of plant, equipment and timberlands, net
|
183 | (18,651 | ) | – | – | (18,468 | ) | |||||||||||||||
|
Operating income (loss)
|
58,087 | 17,933 | 23,383 | (194 | ) | 99,209 | ||||||||||||||||
|
Non-operating income (expense)
|
||||||||||||||||||||||
|
Interest expense
|
(19,940 | ) | (14 | ) | (3,206 | ) | – | (23,160 | ) | |||||||||||||
|
Other income (expense) – net
|
36,376 | 11,130 | (4,383 | ) | (38,146 | ) | 4,977 | |||||||||||||||
|
Total other income (expense)
|
16,436 | 11,116 | (7,589 | ) | (38,146 | ) | (18,183 | ) | ||||||||||||||
|
Income (loss) before income taxes
|
74,523 | 29,049 | 15,794 | (38,340 | ) | 81,026 | ||||||||||||||||
|
Income tax provision (benefit)
|
16,635 | 11,486 | 4,211 | (9,194 | ) | 23,138 | ||||||||||||||||
|
Net income (loss)
|
$57,888 | $17,563 | $11,583 | $(29,146 | ) | $57,888 | ||||||||||||||||
52
Table of Contents
Condensed
Consolidating Statement of Income for the
year ended December 31, 2007
year ended December 31, 2007
|
Parent
|
Non
|
Adjustments/
|
||||||||||||||||||||
| In thousands | Company | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||
|
Net sales
|
$802,293 | $42,801 | $346,030 | $(42,801 | ) | $1,148,323 | ||||||||||||||||
|
Energy sales – net
|
9,445 | – | – | – | 9,445 | |||||||||||||||||
|
Total revenues
|
811,738 | 42,801 | 346,030 | (42,801 | ) | 1,157,768 | ||||||||||||||||
|
Costs of products sold
|
716,015 | 40,181 | 287,931 | (42,671 | ) | 1,001,456 | ||||||||||||||||
|
Gross profit
|
95,723 | 2,620 | 58,099 | (130 | ) | 156,312 | ||||||||||||||||
|
Selling, general and administrative expenses
|
80,112 | 1,845 | 34,187 | – | 116,144 | |||||||||||||||||
|
(Reversal of) Shutdown and restructuring charges
|
201 | – | (166 | ) | – | 35 | ||||||||||||||||
|
Gains on dispositions of plant, equipment and timberlands, net
|
76 | (78,761 | ) | – | – | (78,685 | ) | |||||||||||||||
|
Operating income
|
15,334 | 79,536 | 24,078 | (130 | ) | 118,818 | ||||||||||||||||
|
Non-operating income (expense)
|
||||||||||||||||||||||
|
Interest expense
|
(26,980 | ) | (3 | ) | (2,039 | ) | – | (29,022 | ) | |||||||||||||
|
Other income (expense) – net
|
75,806 | 15,910 | (5,939 | ) | (81,639 | ) | 4,138 | |||||||||||||||
|
Total other income (expense)
|
48,826 | 15,907 | (7,978 | ) | (81,639 | ) | (24,884 | ) | ||||||||||||||
|
Income (loss) before income taxes
|
64,160 | 95,443 | 16,100 | (81,769 | ) | 93,934 | ||||||||||||||||
|
Income tax provision (benefit)
|
688 | 35,992 | 555 | (6,773 | ) | 30,462 | ||||||||||||||||
|
Net income (loss)
|
$63,472 | $59,451 | $15,545 | $(74,996 | ) | $63,472 | ||||||||||||||||
Condensed
Consolidating Balance Sheet as of December 31,
2009
|
Parent
|
Non
|
Adjustments/
|
||||||||||||||||||||
| In thousands | Company | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||
|
Assets
|
||||||||||||||||||||||
|
Cash and cash equivalents
|
$76,970 | $985 | $57,465 | $– | $135,420 | |||||||||||||||||
|
Other current assets
|
275,490 | 260,834 | 148,090 | (299,778 | ) | 384,636 | ||||||||||||||||
|
Plant, equipment and timberlands – net
|
255,886 | 6,921 | 207,825 | – | 470,632 | |||||||||||||||||
|
Other assets
|
600,116 | 145,304 | 75,731 | (621,545 | ) | 199,606 | ||||||||||||||||
|
Total assets
|
$1,208,462 | $414,044 | $489,111 | $(921,323 | ) | $1,190,294 | ||||||||||||||||
|
Liabilities and Shareholders’ Equity
|
||||||||||||||||||||||
|
Current liabilities
|
$301,908 | $1,357 | $179,273 | $(296,428 | ) | $186,110 | ||||||||||||||||
|
Long-term debt
|
200,241 | – | 36,695 | – | 236,936 | |||||||||||||||||
|
Deferred income taxes
|
71,035 | 15,347 | 26,284 | (15,998 | ) | 96,668 | ||||||||||||||||
|
Other long-term liabilities
|
124,574 | 13,531 | 9,654 | 12,117 | 159,876 | |||||||||||||||||
|
Total liabilities
|
697,758 | 30,235 | 251,906 | (300,309 | ) | 679,590 | ||||||||||||||||
|
Shareholders’ equity
|
510,704 | 383,809 | 237,205 | (621,014 | ) | 510,704 | ||||||||||||||||
|
Total liabilities and shareholders’ equity
|
$1,208,462 | $414,044 | $489,111 | $(921,323 | ) | $1,190,294 | ||||||||||||||||
Glatfelter 2009 Annual
Report 53
Table of Contents
Condensed
Consolidating Balance Sheet as of December 31,
2008
|
Parent
|
Non
|
Adjustments/
|
||||||||||||||||||||
| In thousands | Company | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||
|
Assets
|
||||||||||||||||||||||
|
Cash and cash equivalents
|
$8,860 | $756 | $22,618 | $– | $32,234 | |||||||||||||||||
|
Other current assets
|
266,899 | 256,834 | 88,288 | (252,436 | ) | 359,585 | ||||||||||||||||
|
Plant, equipment and timberlands – net
|
277,215 | 7,470 | 208,879 | – | 493,564 | |||||||||||||||||
|
Other assets
|
510,144 | 175,927 | (29,767 | ) | (484,378 | ) | 171,926 | |||||||||||||||
|
Total assets
|
$1,063,118 | $440,987 | $290,018 | $(736,814 | ) | $1,057,309 | ||||||||||||||||
|
Liabilities and Shareholders’ Equity
|
||||||||||||||||||||||
|
Current liabilities
|
$336,182 | $17,072 | $85,668 | $(248,820 | ) | $190,102 | ||||||||||||||||
|
Long-term debt
|
222,965 | – | 70,695 | – | 293,660 | |||||||||||||||||
|
Deferred income taxes
|
53,976 | 24,615 | 26,272 | (14,705 | ) | 90,158 | ||||||||||||||||
|
Other long-term liabilities
|
107,288 | 13,838 | 8,941 | 10,615 | 140,682 | |||||||||||||||||
|
Total liabilities
|
720,411 | 55,525 | 191,576 | (252,910 | ) | 714,602 | ||||||||||||||||
|
Shareholders’ equity
|
342,707 | 385,462 | 98,442 | (483,904 | ) | 342,707 | ||||||||||||||||
|
Total liabilities and shareholders’ equity
|
$1,063,118 | $440,987 | $290,018 | $(736,814 | ) | $1,057,309 | ||||||||||||||||
Condensed
Consolidating Statement of Cash Flows for the year
ended December 31, 2009
ended December 31, 2009
|
Parent
|
Non
|
Adjustments/
|
||||||||||||||||||||
| In thousands | Company | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||
|
Net cash provided (used) by
|
||||||||||||||||||||||
|
Operating activities
|
$102,891 | $17,534 | $46,668 | $(3,225 | ) | $163,868 | ||||||||||||||||
|
Investing activities
|
||||||||||||||||||||||
|
Purchase of plant, equipment and timberlands
|
(14,040 | ) | (137 | ) | (12,080 | ) | – | (26,257 | ) | |||||||||||||
|
Proceeds from disposal plant, equipment and timberlands
|
– | 951 | – | – | 951 | |||||||||||||||||
|
Proceeds from timberland installment note receivable
|
– | – | 37,850 | – | 37,850 | |||||||||||||||||
|
Repayments from (advances of) intercompany loans, net
|
9,186 | (9,394 | ) | – | 208 | – | ||||||||||||||||
|
Total investing activities
|
(4,854 | ) | (8,580 | ) | 25,770 | 208 | 12,544 | |||||||||||||||
|
Financing activities
|
||||||||||||||||||||||
|
Net (repayments of) proceeds from indebtedness
|
(22,725 | ) | – | (36,008 | ) | – | (58,733 | ) | ||||||||||||||
|
Payment of dividends to shareholders
|
(16,596 | ) | – | – | – | (16,596 | ) | |||||||||||||||
|
(Repayments) borrowings of intercompany loans, net
|
9,394 | (5,500 | ) | (3,686 | ) | (208 | ) | – | ||||||||||||||
|
Payment of intercompany dividends
|
– | (3,225 | ) | – | 3,225 | – | ||||||||||||||||
|
Total financing activities
|
(29,927 | ) | (8,725 | ) | (39,694 | ) | 3,017 | (75,329 | ) | |||||||||||||
|
Effect of exchange rate on cash
|
– | – | 2,103 | – | 2,103 | |||||||||||||||||
|
Net increase (decrease) in cash
|
68,110 | 229 | 34,847 | – | 103,186 | |||||||||||||||||
|
Cash at the beginning of period
|
8,860 | 756 | 22,618 | – | 32,234 | |||||||||||||||||
|
Cash at the end of period
|
$76,970 | $985 | $57,465 | $– | $135,420 | |||||||||||||||||
54
Table of Contents
Condensed
Consolidating Statement of Cash Flows for the year
ended December 31, 2008
ended December 31, 2008
|
Parent
|
Non
|
Adjustments/
|
||||||||||||||||||||
| In thousands | Company | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||
|
Net cash provided (used) by
|
||||||||||||||||||||||
|
Operating activities
|
$15,641 | $26,929 | $34,455 | $(23,600 | ) | $53,425 | ||||||||||||||||
|
Investing activities
|
||||||||||||||||||||||
|
Purchase of plant, equipment and timberlands
|
(19,998 | ) | (880 | ) | (31,591 | ) | – | (52,469 | ) | |||||||||||||
|
Proceeds from disposal plant, equipment and timberlands
|
19,279 | – | – | – | 19,279 | |||||||||||||||||
|
Repayments from (advances of) intercompany loans, net
|
4,593 | (19,678 | ) | (17,502 | ) | 32,587 | – | |||||||||||||||
|
Return (contributions) of intercompany capital, net
|
– | 24,997 | – | (24,997 | ) | – | ||||||||||||||||
|
Total investing activities
|
3,874 | 4,439 | (49,093 | ) | 7,590 | (33,190 | ) | |||||||||||||||
|
Financing activities
|
||||||||||||||||||||||
|
Net (repayments of) proceeds from indebtedness
|
(39,196 | ) | – | 41,621 | – | 2,425 | ||||||||||||||||
|
Payment of dividends to shareholders
|
(16,469 | ) | – | – | – | (16,469 | ) | |||||||||||||||
|
(Repayments) borrowings of intercompany loans, net
|
39,280 | (7,174 | ) | 481 | (32,587 | ) | – | |||||||||||||||
|
Return of intercompany capital, net
|
– | – | (24,997 | ) | 24,997 | – | ||||||||||||||||
|
Payment of intercompany dividends
|
– | (23,600 | ) | – | 23,600 | – | ||||||||||||||||
|
Proceeds from stock options exercised and other
|
1,165 | – | – | – | 1,165 | |||||||||||||||||
|
Total financing activities
|
(15,220 | ) | (30,774 | ) | 17,105 | 16,010 | (12,879 | ) | ||||||||||||||
|
Effect of exchange rate on cash
|
(2,128 | ) | – | (2,827 | ) | – | (4,955 | ) | ||||||||||||||
|
Net increase (decrease ) in cash
|
2,167 | 594 | (360 | ) | – | 2,401 | ||||||||||||||||
|
Cash at the beginning of period
|
6,693 | 162 | 22,978 | 29,833 | ||||||||||||||||||
|
Cash at the end of period
|
$8,860 | $756 | $22,618 | $– | $32,234 | |||||||||||||||||
Condensed
Consolidating Statement of Cash Flows for the year
ended December 31, 2007
ended December 31, 2007
|
Parent
|
Non
|
Adjustments/
|
||||||||||||||||||||
| In thousands | Company | Guarantors | Guarantors | Eliminations | Consolidated | |||||||||||||||||
|
Net cash provided (used) by
|
||||||||||||||||||||||
|
Operating activities
|
$92,366 | $(40,334 | ) | $48,300 | $– | $100,332 | ||||||||||||||||
|
Investing activities
|
||||||||||||||||||||||
|
Purchase of plant, equipment and timberlands
|
(16,334 | ) | (1,091 | ) | (11,535 | ) | – | (28,960 | ) | |||||||||||||
|
Proceeds from disposal plant, equipment and timberlands
|
199 | 41,041 | 376 | – | 41,616 | |||||||||||||||||
|
Acquisitions, net of cash acquired
|
– | – | (7,923 | ) | – | (7,923 | ) | |||||||||||||||
|
Total investing activities
|
(16,135 | ) | 39,950 | (19,082 | ) | – | 4,733 | |||||||||||||||
|
Financing activities
|
||||||||||||||||||||||
|
Net (repayments of) proceeds from indebtedness
|
(71,570 | ) | – | (19,002 | ) | – | (90,572 | ) | ||||||||||||||
|
Payment of dividends
|
(16,350 | ) | – | – | – | (16,350 | ) | |||||||||||||||
|
Proceeds from stock options exercised and other
|
7,551 | – | – | – | 7,551 | |||||||||||||||||
|
Total financing activities
|
(80,369 | ) | – | (19,002 | ) | – | (99,371 | ) | ||||||||||||||
|
Effect of exchange rate on cash
|
604 | – | 1,550 | – | 2,154 | |||||||||||||||||
|
Net increase (decrease) in cash
|
(3,534 | ) | (384 | ) | 11,766 | – | 7,848 | |||||||||||||||
|
Cash at the beginning of period
|
10,227 | 546 | 11,212 | – | 21,985 | |||||||||||||||||
|
Cash at the end of period
|
$6,693 | $162 | $22,978 | – | $29,833 | |||||||||||||||||
Glatfelter 2009 Annual
Report 55
Table of Contents
| 24. | SUBSEQUENT EVENTS |
On February 5, 2010, we and certain of our subsidiaries
(the “Guarantors”) issued and sold $100 million
in aggregate principal amount of
7
1
/
8
% Senior
Notes due 2016 (the “Notes”). The Notes were issued at
95.0% of the principal amount. We used the net proceeds from the
sale, along with borrowings under our revolving credit facility
and cash on hand, to fund the acquisition of Concert Industries
Corp. (“Concert”).
The Notes and the guarantees thereof (the
“Guarantees”) were issued pursuant to an indenture
dated as of February 5, 2010 (the “Indenture”)
among us, the Guarantors and HSBC Bank USA, National
Association, as trustee (the “Trustee”). The Indenture
contains covenants that, among other things, limits the ability
of us and the Guarantors to incur debt, make restricted
payments, create certain liens, sell assets, enter into certain
sale and leaseback transactions, and consolidate, merge or
transfer all or substantially all of our assets and the assets
of our subsidiaries on a consolidated basis. The Indenture
provides for customary events of default.
We will pay interest on the Notes on May 1 and November 1 of
each year, beginning on May 1, 2010. The Notes will mature
on May 1, 2016. The Notes are senior unsecured obligations
and will rank equally with our other and future senior unsecured
obligations. The Notes are guaranteed, jointly and severally, on
a senior unsecured basis, by certain of our current and future
domestic subsidiaries.
We may redeem some or all of the notes at any time and from time
to time on or after May 1, 2011 at the applicable
redemption price plus accrued and unpaid interest to the date of
redemption. We have the option to redeem the Notes in whole, but
not in part, prior to May 1, 2011 at a redemption price
equal to 100% of the principal amount plus accrued and unpaid
interest and a make-whole premium.
On February 12, 2010, we completed the acquisition
(Concert) of all of the issued and outstanding shares of Concert
from Brookfield Special Situations Management Limited (f/k/a
Tricap Management Limited) (” Vendor”) pursuant to a
share purchase agreement entered into among us and Vendor on
January 4, 2010, as amended on February 12, 2010. The
purchase price paid was approximately $234.4 million based
on the currency exchange rates on the closing date, subject to a
post-closing working capital adjustment. Concert is a leading
global supplier of highly absorbent cellulose-based airlaid
non-woven materials, used to manufacture a diverse range of
consumer and industrial products for growing global end-use
markets, including feminine hygiene and adult incontinence
products, specialty wipes and food pads. In 2009, Concert’s
revenues were approximately $203.0 million.
| 25. | QUARTERLY RESULTS (UNAUDITED) |
|
Diluted
|
||||||||||||||||||||||||||||||||||||||
|
Earnings
|
||||||||||||||||||||||||||||||||||||||
| Net sales | Gross Profit | Net Income (loss) | Per Share | |||||||||||||||||||||||||||||||||||
|
In thousands,
|
||||||||||||||||||||||||||||||||||||||
| except per share | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | ||||||||||||||||||||||||||||||
|
First
|
$ | 291,552 | $ | 305,499 | $ | 43,314 | $ | 44,258 | $ | 11,538 | $19,675 | $ | 0.25 | $ | 0.43 | |||||||||||||||||||||||
|
Second
|
278,979 | 320,224 | 59,001 | 32,398 | 19,870 | 3,156 | 0.43 | 0.07 | ||||||||||||||||||||||||||||||
|
Third
|
312,358 | 339,822 | 82,465 | 57,172 | 45,994 | 21,662 | 1.00 | 0.47 | ||||||||||||||||||||||||||||||
|
Fourth
|
301,121 | 298,305 | 84,984 | 43,954 | 46,040 | 13,395 | 1.00 | 0.29 | ||||||||||||||||||||||||||||||
The information set forth above includes the following, on an
after-tax basis:
|
Gains (losses) on Sales of Plant,
|
|||||||||||||||||||||||||||||
| Alternative Fuel Mixture Credits | Equipment and Timberlands | Acquisition Integration Costs | |||||||||||||||||||||||||||
| In thousands | 2009 | 2008 | 2009 | 2008 | 2009 | 2008 | |||||||||||||||||||||||
|
First
|
$ | – | $ | – | $ | 378 | $ | 8,662 | $ | – | $(411 | ) | |||||||||||||||||
|
Second
|
30,418 | – | (441 | ) | – | – | (177 | ) | |||||||||||||||||||||
|
Third
|
32,890 | – | (5 | ) | 2,371 | – | (240 | ) | |||||||||||||||||||||
|
Fourth
|
32,456 | – | 65 | (9 | ) | (1,768 | ) | (61 | ) | ||||||||||||||||||||
56
Table of Contents
| ITEM 9 | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES |
None.
| ITEM 9A | CONTROLS AND PROCEDURES |
Disclosure
Controls and Procedures
Our chief executive officer and our chief financial officer,
after evaluating the effectiveness of our disclosure controls
and procedures (as defined in Exchange Act
Rules 13a-15(e)
and
15d-15(e)),
as of December 31, 2009, have concluded that, as of the
evaluation date, our disclosure controls and procedures were
effective.
Internal Control
Over Financial Reporting
Management’s report on the Company’s internal control
over financial reporting (as defined in Exchange Act
Rules 13a-15(f)
and
15d-15(f))
and the related report of our independent registered public
accounting firm are included in Item 8 –
Financial Statements and Supplementary Data.
Changes in
Internal Control over Financial Reporting
There were no changes in our internal control over financial
reporting during the three months ended December 31, 2009,
that have materially affected or are reasonably likely to
materially affect our internal control over financial reporting.
In the course of completing our evaluation of internal control
over financial reporting we implemented certain changes and
enhancements to our controls.
| ITEM 9B | OTHER INFORMATION |
None.
| ITEM 10 | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
Directors
The information with respect
to directors required under this Item is incorporated herein by
reference to our Proxy Statement, to be dated on or about
March 29, 2010. Our board of directors has determined that,
based on the relevant experience of the members of the Audit
Committee, all members are
audit committee financial experts
as this term is set forth in the applicable regulations of
the SEC.
Executive Officers of the
Registrant
The information with respect to
the executive officers required under this Item incorporated
herein by reference to “Executive Officers” as set
forth in Part I, page 12 of this report.
We have adopted a Code of Business Ethics for the CEO and Senior
Financial Officers in compliance with applicable rules of the
Securities and Exchange Commission that applies to our chief
executive officer, chief financial officer and our principal
accounting officer or controller, or persons performing similar
functions. A copy of the Code of Ethical Business Conduct is
filed as an exhibit to this Annual Report on
Form 10-K
and is available on our website, free of charge, at
www.glatfelter.com.
| ITEM 11 | EXECUTIVE COMPENSATION |
The information required under this Item is incorporated herein
by reference to our Proxy Statement, to be dated on or about
March 29, 2010.
| ITEM 12 | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT |
The information required under this Item is incorporated herein
by reference to our Proxy Statement, to be dated on or about
March 29, 2010.
| ITEM 13 | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information required under this Item is incorporated herein
by reference to our Proxy Statement, to be dated on or about
March 29, 2010.
| ITEM 14 | PRINCIPAL ACCOUNTING FEES AND SERVICES |
The information required under this Item is incorporated herein
by reference to our Proxy Statement, to be dated on or about
March 29, 2010.
Our Chief Executive Officer has certified to the New York Stock
Exchange that he is not aware of any violations by the Company
of the NYSE corporate governance listing standards.
Glatfelter 2009 Annual
Report 57
Table of Contents
| ITEM 15 | EXHIBITS, FINANCIAL STATEMENT SCHEDULES |
|
(a)
|
1. | Our Consolidated Financial Statements as follows are included in Part II, Item 8: | ||||||
| i. | Consolidated Statements of Income for the Years Ended December 31, 2009, 2008 and 2007 | |||||||
| ii. | Consolidated Balance Sheets as of December 31, 2009 and 2008 | |||||||
| iii. | Consolidated Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and 2007 | |||||||
| iv. | Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2009, 2008 and 2007 | |||||||
| v. | Notes to Consolidated Financial Statements for the Years Ended December 31, 2009, 2008 and 2007 | |||||||
| 2. | Financial Statement Schedules (Consolidated) are included in Part IV: | |||||||
| i. | Schedule II – Valuation and Qualifying Accounts – For Each of the Three Years in the Period Ended December 31, 2009 |
| (b) | Exhibit Index |
| Exhibit Number | Description of Documents | Incorporated by Reference to | ||||||||||
| Exhibit | Filing | |||||||||||
| 2 | (a) |
Share Purchase Agreement, dated January 4, 2010, among
Brookfield Special Situations Management Limited, P. H.
Glatfelter Company and Glatfelter Canada, Inc., (the schedules
have been omitted pursuant to Item 601(b)(2) of Regulation S-K
and will be provided to the Securities and Exchange Commission
upon request) filed herewith.
|
||||||||||
| (b) |
Amendment to the Share Purchase Agreement, dated February 12,
2010, filed herewith.
|
|||||||||||
| (c) |
Asset Purchase Agreement, dated February 21, 2006, among NewPage
Corporation, Chillicothe Paper Inc. and P. H. Glatfelter Company
|
2.1 |
February 21, 2006
Form 8-K |
|||||||||
| (d) |
Agreement for Sale of Assets (Lydney), dated March 8, 2006, by
and among J R Crompton Limited, Nicholas James Dargan and
Willian Kenneth Dawson, as administrators and Glatfelter-UK
Limited and the Company
|
10 |
March 31, 2006
Form 10-Q |
|||||||||
| (e) |
Agreement, dated as of November 30, 2007, between Metallised
Products Limited (“MPL”) and Glatfelter Lydney
Limited, a wholly-owned indirect subsidiary of P. H. Glatfelter
Company to acquire MPL, (the schedules have been omitted
pursuant to Item 601(b)(2) of Regulation S-K and will be
provided to the Securities and Exchange Commission upon request)
filed herewith.
|
2(c) | 2007 Form 10-K | |||||||||
| 3 | (a) |
Articles of Incorporation, as amended through December 20, 2007
(restated for the purpose of filing on EDGAR)
|
3(b) | 2007 Form 10-K | ||||||||
| (b) |
By-Laws as amended through February 18, 2009
|
3.1 |
June 30, 2009
Form 10-Q |
|||||||||
| 4 | (a) |
Indenture, dated as of February 5, 2010 by and between the
Company and HSBC Bank USA, National Association, as trustee
relating to
7
1
/
8
Notes due 2016.
|
4.1 |
February 5, 2010
Form 8-K |
||||||||
| (b) |
Indenture, dated as of April 28, 2006, by and between the
Company and SunTrust Bank, as trustee relating to
7
1
/
8
Notes due 2016
|
4.1 |
May 3, 2006
Form 8-K |
|||||||||
| (c) |
First Supplemental Indenture, dated as of September 22, 2006,
among Glatfelter Holdings, LLC, Glatfelter Holdings II, LLC, the
Existing Subsidiary Guarantors named therein and SunTrust Bank
relating to
7
1
/
8
Notes due 2016
|
4.3 |
September 22, 2006
Form S-4/A |
|||||||||
| 10 | (a) |
P. H. Glatfelter Company Management Incentive Plan, effective
January 1, 1982, as amended and restated effective January 1,
1994**
|
10(a) | 2000 Form 10-K** | ||||||||
| (b) |
P. H. Glatfelter Company 2005 Management Incentive Plan, adopted
as of April 27, 2006**
|
10.4 |
April 27, 2006
Form 8-K |
|||||||||
| (c) |
P. H. Glatfelter Company Supplemental Executive Retirement Plan,
as amended and restated effective April 23, 1998 and further
amended December 20, 2000**
|
10(c) | 2000 Form 10-K** | |||||||||
| (d) |
Description of Executive Salary Continuation Plan**
|
10(g) | 1990 Form 10-K** | |||||||||
| (e) |
P. H. Glatfelter Company Supplemental Management Pension Plan,
effective as of April 23, 1998**
|
10(f) | 1998 Form 10-K** | |||||||||
| (f) |
P. H. Glatfelter Company 1992 Key Employee Long-Term Incentive
Plan, as amended December 20, 2000**
|
10(g) | 2000 Form 10-K** | |||||||||
| (g) |
P. H. Glatfelter Company 2005 Long-Term Incentive Plan, adopted
as of April 27, 2006**
|
10.1 |
April 27, 2006
Form 8-K |
|||||||||
| (g) | (A) |
Form of Top Management Restricted Stock Unit Award Certificate.**
|
10.2 |
April 27, 2006
Form 8-K |
||||||||
| (g) | (B) |
Form of Non-Employee Director Restricted Stock Unit Award
Certificate**
|
10.3 |
April 27, 2006
Form 8-K |
||||||||
| (h) |
P. H. Glatfelter Company Deferred Compensation Plan for
Directors, effective as of April 22, 1998**
|
10(h) | 1998 Form 10-K** | |||||||||
| (i) |
Change in Control Employment Agreement by and between P. H.
Glatfelter Company and George H. Glatfelter II, dated as of
December 8, 2008**
|
10(i) | 2008 Form 10-K** | |||||||||
58
Table of Contents
| Exhibit Number | Description of Documents | Incorporated by Reference to | ||||||||||
| Exhibit | Filing | |||||||||||
| (j) |
Form of Change in Control Employment Agreement by and between P.
H. Glatfelter Company and certain employees, dated as of
December 8, 2008**
|
10(j) | 2008 Form 10-K** | |||||||||
| (j) | (A) |
Schedule of Change in Control Employment Agreements, filed
herewith**
|
||||||||||
| (k) |
Agreement between the State of Wisconsin and Certain Companies
Concerning the Fox River, dated as of January 31, 1997, among P.
H. Glatfelter Company, Fort Howard Corporation, NCR
Corporation, Appleton Papers Inc., Riverside Paper Corporation,
U.S. Paper Mills, Wisconsin Tissue Mills Inc. and the State of
Wisconsin
|
10(i) | 1996 Form 10-K | |||||||||
| (l) |
Credit Agreement, dated as of April 3, 2006, by and among the
Company, certain of the Company’s subsidiaries as
guarantors, the banks party thereto, PNC Bank, National
Association, as agent for the banks under the Credit Agreement,
PNC Capital Markets LLC and Credit Suisse Securities (USA) LLC,
as joint arrangers and bookrunners, and Credit Suisse Securities
(USA) LLC, as syndication agent
|
10.1 |
April 7, 2006
Form 8-K |
|||||||||
| (l) | (A) |
First Amendment to Credit Agreement among the Company, certain
of the Company’s subsidiaries, certain lenders party
thereto and PNC Bank, National Association, in its capacity as
agent for such lenders, dated April 25, 2006
|
10.1 |
June 30, 2007
Form 10-Q |
||||||||
| (l) | (B) |
Second Amendment to Credit Agreement among the Company, certain
of the Company’s subsidiaries, certain lenders party
thereto and PNC Bank, National Association, in its capacity as
agent for such lenders, dated December 22, 2006
|
10.2 |
June 30, 2007
Form 10-Q |
||||||||
| (l) | (C) |
Third Amendment to Credit Agreement among the Company, certain
of the Company’s subsidiaries, certain lenders party
thereto and PNC Bank, National Association, in its capacity as
agent for such lenders, dated June 8, 2007*
|
10.3 |
June 30, 2007
Form 10-Q |
||||||||
| (m) |
Contract for the Purchase and Bargain Sale of Property, dated as
of December 16, 2002, by and among Glatfelter Pulp Wood Company
(a wholly owned subsidiary of the Registrant), the Conservation
Fund and Fidelity National Title Insurance Company
|
10(o) | 2002 Form 10-K | |||||||||
| (n) |
Consent Decree for Remedial Design and Remedial Action at
Operable Unit 1 of the Lower Fox River and Green Bay site by and
among the United States of America and the State of
Wisconsin v. P. H. Glatfelter Company and WTMI Company
(f/k/a Wisconsin Tissue Mills, Inc.)
|
10.2 |
October 1, 2003
Form 8-K/A – No. 1 |
|||||||||
| (n) | (A) |
Agreed Supplement to Consent Decree between United States of
America and the State of Wisconsin vs. P.H. Glatfelter Company
and WTM I Company (f/k/a Wisconsin Tissue Mills Inc.)
|
10(o) | 2007 Form 10-K | ||||||||
| (n) | (B) |
Second Agreed Supplement to Consent Decree between United States
of America and the State of Wisconsin vs. P.H. Glatfelter
Company and WTM I Company (f/k/a Wisconsin Tissue Mills Inc.)
|
10.1 |
Nov 15, 2008
Form 8-K |
||||||||
| (o) |
Administrative Order for Remedial Action dated November 13,
2008; issued by the United States Environmental Protection Agency
|
10.2 |
Nov 15, 2008
Form 8-K |
|||||||||
| (p) |
Amended Consent Decree for Remedial Design and Remedial Action
at Operable Unit 1 of the Lower Fox River and Green Bay Site by
and among the United States of America and the State of
Wisconsin v. P. H. Glatfelter and WTM I Company (f/k/a
Wisconsin Tissue Mills Inc.), certain Appendices have been
intentionally omitted, copies of which can be obtained free of
charge from the Registrant)
|
10.1 |
June 30, 2008
Form 8-K |
|||||||||
| (q) |
Compensatory Arrangements with Certain Executive Officers, filed
herewith**
|
|||||||||||
| (r) |
Summary of Non-Employee Director Compensation (effective January
1, 2007), filed herewith**
|
|||||||||||
| (s) |
Service Agreement, commencing on August 1, 2007, between the
Registrant (through a wholly owned subsidiary) and Martin Rapp**
|
10(r) | 2006 Form 10-K | |||||||||
| (t) |
Retirement Pension Contract, dated October 31, 2008, between
Registrant (through a wholly owned subsidiary) and Martin Rapp**
|
10(t) | 2007 Form 10-K | |||||||||
| (u) |
Form of Stock-Only Stock Appreciation Right Award Certificate**
|
10(s) | 2006 Form 10-K | |||||||||
| (v) |
Form of 2007 Top Management Restricted Stock Unit Award
Certificate**
|
10(t) | 2006 Form 10-K | |||||||||
| (w) |
Separation Agreement and General Release entered into between
Jeffrey J. Norton and P. H. Glatfelter Company dated as of
October 25, 2008
|
10.1 |
Sept. 30, 2008
Form 10-Q |
|||||||||
| (x) |
Timberland Purchase & Sale
Agreement – Virginia Timberlands, entered into by
and among Glawson Investments Corp., GIC Investments LLC and
Glatfelter Pulp Wood Company, dated and effective as of August
8, 2007
|
10.1 |
Sept. 30, 2007
Form 10-Q |
|||||||||
| (y) |
Term Loan Agreement dated January 15, 2008, among GPW Virginia
Timberlands LLC, certain lenders party thereto and SunTrust
Bank, in its capacity as agent for such lenders
|
10(x) | 2007 Form 10-K | |||||||||
| (z) |
Contract for Sale for Sale of Real Estate between Glatfelter
Pulp Wood Company, a wholly owned subsidiary of the Company, and
George H. Glatfelter II and Beverly G. Glatfelter, dated
May 8, 2008
|
10.2 |
June 30, 2008
Form 10Q |
|||||||||
| 14 |
Code of Business Ethics for the CEO and Senior Financial
Officers of Glatfelter
|
14 | 2003 Form 10-K | |||||||||
| 21 |
Subsidiaries of the Registrant, filed herewith
|
|||||||||||
| 23 |
Consent of Independent Registered Public Accounting Firm, filed
herewith.
|
|||||||||||
| 31 | .1 |
Certification of George H. Glatfelter II, Chairman and Chief
Executive Officer of Glatfelter, pursuant to Section 302 (a) of
the Sarbanes-Oxley Act Of 2002, filed herewith
|
||||||||||
Glatfelter 2009 Annual
Report 59
Table of Contents
| Exhibit Number | Description of Documents | Incorporated by Reference to | ||||||||||
| Exhibit | Filing | |||||||||||
| 31 | .2 |
Certification of John P. Jacunski, Senior Vice President and
Chief Financial Officer of Glatfelter, pursuant to Section 302
(a) of the Sarbanes-Oxley Act Of 2002, filed herewith
|
||||||||||
| 32 | .1 |
Certification of George H. Glatfelter II, Chairman and Chief
Executive Officer of Glatfelter, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, filed
herewith
|
||||||||||
| 32 | .2 |
Certification of John P. Jacunski, Senior Vice President and
Chief Financial Officer of Glatfelter, pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350,
filed herewith
|
||||||||||
| * | Portions of this exhibit have been omitted pursuant to a request for confidential treatment and have been filed separately with the Securities and Exchange Commission. | |
| ** | Management contract or compensatory plan |
60
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
P. H. GLATFELTER COMPANY
(Registrant)
March 16, 2010
| By |
/s/ George
H. Glatfelter II
|
George H. Glatfelter II
Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant in the capacities and on the dates
indicated:
| Date | Signature | Capacity | ||
|
March 16, 2010
|
/s/ George
H. Glatfelter II
Chairman and Chief Executive Officer |
Principal Executive Officer and Director | ||
|
March 16, 2010
|
/s/ John
P. Jacunski
Senior Vice President and Chief Financial Officer |
Principal Financial Officer | ||
|
March 16, 2010
|
/s/ David
C. Elder
Vice President and Corporate Controller |
Controller and Chief Accounting Officer | ||
|
March 16, 2010
|
/s/ Kathleen
A. Dahlberg
|
Director | ||
|
March 16, 2010
|
/s/ Nicholas
DeBenedictis
|
Director | ||
|
March 16, 2010
|
/s/ Richard
C. Ill
|
Director | ||
|
March 16, 2010
|
/s/ J.
Robert Hall
|
Director | ||
|
March 16, 2010
|
/s/ Ronald
J. Naples
|
Director | ||
|
March 16, 2010
|
/s/ Richard
L. Smoot
|
Director | ||
|
March 16, 2010
|
/s/ Lee
C. Stewart
|
Director | ||
Glatfelter 2009 Annual
Report 61
Table of Contents
Schedule II
P. H.
GLATFELTER COMPANY AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE
SUPPLEMENTAL FINANCIAL STATEMENT SCHEDULE
For each of the
three years ended December 31, 2009
Valuation and Qualifying Accounts
Valuation and Qualifying Accounts
| Allowance for | ||||||||||||||||||||||||||||
| In thousands | Doubtful Accounts | Sales Discounts and Deductions | ||||||||||||||||||||||||||
| 2009 | 2008 | 2007 | 2009 | 2008 | 2007 | |||||||||||||||||||||||
|
Balance, beginning of year
|
$2,633 | $3,117 | $3,613 | $3,369 | $4,345 | $2,585 | ||||||||||||||||||||||
|
Provision
|
506 | (36 | ) | 781 | 3,575 | 6,620 | 6,723 | |||||||||||||||||||||
|
Write-offs, recoveries and discounts allowed
|
(306 | ) | (296 | ) | (1,319 | ) | (4,197 | ) | (6,045 | ) | (5,195 | ) | ||||||||||||||||
|
Other
(a)
|
55 | (152 | ) | 42 | 42 | (1,551 | ) | 232 | ||||||||||||||||||||
|
Balance, end of year
|
$2,888 | $2,633 | $3,117 | $2,789 | $3,369 | $4,345 | ||||||||||||||||||||||
The provision for doubtful accounts is included in selling,
general and administrative expense and the provision for sales
discounts and deductions is deducted from sales. The related
allowances are deducted from accounts receivable.
| (a) | Relates primarily to changes in currency exchange rates and, in 2008, a change in presentation of certain customer rebates. |
64
TABLE OF CONTENTS
Part IItem 1 BusinessItem 1A Risk FactorsItem 1B Unresolved Staff CommentsItem 2 PropertiesItem 3 Legal ProceedingsItem 4 [reserved]Part IIItem 5 Market For Registrant S Common Equity, Related Stockholder Matters and Issuer Purchases Of Equity SecuritiesItem 6 Selected Financial DataItem 7 Management S Discussion and Analysis Of Financial Condition and Results Of OperationsItem 7A Quantitative and Qualitative Disclosures About Market RiskItem 8 Financial Statements and Supplementary DataItem 9 Changes in and Disagreements with Accountants on Accounting and Financial DisclosuresItem 9A Controls and ProceduresItem 9B Other InformationPart IIIItem 10 Directors, Executive Officers and Corporate GovernanceItem 11 Executive CompensationItem 12 Security Ownership Of Certain Beneficial Owners and ManagementItem 13 Certain Relationships and Related Transactions, and Director IndependenceItem 14 Principal Accounting Fees and ServicesPart IVItem 15 Exhibits, Financial Statement Schedules